Outsourcing is seen as the future of an increasingly innovation-driven R&D industry in which drug firms are having to think outside the box in order to keep spiralling costs down while producing better quality data.
It's a thankless task with further obstacles along the drug discovery cycle, which outsourcing companies think they have the tools to overcome.
Obstacles such as the rising stringency of regulatory requirements are making it more expensive and difficult to successfully develop and market products in the pharma industry.
In addition, the high level of generic competition, with an expected $80bn (€63.7m) of 2005 branded sales that will be exposed to generic competition between 2006 and 2010.
According to Datamonitor, there are additional benefits that companies can capture by further moving towards a fully integrated outsourcing model.
These models can vary but Datamonitor believe that secondary core functions such as manufacturing, clinical trials and sales can be successfully outsourced, as could non-core functions such as human resources, finance and IT.
However, the report said: "Primary core functions such as strategic planning are too critical to a company to outsource."
Outsourcing drug discovery functions can help companies overcome the increasing complexity of drug discovery, but it can also increase the level of risk that can include loss of control, confidentially of information. The study also stated that compounds generated tended to offer lower returns.
However, outsourcing represents tangible benefits such as timesavings and financial benefits as well as intangible benefits such as financial and operational flexibility, access to expertise and a focus on core competencies that are crucial for overall success for the project.
Global outsourcing is now becoming a reality within the drug discovery arena, as more and more countries move towards adopting international IP protection and developing an innovation-driven R&D industry.
China, India and the Russian Federation are emerging as the most popular new destinations, as a result of improving IP protection and a growing research-based R&D industry.
However, Datamonitor suggested that offshoring drug discovery functions to emerging markets presents additional risks compared with Western countries, as a result of variety of factors such as weaker IP protection, substantial cultural and language differences as well as weaker political and economic stability have to be factored in.
As a result, domestic or nearshoring may be a more suitable strategy for a company if they have limited experience and/or resources to monitor and manage the collaboration, restricted travel budgets, limited experience of forging and managing external alliances and if the project is of high priority.
The report recommended that companies should consider taking steps to adapt their outsourcing approach when using service providers based in emerging countries.
These include selecting trustworthy partners, which have a proven track record and a demonstrable commitment to confidentiality of proprietary information.
Additionally, involving appropriate legal counsel familiar with the IP legal system in the country where the service provider is based, from an early stage of the negotiation process with the supplier was recommended.