Collaborating with external partners and gathering expertise from external sources (including software outsourcing) is a well-established practice in the pharmaceutical industry. One-third of the drugs developed by the top ten pharmaceutical companies were initially developed elsewhere, according to the Wall Street Journal. With that said, the use of outsourcing in the pharmaceutical industry is dramatically increasing, largely due to growing market pressures.
According to a Nice Insight survey, spending on outsourced services in the pharmaceutical industry is expected to rise significantly over the next five years. The percentage of pharmaceutical and biotechnology companies that spent over US$50 million annually on outsourcing recently more than tripled. This number increased from 23% between 2012-2014 to 71% in 2016.
This is good news, given that another study by the IMS Institute warned the 17 largest pharmaceutical companies that they would need to reduce their annual operating costs by US$36 billion from 2012 levels if they wish to maintain their current pace of research and development activity and operational margins.
Pharmaceutical companies are recognizing the risks they face if they do not accelerate their outsourcing activities and adapt their operations to the rapidly-changing market demands.
Here is an overview of why outsourcing is so beneficial in the pharmaceutical market and why so many more pharmaceutical companies are choosing to outsource to address today’s challenges.
Why Pharmaceutical Companies Outsource
The pharmaceutical industry faces ever-changing regulations on testing and clinical trials. The industry also faces a continual public backlash from customers and policymakers over the rising costs of drugs. As a result, pharmaceutical companies must accelerate the drug development process. They also must maintain high levels of safety and control in their processes.
Pharmaceutical companies are outsourcing a growing number of their services and operations to meet these market demands, from research to software outsourcing. As with most industries, a primary benefit of outsourcing is the reduction of overall operational costs. However, studies indicate that the top motivation for outsourcing in the pharmaceutical industry is to improve quality (54%), followed by better time-to-market (49%), and finally, decreased costs (45%).
This trend shows that quality, and not just price, is important to pharmaceutical companies when it comes to outsourcing. Outsourcing allows pharmaceutical companies to conduct their drug research and manufacturing processes more efficiently. This then frees up more time to spend on sales and marketing efforts. Here is a look at the benefits of outsourcing for pharmaceutical companies.
The pharmaceutical industry is rapidly changing due to the increasing role of data. As a result, many companies in the pharmaceutical industry are struggling. Companies must keep up with the digital transformation and maintain agile operations.
Pharmaceutical companies are now using a more flexible approach. Businesses partner with outsourcing firms to blend internal and external resources and get their products to market faster.
Diminishing profit margins continues to be a top challenge for pharmaceutical companies. Maintaining sophisticated in-house infrastructures and research teams with a wide range of expertise is expensive. According to the Tufts Center for the Study of Drug Development, it can cost US$2.7 billion to bring a new drug from invention to pharmacy shelves.
To bring down costs, pharmaceutical companies use outsourcing. This can be a cheaper and more efficient way to accelerate each step in this process and increase their rates of success. Pharmaceutical companies can avoid costs associated with building all of the necessary infrastructure in-house or hiring all of the required research staff to bring a new drug to market.
Access to innovative technology
The recent completion of the Human Genome Project resulted in the identification of more than 120,000 genes and approximately 10,000 new drug targets. Before genomics, experts only identified 500 gene-based drug targets. There is a growing demand for companies that can turn this information into new drugs. However, it’s rare that pharmaceutical companies possess all of the required expertise and technology in-house to embrace the technology’s potential fully.
Outsourcing R&D activities to specialized academic centers or contract research organizations (CROs) is a smart strategy for pharmaceutical companies to work with the latest technologies required for success.
The strict regulatory environment is another key reason for pharmaceutical outsourcing. Any errors in the drug development or approval process can have serious consequences for both drug companies and end consumers.
In pharmaceuticals, there is an enormous amount of data and increasingly complex requirements in the drug approval process. Therefore, more companies opt to partner with CROs who have significant experience in assembling documentation that meets regulatory requirements.
Who Handles Pharmaceutical Outsourcing
Pharmaceutical companies use outsourcing to meet their drug development goals. They primarily collaborate with the following types of outsourcing partners.
Contract research organizations (CROs): CROs provide specific services, such as clinical trials, for the pharmaceutical, biotechnology, and medical device industries. They also provide support services for government and academic institutions. Some CROs manage the entire clinical trial process, from site selection and patient enrollment to final regulatory approval from the Food and Drug Administration.
Contract development and manufacturing organizations (CDMOs): CDMOs provide services for late-stage drug development. This can include preclinical and Phase I clinical trial materials, late-stage clinical trial materials, formal stability, scale-up, and commercial production. The benefits of working with a CDMO include regulatory compliance, production capabilities, and on-time delivery.
