The changing face of Outsourcing

How has outsourcing in the pharmaceutical industry changed in the last 2 years?

There has been a definite increase in demand for the functional service provision (FSP) model, whereby the sponsor outsources on a functional or departmental basis. In effect, the vendor becomes an extension of the existing team. A second trend is a move towards the use of specialist providers; this is a result of the current economy and the increasing complexity of clinical development programmes.

Andrew MacGarvey

How has the economic climate affected outsourcing?

Sponsor companies are looking to reduce development costs and the most obvious method to achieve this is through offshoring. While the move to offshore is not recent, the volume of work delivered offshore has increased significantly. Although sponsors are reporting increased project management costs, offshoring has a clear cost advantage. The challenge for these emerging countries, however, is to retain trained staff; we are seeing the beginnings of a 'brain drain' as qualified, experienced staff seek higher salaries abroad. The advantage of outsourcing locally, on the other hand, is seen in the ease of communication; working within similar time zones and having the ability to arrange face-to-face meetings can have a big impact on a project.

Costs can also be reduced by increasing efficiency; the FSP model and the use of specialist providers are two ways of achieving this. The win–win for outsourcing managers is that these companies tend to run smaller and leaner than their full-service counterparts and, therefore, can deliver the work cheaper.

How have CROs adapted to face current market conditions and demands?

With clinical studies being delayed and even cancelled, service demand has dropped and some CROs have reduced their work force as a consequence. The difference between the current recession and previous economic downturns is that the pharma/biotech sector has been hit hard. Previously, this sector has been almost immune to economic corrections as investors kept faith with what were seen as very safe stocks. This time the correction was just too big for our sector to escape, and the situation was compounded as governments in more than one country sought to reduce healthcare costs as they themselves reacted to a serious situation. CROs that have concentrated on their core products and protected their existing business will emerge as stronger organizations, and will be well placed to deliver what will be a growing backlog of studies in late 2009/2010.

What should pharma companies be looking for in a suitable outsourcing partner?

The key word is 'relationship.' A sponsor may work with a partner for some time, perhaps many years, and the relationship has to work from the outset. My advice to outsourcing managers is to make a positive commitment to assess the cultural fit of the vendor organization alongside the standard comparisons of cost, skill sets and geographic reach.

What do you predict for the future of pharmaceutical outsourcing?

I believe that outsourcing will continue to remain cyclical. During the last 2 decades, we have seen the move from insourcing to outsourcing and back again more than once. As sponsors seek to reduce costs, these shifts in approach will occur. We are seeing a move towards FSP at the moment, but this may change in time and the full service approach might once again become the primary model. The big change that is coming concerns the whole R&D process. The cost of healthcare cannot continue to rise and although the contribution of drugs is only 10% of the whole healthcare spend, they are an obvious target for cost review. Pressure will be exerted on reimbursement programmes and this, coupled with the onset of personalized medicine, will lead to a change in how development programmes are designed. When this happens, CROs will need to adapt to solve a whole new set of problems for their customers.