Report identifies increasing outsourcing by pharma

According to market researchers, Cambridge Healthtech Advisors (CHA),​ a large, unmet need exists for improved research and development as declining New Chemical Entity (NCE) introduction and increasing R&D expenses create additional challenges to delivering valuable new therapeutics.

While pharma companies have generally responded by restructuring the R&D organization, investing in technology tools and platforms, and entering into mergers and deals, an alternative and highly effective approach to the innovation deficit- outsourcing-has been gaining momentum.

The report finds outsourcing of discovery research, clinical trials and formulation manufacturing provides pharmaceutical companies with a highly effective approach to declining productivity and the pressure for consistent, high- growth financial returns.

Outsourcing allows these companies to pursue potential new revenue streams outside of their core focus areas, and to benefit from improved productivity, emerging technologies, in-license opportunities, and increased growth.

By contrast, most biotech companies have no choice but to outsource given their financial and human resource constraints and high capital expenditures for equipment and facilities. Small biotechnology companies require established, experienced partners and the improved credibility and capability they deliver.

Particular methods of outsourcing proving to be popular include ADMET, drug discovery research and custom dosage manufacturing.

Based on interviews with R&D outsourcing managers and surveys of outsourcing practices of 72 pharmaceutical and biotech companies, 54 per cent of large pharma companies (revenues with more than $3 billion (€2 billion)) will outsource at least 20 per cent of ADMET in 2003, growing to 94 per cent of companies in 2008.

The results are not unexpected considering the key drivers to outsourcing for big pharma are primarily a core focus on competency and utilization of external expertise as well as a focus to improve speed to market and improve cost productivity.

The study revealed half of the biotech companies surveyed have a centralized procurement/outsourcing department for discovery research operations resulting in risk management and performance measurement practices increasing in line with the growth in outsourcing.

Currently, major pharma companies in their approach to drug discovery and development are employing similar strategies. A distinct lack of success in developing drugs, of which have failed to live up to their initial promise, coupled with a curb on spending has forced the industry to adopt alternative approaches to maintain productivity and profitability.

Large pharmaceutical companies have maintained a core focus on research and discovery whilst continuing to outsource the expensive and painstaking clinical development process. In outsourcing R&D the opportunity cost of not applying the money to another developmental project, accounts for nearly 50 per cent (€325 million) of the total cost of drug development. As a result, a reduction of each dollar in clinical development cost results in twice that amount in total opportunity cost reduction.

CHA cites a 25 per cent reduction in phase length can trim costs by $129 million. Shifting 10 per cent of Phase III failures to Phase I reduces total cost by $98 million.