By Kate Hammeke, research manager, Nice Insight
The drug development industry has benefited greatly from the practice of outsourcing. And as the desires and demands on vendors by pharmaceutical sponsors have evolved — from reducing costs to augmenting expertise, to offering competitive advantage — contract services providers have evolved to meet the challenges. But is the maximum benefit being reaped from outsourcing? Innovation experts would say, no. Rather, the global economy/relaxing of trade borders, combined with the strengthening of patent laws in developing nations, have just started to provide the right environment for strategic partnering to drive innovation.
The definition of innovation — the creation of better or more effective products, processes, technologies or ideas — ties closely with the common goal among the various players in the drug development industry: creating better, more effective, and affordable medicines. Consequently, it makes sense that a CRO’s or CMO’s innovativeness is an important factor when evaluating potential vendors for strategic partnerships. When responding to Nice Insight’s Q1 2012 pharmaceutical and biotechnology outsourcing survey, 10% of respondents stated that innovativeness was the most important attribute when selecting a CRO or CMO.
A Mechanism For Innovation
Historically, the drug development process hasn’t been a completely transparent, collaborative undertaking. Instead, managed risk, intellectual property, and profit were focal points for contract negotiations between the sponsor and supplier, often suppressing any true opportunities that might be leveraged from a strategic partnership. When these concerns take a backseat to driving sustainable growth, strategic partnerships become a mechanism for innovation.
Innovation through strategic partnering is a fluid and flexible means to sustainable growth, and complementary to the more traditional forms of growth. Organic growth of a business is often slow and requires patience, while expansion through the acquisition of complementary or competing businesses requires substantial capital. However, growth through strategic partnering has low financial barriers, and as discussed in the March and April editions of Outsourcing Insights, some of the operational barriers have been resolved through harmonized regulatory guidelines, improved education systems, and free trade. Of course, these partnerships still require significant due diligence, as the business will become an extension of the sponsor’s brand.
How Innovation Ranks
Survey respondents who ranked innovation as their number one criteria for partner selection were most likely to come from the biotech sponsor segment (32%), followed by Big Pharma (24%) and emerging/niche/start-up pharmaceutical companies at 19%. Interestingly, it was outsourcing executives from large companies — 44% worked for a business with 500+ employees — who ranked innovation over quality, reliability, productivity, regulatory, and affordability (listed in their respective order).
Among these innovation advocates, outsourcing partners were most frequently engaged during the discovery (51%) and preclinical (49%) phases. This practice makes a lot of sense, considering it is during these phases that new technologies or breakthrough science, such as high throughput screening and proteomics, have the greatest potential for impacting pipeline vitality. It is also a reflection of how the evolution of outsourcing R&D during the past decade — which has grown from approximately $9.3 billion in 2001 to $25.4 billion in 2010 — will continue to mature. A natural byproduct of this maturity is the strengthening of the outsourcing relationship from one based on cutting costs to one based on adding resources that create value, which will, in turn, improve the competitiveness of both parties.