Outsourcing's Modest Role as a Cost-Containment Strategy - Pharmaceutical Technology

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Outsourcing's Modest Role as a Cost-Containment Strategy
Outsourcing is weighing in more as a tactic for cost-cutting, but it is still not the primary weapon.


Pharmaceutical Technology
Volume 37, Issue 5, pp. 80-82

Looking ahead

As technological improvements allow, suppliers and manufacturers are shifting their focus to reducing costs. Almost three-quarters (73%) of respondents in the 2013 study said that due to the recent global economic situation, they had placed a "much greater" or "somewhat greater" focus on cost-cutting, up from 67% in 2012 and approximately 71% in 2011 and 2010.

Production-capacity constraints continue to shift, and these changes require manufacturers to scrutinize costs and technology. CMOs continue to offer valuable technical expertise and flexible capacity that supports biotherapeutic developers and reduces the total risks associated with building (or not) internal capacity.

Moreover, under extreme conditions, activities such as R&D, which were considered essential to retain in-house, may become options for outsourcing. Biopharmaceutical companies plan for the long term, and because R&D cycles and production build-outs are lengthy and risk-intensive, it is the additional benefits that outsourcing can bring to drug development and manufacture that often swing decisions.

For several years, BioPlan has seen that general budgets for in-house biopharmaceutical manufacturing have risen more quickly than budgets for outsourced manufacturing. This trend suggests that as budgets expand for other activities, biomanufacturers want to maintain their outsourcing spending levels, perhaps in an attempt to extract more value out of their relationships. Although outsourcing may not be a primary cost-cutting tool, it is subject to similar efficiency pressures.

In 2013, budgets for outsourced biomanufacturing are expected to rise by an estimated 1.7%, up from -0.4% in 2012, 0.8% in 2011, -1.2% in 2010, and -1.3% in 2009. It is interesting to see budgets rise at the same time as more biomanufacturers look to outsourcing as a cost-cutting mechanism. This trend may be an indication that clients will be outsourcing more activities this year, not only to benefit from the additional capabilities of today's sophisticated CMO, but also because they believe they will realize some cost savings from their decisions.

Reference

1. BioPlan Associates, 10th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production (Rockville, MD, 2013), http://www.bioplanassociates.com/10th.

Eric Langer is president of BioPlan Associates, tel. 301.921.5979,
, and a periodic contributor to Outsourcing Outlook.


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