Completely outsourcing drug discovery “probably valid”; report

By Nick Taylor

- Last updated on GMT

Related tags Management

A totally outsourced model of discovery is “probably valid”, according to a report that believes pharma must overhaul its operations because its business model is in danger of becoming “irrelevant”.

The AT Kearney report believes that the industry is at three inter-related tipping points: the shift from therapies to service models; the rising importance of emerging markets; and the move towards increased specialisation in a few niches.

Facing these challenges companies need to revise their business model and this will necessitate increased levels of outsourcing, according to the report. The shift in R&D model will be particularly influenced by the waning influence of the US on pharma’s operations.

Emerging markets represent significant opportunities but drugs will be sold more cheaply in these regions. Consequently companies must “seek out low-cost, breakthrough innovations​” and these are more likely to be developed in emerging markers because of their economic pressures.

To achieve this AT Kearney​ recommends developing a regional focus, aiming to create products for local needs that can then be reapplied on a global scale. The report adds “this does not necessarily imply a totally outsourced model of discovery, although this is probably a valid configuration​”.

Streamlining the supply chain

Many pharma companies manufacturing operations are “a jumble of legacy assets and production and distribution contracts gained through acquisition​”. These inefficiencies were tolerable in the old operating environment but now need to change, according to AT Kearney​.

This is driven by the shift from focusing on the US to a more global, mass-market approach that will reduce margins and increase the importance of having cost-effective manufacturing and supply chain​operations.

To achieve this AT Kearney​ predicts that use of contract manufacturing organisations (CMO) will increase, as it has in the electronics industry where growth is 15 per cent. Managing these relationships “will become a core competence​” and a major driver of profitability.

A copy of the report can be viewed here​.

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