Outsourcing in Pharma – The Best Prescription to Follow?
Marcia Angell, the former editor-in-chief of The New England Journal of Medicine and current senior lecturer in social medicine at the Harvard Medical School, once said:
“For all of life’s discontents, according to the pharmaceutical industry, there is a drug and you should take it. Then for the side effects of that drug, then there’s another drug, and so on. So we’re all taking more drugs, and more expensive drugs.”
It is no surprise then that, as per research, the global pharmaceutical industry will be worth USD 1.57 trillion by 2023. The factors driving the growth of the industry are ageing and growing populations, improvements in purchasing power leading to better access to quality healthcare, growing antibiotic resistance, emerging medical conditions as well as emergence of new diseases.
Bitter Pills to Swallow
Pharma is alleged to be one industry that is profiting handsomely amidst the mayhem surrounding the COVID-19 pandemic. In spite of this, this industry is not without its set of challenges. Over the years, it has faced a lot of vitriol and mistrust, with vociferous allegations against it of putting profit-making interests ahead of health priorities.
Pricing pressures – Governments in key markets are adopting cost-control policies for drugs and the tightening of regulations. This is affecting the growth prospect of the global pharmaceuticals industry. The last few years have seen a growth slowdown among pharmaceutical companies. They have been forced to reduce their research and development (R&D) spending. Such a reduction, in turn, is expected to hamper growth of the global pharma market as revenue from new drugs form a large part of pharma firm’s earnings due to the exclusivity of the drug.
Accelerated speed of innovation – With major technological advances in R&D, the speed of innovation has accelerated rapidly in the pharma industry in recent years. With the pressure to find new drugs and develop “the next big thing”,pharma companies face the challenge of trying to stay ahead of their competitors and sustaining growth. Therefore, they most often prefer working with partners who help them stay ahead of the curve with proven experience in rapidly developing a new product.
Demand forecasting and assessment of price fluctuation – Pharmaceutical companies need to accurately forecast demand and analyze pricing structures to boost profit margins to stay ahead in the competitive market. Generally, drug developers—without much of a guarantee of product success—begin thinking about production capacity around three years prior to launch. Hence, predicting the required manufacturing capacity when their product finally gets developed is challenging, to say the least, and this is the reason often companies choose the outsourcing route!
The Case for Outsourcing
Pharma and biotech companies are now turning to outsourcing to assist in preformulation, development and manufacturing of drugs. Outsourcing helps companies reduce development costs, expedite drug discovery and boost production. Outsourcing development to an agency that already has the relevant expertise can enable pharma firms to reduce expenditure by postponing capital investments and get access to technologies that are unavailable in-house. Bringing a specialty drug into the market is a complex and investment-heavy process. Once companies have that brand new drug that looks promising, they look for outsourcing partners who can upscale the production process. Big pharmaceutical firms have attributed reduced time-to-market and upgraded quality as significant motivations for outsourcing their business functions to CROs, CMOs and CDMOs.
Outsourcing Partners in Pharma
Contract/Clinical Research Organisations or CROs help in the realm of R&D and focus on discovery services and molecular characterisation for pharmaceutical and biotech businesses. Drug development, marketing, clinical trials and several other facets of the procedure of obtaining a new drug prepared for market are par for the course for CROs. It was during 2007–2009 when most global pharmaceutical companies turned over their clinical research operations to strategic CRO partners such as Quintiles (now IQVIA), Covance, Parexel, and ICON.
Contract Manufacturing Organisations or CMOs: Initially, the focus of CMOs was to provide large-scale, commercial manufacturing for companies that had already developed and validated biomanufacturing processes. As a result, CMOs were generally formed as stand-alone service providers that “rented” manufacturing capacities to their customers. Examples of CMOs are Almac, Lonza and Dr. Reddy’s Laboratories.
Contract Development and Manufacturing Organisations CDMOs: Some CMOs are now providing early development support to their customers along with their manufacturing capabilities – and thus, we get the CDMO (Contract Development and Manufacturing Organisations) providing niche services. Pharma companies, in a bid to reduce the risk of expensive overcapacities for specific drugs, started outsourcing to CDMOs. Piramal Pharma Solutions, Recipharm and Catalent are among the top movers and shakers in this space.
Indian Pharma – Prospects for Growth
Over the years, India has emerged as a prime destination for the manufacture of branded and generic medicines. Indian CMOs and CDMOs are proactively taking steps to ensure that their quality systems meet the highest standards. The mainstay for Indian pharmaceutical business has been the generics business; but now, firms are also trying to enter the speciality drugs business.
Though the Indian pharma sector witnessed a disruption in the supply chain due to the pandemic, specifically due to temporary suspension of raw materials from China, there is a strong focus by the Indian government to reduce import dependency. This means that the present crisis offers India a chance to use its strength in pharma as a soft power to cement its position in the world order and negotiate favourable deals.
The pharmaceutical business model has been witnessing a paradigm shift from a completely integrated company structure to one where firms use outsourcing, partnership initiatives, and other arrangements to create collaborative networks. It is clear that outsourcing in pharma is a trend that is here to stay!