| Contract Research Outsourcing |
| Wednesday, 03 December 2008 | |||||||||||
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Soaring drug discovery development costs and timelines, prolonged regulation-mandated testing, complex review processes, rapidly escalating R&D expenditures and competition are hurting the margins of pharmaceutical companies. In an attempt to improve falling revenues, the pharmaceutical industry resorted to outsourcing various services to inexpensive but highly skilled destinations. This trend spans the entire value chain from contract manufacturing to research to sales.
Global contract research market Global pharmaceutical firms have long outsourced functions such as manufacturing, packaging, clinical trials and sales force mobilization. Increasingly R&D activities are now also being outsourced and offshored. According to ValueNotes estimates, the global market for pharma outsourcing is pegged at $77 b for 2006, with contract research being one of the fastest growing segments. Of the top 25 drugs, we estimate that about 12 drugs have been discovered/developed by a company other than the one that has launched it. The global contract research market in 2006 was estimated around $7.9 b with an annual growth rate of 16.8% (Drug discovery is estimated to be $4 to $5 b). The increase in contract research outsourcing has been directly proportionate to the increase in R&D budgets. Pharma outsourcing: evolution in India Between 1990 and 2005, a large number of global fine and specialty chemical companies restructured and downsized their operations. The traditionally integrated players in the western world saw merit in focusing on specific aspects of business and outsourcing all non-core areas, manufacturing in particular. This opened up new avenues for many traditional Indian pharma companies with under-utilized capacities and expertise. Consequently, in the late 1990s, contract manufacturing activity jumped, though growth slowed subsequently. More recently, India has emerged as an alternative research base for global pharma companies. The past few years witnessed an increased momentum in drug discovery outsourcing due to new technological developments and increased targets from advancements in technologies like genomics and proteomics. Several leading pharma majors have outsourced various elements of the pharma value chain to India. Buyers of CRAMS services from India
Key Trends Given the focus of service providers on new discovery techniques and the advantages of cost arbitrage and increased speed, it is no longer a question of whether or not to outsource, but a question of finding the right partners. Buyers of pharmaceutical R&D services will increasingly value contract research organizations with capabilities of a 'one-stop-shop', with multi-service offerings across the R&D spectrum. A virtual company, an organization that collaborates with multi-disciplinary partners as per the project requirement to generate more resources than it currently possesses on its own, is gaining traction in India. Virtual companies will emerge as key players in outsourcing a large variety of services in the next two to three years. Pharmaceutical companies can move seamlessly through the value chain by partnering with the virtual outsourcing company. Emergence of new tools and techniques such as biotechnology, combinatorial chemistry, bio informatics, genomics to name a few, complemented by wider acceptance of IT and biotechnology has brought about a complete transformation in the way molecules are being researched, developed, manufactured and marketed. This is one of the few industry segments that we believe will grow and continue to increase outsourcing, undeterred of the global economic downturn. |
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