Contract sales organizations (CSOs): CSOs are a form of staff augmentation for the sales and marketing divisions of pharmaceutical companies. Benefits include additional sales coverage customized to territorial or market segment needs, the ability to reach physicians a company would otherwise not be able to contact, and more.
Partnerships between pharmaceutical companies and CROs and CDMOs increased greatly over the past decade. The reason is primarily due to increased federal regulations on new drug safety and effectiveness. However, companies are also using outsourcing to remain agile and competitive as pharmaceutical knowledge and technology continue to grow exponentially.
Today, many pharmaceutical outsourcing partners are evolving to provide additional IT support for activities that involve innovative technology. For example, gene and protein identification, analytical chemistry, high-throughput screenings, data mining, and much more. Today’s outsourcing partners can cover a broad spectrum of activities, from basic research to later-stage drug development and production.
What the Pharmaceutical Industry Outsources
When it comes to outsourcing, pharmaceutical companies do not use an all-or-nothing approach. A mixed approach, which may include outsourcing some activities while keeping the rest in-house, is common.
Back-Office Operations & IT
To bring a new drug to market effectively, back-office support must be in place to organize and administer key processes. However, for pharmaceutical companies marketing an extensive portfolio of drug brands, back-office support teams and resources may be stretched thin.
Many pharmaceutical companies supplement their existing capabilities by partnering with outsourced providers who can provide scalable and efficient back-office support. For instance, growing pharmaceutical companies may need additional business intelligence tools and analytics, as well as reporting and data management to achieve repeatable market success. Outsourcing these activities to BairesDev can alleviate the stress of building in-house teams too quickly and help avoid poor hiring decisions.
Research and Development
Until recently, pharmaceutical companies preferred to keep initial R&D activities in-house, outsourcing only a limited number of their activities, such as clinical trials. However, the pharmaceutical industry is facing swelling pressure to bring new drugs to market. Investors expect pharmaceutical companies to introduce multiple new products per year, despite lengthy and complicated drug approval processes. Moreover, a greater number of potential targets available from genomics information is driving the demand for faster drug development activity.
As a result, outsourcing is becoming increasingly attractive for even the earliest stages of the drug development process. Companies typically outsource research and development activities to CROs, who can carry out clinical trials in controlled environments. Outsourcing helps pharmaceutical companies decrease their overall R&D costs, and ultimately, increase the number of drugs that reach the market.
One of the biggest challenges in pharmaceutical development is testing. A recent report predicted that by 2020, 72% of clinical trials will be outsourced to CROs, up from 23% in 2012.
Onsite testing is possible for large pharmaceutical companies. However, the time and costs involved to carry out these tests can be a considerable burden on an organization’s resources. Increasingly complex trial procedures and documentation requirements are reasons for outsourcing. In addition, regulatory differences across markets drive outsourcing in this area. With the right partnerships in place, CROs can help pharmaceutical companies save both time and money. Additionally, they can help improve regulatory compliance and enhance the quality of trial data.
Future Trends in Pharmaceutical Outsourcing
The pharmaceutical industry is rapidly changing with technology-driven and genomic-based companies ushering in a new era of drug discovery. Existing pharmaceutical companies must adopt data-driven processes and create strategic partnerships if they are to remain competitive moving forward. Here’s a look at a few of the trends that will disrupt the field in the years to come.
Robotic process automation
Robotic process automation (RPA) is a technology used in many industries to perform high-volume, repetitive tasks. The automation of these tasks allows employees to focus their efforts on more important tasks. This process is becoming increasingly common in the pharmaceutical industry.
For instance, CROs and CDMOs can spend a lot of time collecting data, such as the effects of drugs during clinical trials and consumer feedback. With the help of RPA, researchers can automate the data collection process. This makes it easier to assess test results in real-time. RPA helps pharmaceutical companies and their partners complete recurring tasks in a fast and auditable way. Additionally, RPA helps to maintain quality data control and compliance with regulatory requirements.
More service bundling
Instead of outsourcing one service, more pharmaceutical companies will bundle their services. This helps businesses work more efficiently with outsourcing partners in the coming years. Service bundling allows companies to take an end-to-end approach to development. The result is a reduction in costs and strategic, yet repeatable, processes.
Pharmaceutical outsourcing is shifting from transactional relationships to more strategic, long-term relationships. For instance, collaborative partnerships between pharmaceutical companies and universities are helping close the gap between academic and industrial research. Likewise, partnering with public entities or those run by governments can help pharmaceutical companies gain access to emerging markets. Finally, a growing number of pharmaceutical companies are turning to offshore development companies to outsource their IT and back-office operations.
As the pharmaceutical industry continues to evolve, companies that seek new opportunities to automate the drug development process will not only save time and money but will also gain a competitive edge. Although there is no “one-size-fits-all” solution in the world of pharmaceutical outsourcing, collaborating with partners that can meet the demands of today’s technology-driven pharmaceutical market is vital for success.