Outsourcing in Pharma

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Pharmaceutical Technology Europe

Pharmaceutical Technology Europe, Pharmaceutical Technology Europe-05-01-2007, Volume 19, Issue 5

The pharmaceutical industry has long been suffering from declining productivity. The urgent need to infuse change to counter the various challenges, competition and demand has been increasing over the years. It is no longer viable for pharmaceutical companies to depend on complete in-house utilization of the various processes in drug manufacture.

The pharmaceutical industry has long been suffering from declining productivity. The urgent need to infuse change to counter the various challenges, competition and demand has been increasing over the years. It is no longer viable for pharmaceutical companies to depend on complete in-house utilization of the various processes in drug manufacture.

Figure 1

The R&D costs are climbing at astounding rates. In addition, the pricing pressure, regulatory changes, very high attrition rates, augmenting complexity of clinical trials and the urgent need to minimize the developmental time are driving forces for the pharmaceutical industry to opt for outsourcing.

Although the industry has long-realized the need for outsourcing, the pharmaceutical outsourcing market has not seen vigorous growth. It was valued at $5.4 billion in 1997, $9.3 billion in 2001 and $24 billion in 2006, and is expected to reach approximately $45 billion by 2010.

Why outsourcing?


The pharmaceutical industry is moving towards outsourcing to enhance operational efficiency and augment its revenues in a bid to seek a cost-sensitive and competitive future. R&D and sales, which were considered as the in-house core competencies, are proving to be ineffectual. Outsourcing, traditionally thought of as a short-term strategy for demand realization, is now being considered to lever the core competencies to maximize productivity. Today, pharmaceutical companies are outsourcing various intricate processes such as lead development and business processes, and it has been noted that almost the entire drug development process can be outsourced.

For pharmaceutical companies looking to overcome the hurdles in drug development, outsourcing is being seriously considered to effectively manage multiple projects at a given time and most importantly, to reduce the timeline for drug development, with a long-term view of cost and resource management. Reducing timelines is crucial in drug development as it is the major factor for cost savings.

The outsourcing partners (contract research organizations [CROs] and contract manufacturing organizations [CMOs]) have provided services in various areas and are expanding their portfolios to lure more pharmaceutical clients. Pharmaceutical companies are beginning to consider these partners as a one-stop shop for all their R&D and manufacturing requirements. These vendors are currently engaging as global service providers, including:

  • R&D outsourcing, which includes preclinical testing, clinical trial management, laboratory services, biostatistical analysis, drug discovery services, clinical packaging, regulatory affairs and biomanufacturing. Recently, the services have included high through-put screening, genomics and combinatorial chemistry.

  • Manufacturing outsourcing — primary development, formulation development, physical processing, dose manufacturing, packaging services and custom primary production.

  • The vendors are merging with each other and with other pharmaceutical industry participants, thereby changing the pharmaceutical industry landscape.

Choosing outsourcing partners

Using outsourcing as a tool to increase productivity, it becomes vital to diligently choose an outsourcing partner. With various potential clients lined up to provide various services, it is a Herculean and time-consuming task to evaluate the right vendor for the project. There are certain considerations to analyse before choosing the right supplying partner:

  • quality, speed

  • capacity, expertise, experience

  • compliance

  • variety of services, global coverage

  • financial stability, cost of services.

As there are no FDA directives outlining vendor requirements, the onus is on the pharmaceutical companies to evaluate the vendor. Stringent inspection of the supplier's facility, quality, best practices, trained staff and certified processes is crucial in the selection process.

Assessment of the vendor's financial stability is imperative during the selection process. Financial stability is required for the smooth turnaround of the projects within the proposed timeline. As these suppliers work with various projects from pharmaceutical companies, it becomes crucial to ensure there is no backlog of projects because of financial constraints.

Selecting an outsourcing partner may be done in haste without proper analysis of cost and project objectives. However, to overcome this hurdle pharmaceutical companies have a separate team to manage these outsourcing activities: it maintains a database of potential vendors, prepares requests for proposals (RFP), and reviews bids, service contracts and the timescales of the project with the supplying partner. Certain smaller pharmaceutical companies may have limited capabilities to identify the potential supply partners; in such cases, consulting firms help to identify the right outsourcing partner. It is at this point, the importance of trade shows and conferences is realized. Most pharmaceutical contract research alliances materialize during these gatherings.

Once the vendors meet the desired requirements, they feature among the preferred vendor list in the pharmaceutical company database. Most of the outsourced projects are awarded to these partners as they develop trust and extend mutually profitable relationships. These relationships are strengthened when the outsourcing partners extend immense enthusiasm in improving the processes.


Strict adherence to timelines and budget is critical to prevent loss of revenue. However, it is challenging to complete important projects within a given time frame and cost in addition to legal and personnel risks issues.

The initial costs incurred while utilizing outsourcing partners are considerable. Staff turnover in these outsourcing firms is high also. This hinders effective project management, and clinical trials data confidentiality may be at stake with outsourcing partners.

Offshore outsourcing

The last decade has witnessed a myriad of mergers, acquisitions and alliances aimed at improving drug development, and reducing its related costs and time. The advent of outsourcing partners has proven to aid pharmaceutical companies in meeting the high therapeutic demand and reduce costs. However, the importance of reducing the costs further has driven the pharmaceutical industry towards offshore outsourcing. India, China and Eastern Europe have been popular considerations because of relatively low developmental costs, abundant workforce and large patient pools. However, these countries present some challenges, particularly in terms of patent laws, cultural differences and business complexity.


A flurry of alliances among the pharmaceutical companies and the outsourcing partners is likely to be witnessed in the future. The confluence of computers and biology is expected to immensely improve data capture and management, and patient recruitment for clinical trials. In silico methods are being used for drug discovery processes especially in lead generation and optimization.

As the drug discovery landscape is continuously changing, pharmaceutical companies are turning towards outsourcing partners to deal with cost pressures and declining productivity. In spite of certain disadvantages, the net advantage of cost savings, lead times and expertise are realized through outsourcing. Offshore outsourcing is gaining popularity and the near future is likely to witness scientific hubs in India, China and Eastern Europe.

Sylvia M. Findlay is an industry analyst and team leader, life sciences and medical devices, healthcare (EMEA) at Frost & Sullivan (India).