Pharmaceutical, Biotechnology, Outsourcing, R&D

Pharmaceutical and biotechnology companies adopt outsourcing practices to combat rising costs

01 Dec 2005 | (News)

Lengthy drug discovery times and the soaring costs of drug development – currently estimated at approximately US$800 million – are putting pharmaceutical and biotechnology firms under immense pressure. Intensifying the financial strain are increasingly complex clinical trial requirements and high drug failure rates with only 15 per cent of new drugs entering development expected to reach the market. To control rising costs and generate new breakthroughs therefore, companies are looking to outsource their drug discovery processes.

“Outsourcing may be one strategy to adopt, which allows companies to control and utilize their R&D expenditure more effectively,” says Dr. Amarpreet Dhiman, Research Analyst at Frost & Sullivan (http://healthcare.frost.com). “Also, despite cost efficiency being a contributing factor to encourage outsourcing, the impact of genomics and proteomics in therapeutics has also resulted in an increasing awareness of the benefits of outsourcing.”

As a result, pharma companies are increasingly eager to form alliances with biotechnology firms, university research centres, contract research organisations (CROs), specialised niche vendors and general service providers. Such partnerships are facilitating the drug discovery process. For instance, CROs provide expert geographic coverage enabling companies to allow clinicians of different locations to simultaneously view and discuss data, resulting in improved testing and turn-around times, and ultimately enhanced data quality.

“Outsourcing can complement the in-house level of expertise and experience, giving access to technological innovations, thus leading to reduced complexities within R&D, providing rapid access to greater R&D resources, therapeutic expertise, and bring about alignment with diagnostic testing for safer and more effective therapies,” remarks Dr. Dhiman. “This represents an important driver in addition to improvements in efficiency, cost and speed by removing conventional habits and processes.”

Consequently, the scope of outsourcing has expanded with the trend to outsource processes such as finance/accounting, clinical trial data management, drug manufacturing, logistics and human resources and parts of IT gaining momentum. Accordingly, the European drug discovery outsourcing market is forecast to expand from $3.2 billion in 2004 to 5.1 billion by 2011.

Companies who outsource their operations should, however, ensure that they retain control over their business processes and proprietary knowledge. “At the same time, companies must become more comfortable about sharing some control over non-core processes, with the risk of errors and delays, with their ability to safeguard proprietary knowledge, and with the impact of outsourcing on regulatory compliance,” says Dr. Dhiman. “It is important that the various risks are identified, understood and measured, so that companies can successfully pool their disciplines to their development partners.”

Hence, firms are likely to select outsourcing partners with an established track record, which possess capabilities to meet varied scientific and operational requirements. Also, companies seeking to combat high costs can benefit greatly by selecting an outsourcing partner from lower-wage countries such as India and China.

By 2010, more than 40 per cent of R&D is projected to be outsourced to more specialised firms in order to efficiently maintain a strong and vital pipeline for new blockbuster drugs. As the European drug discovery outsourcing market expands, firms which are able to reach out to focussed, research-orientated speciality companies that complement their traditional processes, are poised to emerge as leaders.

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