Global outsourcing is cause for optimism

Despite the many challenges facing the pharma industry, drug developers should be optimistic, and one of the reasons is the increasing reliance on global outsourcing to speed development and reduce costs, says new report.

According to the Tufts Center for the Study of Drug Development (CSDD), the pharma industry has suffered in the past few years but the higher usage of outsourcing, largely motivated by the need to augment capacity and contain rising R&D costs, has had a very positive impact on drug makers

Since 2001, spending by drug developers on clinical research services has grown 15 per cent annually – outpacing the 11 per cent rate of overall spending on development – as pharma firms have increased their reliance on contract research organisations (CROs).

“It is proven that companies who outsource stages of the drug development tend to have fewer problems, more accurate results, and are also more likely to achieve a higher level of performance,” Tufts CSDD director Kenneth Kaitin told OutSourcing-Pharma.com.

“Higher efficiency and cost effectiveness have resulted in greater utilisation of outsourcing by pharma companies.”

According to Tufts CSDD, CRO usage growth has been driven by rising volume and complexity of global clinical trial activity and the increasing number of smaller firms conducting clinical research studies.

While smaller companies have been outsourcing in the US in the past, according to Kaitin, the main change is that they are now also off shoring the outsourcing process to take advantage of lower costs characteristic of developing countries.

“We are now seeing small and mid-tier pharma companies outsourcing to foreign countries, outside the US and Western Europe, such as China, India, Eastern Europe and Latin America, where development costs are substantially lower,” said Kaitin.

He added that there was an increasing collaboration between big pharma and small pharmaceutical companies, in particular emerging biotech companies.

This collaboration has taken different shapes, including the increase in funding by big pharma into small firms, the growing Mergers and Acquisitions (M&A) activity, and the overall higher interested of big pharma in smaller companies' activities.

“While drug developers have understood that their long-term viability depends on improving R&D productivity – and have taken steps to address the issues – they are about to see their efforts pay off in terms of improved success rates and greater numbers of new medical products reaching the market,” said Kaitin.

Quite a challenge, considering that, according to recent research, approval rates for standard new drug applications have plummeted in the last two years, from 38 per cent in 2003 to only eight percent in 2005, as the US regulator seem to get tougher on new drug approvals