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Outsourcing still a gamble that needs strategic vision to succeed, says study

By Natalie Morrison , 24-Jan-2012
Last updated on 24-Jan-2012 at 11:45 GMT2012-01-24T11:45:55Z

Outsourcing still a gamble that needs strategic vision to succeed, says study

Outsourcing is a gamble for the industry that needs a closer collaborative approach if pharma firms want a successful performance, according to new research.

The study – conducted by Economist Intelligence Unit on behalf of Agilent Technologies – argues that companies are increasingly “betting” on contract research organisations (CROs) merely as a cost-saving measure.

But, according to author Paul Kielstra, pharmas and biotechs using CROs to cut costs without integrating the outsourced capabilities are not getting the most out of a potentially efficient model.

He said firms must begin to treat aligned organisations as “valuable partners” if they want the outsourcing model to be productive.

“Within the last decade, outsourcing to CROs has grown to such an extent that it now encompasses over 40 per cent of the entire sector’s discovery and development (D&D),” said Kielstra.

“In making this change, however, biotechnology and pharmaceutical companies are betting on a model that is not only unproven, but is still being defined.”

He added that “strategic vision” is needed to define how sponsors work with their service provider, a belief held by many of the 251 senior life sciences execs and experts he quizzed for the study.

Ajit Nair, president of global operations at Indian-based SIRO Clinpharm, said Big pharmas will aim for preferred longer-term partnerships, and mid-sized to small companies will look for cost-effective partners who provide individualised attention.

Similarly Tycho Peterson, industry analyst at JP Morgan predicts a “bifurcated market” with global CROs making wide-ranging partnerships will be at one end of the spectrum, and niche providers at the other. “Those in the middle will have difficulty,” he added.

Richard Connell, head of external research solutions at Pfizer, summed up another general theme, suggesting that drugmakers need to consider internal restructuring to fit around the outsourced activities.

“When you outsource an activity that is central to the value stream, if you don’t restructure the overall workflow, you get legacy activities that add nothing but cost to the overall process,” he said.

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