Future of outsourcing
Looking ahead five years from now, how do you see the model for outsourcing evolving?
We anticipate an ongoing trend toward increased integration of service providers into pharmaceutical companies' commercialization
strategies. Pharmaceutical and biotech companies of all sizes are searching for effective ways to increase sales and control
costs. In many cases, these goals can be maximized by partnering to access resources and expertise that exist outside of their
own organizations. To make the most effective use of these external services, companies should partner with service providers
that are organizationally skilled in managing collaborations and have proven to be reliable. Service providers that are able
to effectively assess, harness and maximize relevant resources within both organizations will be in a position to provide
superior value for their partners and will likely see growth. On the other hand, this is a difficult paradigm shift and it's
not likely that all providers will be able to withstand the change. Those partners that are able to consistently deliver
on their commitments, while at the same time providing access to relevant services and capabilities over a range of product
life-cycle needs, will survive and thrive.
The preferred-provider relationship will continue to grow and manifest itself as mergers and acquisitions by Big Pharma continue.
We need to respond to that in an even greater capacity in the future. At the same time, I think we are going to come across
smaller pharmaceutical companies who aren't looking for a major partnership, but that need our assistance. So, we need to
be flexible in how we manage our business and the relationships we enter into—whether it's with Big Pharma or the emerging
biotech and virtual organizations.
We will see more consolidation in the CMO industry to meet pharma's needs regarding financial stability, breadth of service,
and overall professionalism. More internationalization (emerging markets) and price pressure (e.g., volume discount, commitment
to continuous efficiency improvements) are likely as is the reduction of capital employed. Demand may lead to further reduction
of in-house capacities among pharma companies, and more and smaller stock keeping units or SKUs (i.e., decline of blockbuster
products, focus on serving smaller and regional markets) will drive up complexity.
In the near term, we fully expect to see the high level of competition and consolidation trend across the global manufacturing
industry continue. At the 2010 CPhI Worldwide conference, for example, I noted the number of companies undergoing consolidation
via sale or acquisition, in addition to those companies that are reducing their service offerings. These signs support the
continued growth in outsourcing over the next 5 to 10 years—and the CMOs that bring the strongest value proposition to their
customers will be the clear winners. Key value drivers include technology, innovation, supply assurance, service, and cost.
Ananthanarayanan (Dr. Reddy's):
The future of the outsourcing model is that outsourcing will only grow from here. It will not make sense for pharma companies
to overly invest in small-molecule production facilities when they have the ability to partner with organizations that can
help them produce safe and effective medicines. I believe that the relationships between organizations will continue to deepen,
and that the service provider will become so ensconced in the supply chain, that the outsourcing party will consider the service
provider a virtual in-house plant. The service provider will have to embrace the pure customization of their operation to
perform to their customers' needs, but remain flexible enough to take on multiple deep relationships with the customer base.
Some of the factors involved in this will be the ongoing pressure that pharma organizations face with respect to getting new
products innovated and produced. Gone will be the days where manufacturing will be as necessary to control with internal assets
compared to the need to launch new products consistently.
Our largest clients are going through structural changes whereby they are continuously looking at their asset base and the
best way to use that base, potentially to a point of exiting from manufacturing as a core activity. The outsourcing model
has been proven to work, but the outsourcing 'winners' will be those companies that match up in a range of technologies, have
a global footprint, possess preclinical through commercial capabilities, and have experience in working with the different
governing regulatory bodies.
We believe that developments such as the expansion of emerging pharma markets will continue. Additionally, companies will
become more local in their approach to the market. And, of course, established markets like the US and Europe will continue
to play a significant role.