Research-based pharmaceutical companies having a… headache
August 13, 2009
Research-based pharmaceutical companies have found a medicine against a headache they have. Headache – due to increasing costs and risks among other. However, they did not have to discover this medicine – that have been known for a long time…
You know this slogan: “Research is the best medicine”, don’t you? However, research is cost-intensive and risky.
Only in the US over $50 billion are annually spent in R&D investments in new medicines according to PhRMA (The Pharmaceutical Research and Manufacturers of America). That is around annual GDP of a national economy, such as Bulgaria, Lithuania or Dominican Republic for instance. According to Taking wings. Coming of age of the Indian pharmaceutical outsourcing industry, one of the newest reports by Ernst&Young, the global pharmaceutical market reached $773 billion at a growth rate of 4.8% in 2008. And that is the slowest growth rate of the decade. The two largest markets, the US and Europe which contributed almost 73% of the global market in 2008, achieved growth rates of 1.4% and 5.8% respectively.
And that can really be a good reason to get a headache, can’t that? No wonder that these amounts cause a feeling like a headache to pharmaceutical companies. But there is medicine against this headache, named outsourcing.
The “classical” advantages of outsourcing are common known but what about pharma outsourcing? What does this type of outsourcing have to offer?
First of all, the initial investment to enter a market is lower while having an outsourcing partner than doing everything in-house. Sometimes it would not be possible for a company to make some research or to develop innovative solutions without having a good, competent vendor at competitive rates. Savings gained from outsourcing operations to third party can be used for financing of different undertakings, as drug discovery for instance. But pharma outsourcing is not just about cost sharing – it is about risk sharing as well: If new medicine fails, this failure can be shared with the outsourcing partner.
The factor that outsourcing makes it possible to have an access to valuable know-how and pool of talented people should also not be underestimated. And it enables to speed up processes, too.
Making the use of outsourcing, pharmaceutical companies gain the possibility to focus on their core business and not to have an additional headache due to having to focus on different functions and processes. Therefore: Outsourcing is not just a strategic option but an imperative for pharmaceutical companies.
Over the past years, the reasons for outsourcing have changed and the scope of outsourcing has expanded. Initially, for a very long period of time, the pharmaceutical industry had just outsourced non-core functions. This pattern has changed over the past two decades, as companies began routinely outsourcing a number of core functions such as clinical trial management and manufacturing, and drug discovery as well.
While talking about outsourcing, it is impossible not to mention India. This country has become in a short time global leader in IT services and software development, call center and the first choice regarding biotechnology and pharmaceuticals as an offshore/nearshore outsourcing destination. According to the cited report by Ernst&Young, overall CRAMS (contract research and manufacturing services) in India has a compound annual growth rate (CAGR) of 51%, and this will result in it generating revenues of $3.8 billion and capturing 5.5% of the market by 2010.
This growing expertise in drug discovery is predicted to result in India becoming one of the top five innovator countries by 2020, according to Ashok Kumar, Secretary, Department of Pharmaceuticals. According to him, one out of every 5 to 10 drugs discovered worldwide will come from India by 2020.
Other popular pharma outsourcing destinations are China and the countries of Central and Eastern Europe (CEE). These countries are chosen by pharmaceutical companies as the major ones to which drug discovery is being outsourced as they have significant scientific expertise, a cost advantage (lower wages and salaries, lower rentals and significant tax incentives), and the infrastructure needed to successfully perform drug discovery activities.
Such topics as loss of control, protection of intellectual property, and confidentiality still remain a concern for many companies and other institutions. However, the experienced gained over the past years has definitely contributed to addressing these issues in improved strategic partnerships between the buyers and vendors.
Pharmaceuticals belong to very sensitive industries. Therefore the nature, advantages and concerns around pharma outsourcing have been discussed. We are also familiar with the global pharma outsourcing destinations. One thing is still outstanding now: It is the right time to make the use of the potential pharma outsourcing has to offer. Big pharma companies such as Pfizer, GSK, Eli Lilly, AstraZeneca and many more have already done that – just follow them.