Hennecke (Xcelience): Ten years ago, pharmaceutical outsourcing was still viewed with a touch of suspicion, and when it was embraced, it was for two fundamental reasons: reducing costs and increasing turnaround times. Those two reasons are still front and center, but now they're so basic, customers take them for granted. Of course, outsourcing will cut costs and increase turnaround time. But what else? The field has grown increasingly more competitive and today's client expects an innovative, high-performance provider that will open doors to specialized expertise or proprietary technology, help them with solubilization challenges and other problem-solving, reduce business risk, and tighten the supply chain. Really what we're talking about is a change of mindset among outsourcing providers from reactive service delivery to proactive solutions. Many firms still haven't adapted. Those who have are not only increasing market share, they're embedding themselves in the pharma decision-making process at a higher level because the outsourcing solutions they provide are strategically important.

Basham (Metrics): A key change is the transition from the technical lead independently deciding where, when, and how to outsource to an outsourcing manager leading the decision on a team. Outsourcing management by teams allows for preferred-provider operations and cost controls. Additionally, the cycle of spend on outsourcing ranged from a frenetic pace during the first five years of the last 10 years to the drying up of venture money supporting the outsourcing of the virtual bio/pharma business model. During the first half of the past 10 years, there has been a switch at the top 25 to 30 large pharma companies, both in mergers and in consolidation of their facilities, which has both provided opportunity to the outsourcing company as well as challenges. In addition, large pharma companies have begun to compete in the CMO area by offering contract manufacturing to keep their facilities operating. At the same time, outsourcing competition has expanded exponentially due to large layoffs in the large pharma/biotech companies. Many very good scientists in R&D and manufacturing have gone out on their own to build new competitive businesses.

Weiler (SAFC): During the past 10 years, we have seen significant change. In 2010, only 20% of all launched drugs were originated by the top 25 Big Pharma companies. This paradigm shift and the increase in more specialist-care drugs coming to market have made it a requirement for drug manufacturers to have faster and more flexible processes to get drugs to market. Smaller pharma or virtual biotech companies are looking for a different type of partnership with their CMO. These companies need speed, regulatory experience, technical knowledge, and best-in-class project management, which creates opportunities for CMOs in the Western world, including for emerging technologies, such as high-potency APIs, gene therapies, and microbial fermentation.

PharmTech: In certain areas (i.e., clinical research), we see the preferred-provider model. Will the preferred-provider model evolve for other segments?

Kosko (Pfizer CentreSource): A definite trend toward the preferred-provider model is gaining marketplace momentum. A number of current examples show major pharma companies establishing partnerships with CROs as they focus on managing fixed costs and increasing productivity. As more and more technical platforms become universally available, I can see this trend expanding into formulation development and process development. Manufacturing may be a larger challenge, in that the best solid dose preferred-provider may not be the best sterile partner, which increases the likelihood that preferred providers may segment along technology lines rather than on inclusive one-on-one relationships. By using a preferred-provider model and consolidating to fewer providers, outsourcing firms can exercise greater influence and control over the operation of the CMO. The industry preference for secondary sourcing, which may or may not be available from a preferred CMO's network, will be another challenge.

Bhatia (DPT): The preferred provider model will surely evolve into other CMC segments, including formulation development, process development, and manufacturing. As drug products become more complex, sponsor companies are looking for an outsource provider to draw a roadmap to the target goal. They are primarily looking for reduced cycle times (both in contract negotiation and development times due to preferential treatment) and limited oversight, resulting in cost savings and more importantly, quick approval and launch. The reasons to deviate from the preferred provider model may be because of a specific task or technology that only a non-preferred provider can deliver.

Hennecke (Xcelience): I don't think you can take for granted at this point that the preferred-provider model is strongly rooted and gaining ground in other segments. It's certainly an arrangement that is being experimented with by companies. A preferred provider is a marriage of sorts—one with a pretty serious pre-nup. Should you marry one key outsourced provider in your pipeline? Maybe. Should you look for long-term happiness with every outsourcer in your pipeline? Probably not.

The whole concept of preferred providers is still developing. Some global CROs have established these partnerships and have delivered real client value while others have failed to lead to the returns expected by either side. Ultimately, this sort of business-relationship decision is, like marriage, personal. There's no one-size fits all. Each company must look for the arrangement that best de-risks its overall drug-development program. Most will probably continue to choose best-in-class providers that can provide services, such as formulation development, which require a level of complexity or attention than a one-stop shop cannot provide. The key to a successful portfolio strategy is to have service providers that are willing to coordinate with upstream/downstream providers to smooth transitions, accelerate timelines, and ensure quality of supply.

Basham (Metrics): We have seen this already taking place. While specialty needs will still be needed, the outsourcing management model will continue to downsize the number of contractors with which a company will work. This is particularly true for large pharma/biotech and the larger mid-sized pharma/biotech companies. This allows for streamlined management of the vendor, common rules, and less overall personnel needed to manage the outsourcing model.