Outsourcing’s Evolution in the Pharma Industry

Kirsten Jacobs, PhD, Chief Strategy Officer, PharmaLex, a Cencora company

For decades, biopharmaceutical companies have outsourced various functions and business processes to external parties, allowing them to focus on their core competencies and reduce costs and drug development timelines. Examples of outsourcing activities include regulatory compliance, R&D, supply chain management, and data management, among others. Over the years, demand for outsourcing has increased and waned as companies have piloted and pivoted outsourcing arrangements, learning what works and what doesn’t.

These demand cycles have been influenced by a range of market, economic, and competitive factors, but mostly by the need for pharmaceutical companies to stay competitive, flexible, and profitable.

As early as the 2000s, drug manufacturers began shifting how they defined their intellectual property and company-owned product data and intelligence. This change was driven by a growing trend toward regulatory harmonization. Around this time, organizations were experiencing increased downward pressure on drug pricing and could see on the horizon the impending patent cliff for blockbuster drugs that threatened sales.

Those factors spurred companies to explore partnerships to bolster their R&D and marketed-product capabilities in regulated areas such as clinical development, regulatory affairs, and drug safety.

Over the last 15 years, outsourcing experienced significant growth and transformation, driven by various factors reshaping the industry landscape, such as (also see Figure 1 below):

• M&A surge. Since 2010, according to L.E.K. Consulting, 195 biopharma M&A deals have involved more than 500 acquired assets and approximately $1 trillion in total investment. This trend will likely persist as companies acquire revenue streams in response to looming exclusivity losses for major products as patents expire.
• Increasing complexity of drug development. Drug development became increasingly complex and fragmented as regulators in different countries began requiring companies to submit clinical data unique to their market. Prior to this, most countries simply “referenced” approvals in markets of the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use initiative.
• Cost pressures and budget constraints. Pharma companies faced mounting financial pressures as the industry grappled with patent expirations, generic competition, and diminished returns on R&D investments. Outsourcing became an attractive option for pharma organizations to reduce costs, mitigate risks, and optimize resource allocation.
• Need for flexibility and scale. Outsourcing emerged as a way for pharma companies to quickly adapt to changing project requirements, to scale their R&D and product maintenance capabilities up or down as needed, and to access specialized expertise on demand—without the burden of maintaining large in-house teams.
• Access to global talent and expertise. Outsourcing enabled pharma companies to tap diverse perspectives, acquire knowledge about regulations and authorities’ expectations from other markets, increase their capabilities, and expand their resources across time zones.
• Technological advancements/digital transformation. Rapid advancements in technology, including high-throughput screening, bioinformatics, artificial intelligence, and digital health solutions, have demonstrated value in R&D practices. Outsourcing has played a pivotal role in harnessing these technologies and integrating them across the biopharma lifecycle.
• Strategic focus on core competencies. Pharma organizations adopted a strategic focus on their core competencies by prioritizing areas of innovation, differentiation, and competitive advantage. This helped redirect resources and investments toward core programs, partnerships, and initiatives aimed at driving sustainable growth and profitability.

THE INFLECTION POINT IN OUTSOURCING

At PharmaLex, we’ve seen the vulnerability in companies’ efforts to maintain their product portfolios. Ensuring regulatory compliance and reducing product risk while still working within cost constraints present unique organizational challenges that require innovative and cost-effective approaches. These approaches can help companies manage ongoing patient safety requirements and compliance while continuing to meet increasingly complex regulatory demands.

Resources stretched thin at the market or regional levels pose more challenges for companies as new regulatory requirements have emerged across the globe in the areas of drug safety, quality, compliance, and regulatory affairs.

What’s more, a large pharmaceutical company can have as many as 100 operating companies or affiliates all over the world, which are now being tapped to manage the company’s ever-growing portfolio of mature products.

This is ever more challenging as companies are under immense pressure to reduce costs, leading to a shift to offshore or nearshore activities. The shift has required a focus on selecting the right expertise and cultural fit as well as on clear-cut processes measured by key performance indicators.

Today, outsourcing is more about optimizing existing processes, which reflects a shift whereby companies no longer have to retain all product knowledge in-house, but can establish processes that ensure controlled access to all relevant data and documents during inspections. That outcomes-based model draws not only on a company’s partners’ domain expertise, but also on technology that automates processes and extends value.

THE NEXT PHASE OF OUTSOURCING

So, what is driving that robust growth in this next phase of outsourcing? Regulatory compliance continues to be one of the major areas of consideration. That’s because despite efforts to harmonize, the regulatory environment remains highly complex. Regulations have become increasingly stringent and have undergone significant change in the past several years. Data and documentation requirements have also increased considerably—mainly as they relate to the safety and compliance of mature products, which regulators are keenly focused on.

As complexity has grown, global regulatory harmonization has helped promote efficiency and helped reduce unnecessary duplication across markets and regions. Yet, very different approaches to drug and device regulation remain, depending on the market or region.

Even with these differences, companies must maintain a regional presence. In the European Union, for example, that means companies must maintain a qualified person responsible for drug safety.

USE OF DATA CHANGES THE GAME

Meanwhile, organizations are grappling with the enormous amount of data being generated and the need to manage data in post-marketing activities across (1) adverse event-reporting data collected through drug safety systems; (2) patient-reported outcomes data, which allows for a more comprehensive assessment of treatment effectiveness and patient-centered outcomes; and (3) biomarker and genetic data, which provides potential predictors of drug efficacy and safety.

The aggregation of real-world data is facilitated by advancements in technology and data analytics, enabling the integration and analysis of large datasets from diverse sources. These data provide a more comprehensive understanding of a drug’s performance in a broader patient population, helping to inform regulatory decisions, guide clinical practice, and support post-marketing surveillance.

STRATEGIC IMPLICATIONS OF NOVEL THERAPEUTICS

Not only is technology changing the way we think about outsourcing, but so is the rise of novel treatments such as cell and gene therapies. These drug discoveries are adding opportunities but also complexity and uncertainty to research programs and future regulations.

Novel therapeutics are forcing companies to rethink their commercialization strategies, recognizing that a one-size-fits-all product development program doesn’t work anymore. In addition, their market strategies need to evolve to ensure that their therapies reach the patients who need them the most.

All these factors influence a company’s outsourcing decisions and the direct impact their decisions have on product development, product maintenance, and commercialization. The risks can be high and the financial implications considerable if companies make any missteps. And the reality is that many organizations have neither the necessary staff nor the expertise to navigate the many procedures and requirements across regions while staying aligned with the companies’ product strategies. The growing complexity demands highly specialized expertise.

Additionally, we see geopolitical considerations affecting pharmaceutical R&D outsourcing, resulting in shifts in how companies serve certain countries. The considerations indicate growing awareness of broader political contexts and potential impacts on regulatory compliance and market access.

Geopolitical considerations could influence the regulatory landscape in non-European and non-Western regions, affecting how drugs get developed, regulated, and distributed globally. The considerations also highlight the need for pharmaceutical organizations to navigate complex geopolitical dynamics when formulating outsourcing strategies and expanding into new therapeutic markets.

Looking ahead, the landscape will increasingly be characterized by innovation, collaboration, and agility as pharma organizations seek to harness external expertise and resources so they can accelerate the discovery and development of novel therapies while navigating an increasingly complex and competitive landscape.

Kirsten Jacobs, PhD, is Chief Strategy Officer at PharmaLex, a Cencora company