Blog Article on Future of Biopharmaceutical Outsourcing

January 16, 2015 in Blog by jmeyer

As posted on BioStorage Technologies’ Blog:

The biopharmaceutical industry faces a unique challenge in its quest to develop new and innovative therapies. Unlike any other industry, Biopharma research is dependent upon the human body and its genome. In a sense, it is working to drive continual innovation within a highly complex, but closed environment. Not surprisingly, Biopharma is finding it more and more difficult and costly to discover, develop and commercialize new therapies. Just this November, the Tufts Center for the Study of Drug Development reported the cost to develop and win marketing approval for a new therapy has reached nearly $2.6 Billion – a far cry from the $802 Million estimate Tufts published just 11 years ago. To offset this increasing challenge Biopharma has and continues to actively pursue strategies to do things better, faster and cheaper. One of the key strategies used by Biopharma is outsourcing R&D activities to contract research organizations (CROs).

Recently, Life Science Strategy Group (LSSG) conducted research with 100 biopharmaceutical R&D professionals globally that have responsibility and visibility into R&D strategies, budgets and outsourcing practices to better understand trends driving change in R&D innovation, efficiency and outsourcing strategies. Top outsourcing trends uncovered by LSSG are below.

Top Factors Driving Biopharma R&D Outsourcing Strategies

Pic 1Source: The Future of Pharma Outsourcing, Life Science Strategy Group, LLC, 2014

The key takeaway from our trend analysis is that over the past year and in the future, Biopharma companies will place an even greater emphasis on outsourcing.   Specifically, the majority of R&D effort will stay focused on late stage (Phase 2-4) opportunities, which are closer to market dollars – Biopharma needs to ensure revenue streams to drive its programs. However, Biopharma companies depending on their size have different ideas on who they will turn to for support. Respondents from large Biopharma companies indicate they will increasingly turn to large full-service CROs, while small/mid-size Biopharma will turn to mid-size CROs.

Trends in CRO Utilization

Pic 2Source: The Future of Pharma Outsourcing, Life Science Strategy Group, LLC, 2014

Large Biopharma will look to bigger CROs because of their global footprint, breadth of capabilities and ability to reach, access and monitor trials in an increasing array of countries in Eastern Europe, Asia (China, India) and Latin America (BRIC countries). As large Biopharma expands its R&D efforts into more, specialized therapeutic areas, access to patients will become more difficult. Large CROs are well suited to address this challenge both with their internal capabilities and geographic reach. In order to expand their breadth of core service offerings even further, large CROs will seek collaborations with other niche CROs and specialty service organizations, which are critical to their success as “soup-to-nuts” providers.

Just as biopharmaceutical companies are outsourcing to CROs so that they can focus on their core expertise, CROs are finding the need to build collaborations with niche specialty service organizations who provide best-in-class solutions in areas that are not the core expertise of the CRO. The types of niche specialty service providers who are indirectly benefiting from this trend include global sample storage and management companies, clinical trial technology companies, as well as esoteric, diagnostic and genomic testing laboratories. In addition, the growing number of academic-based strategic research institutions will provide large CROs with a collaborative avenue for research capability expansion.

Small and Mid-size Biopharma are shifting their outsourcing efforts towards mid-size CRO companies due to their ability to provide them with more personalized attention to their larger trials, while maintaining a high level of customer service – something small to mid-size Biopharma may perceive is missing when working with a larger CRO. Again, niche CROs and specialty service providers will play a critical role in supporting mid-size CROs’ in their ability to deliver a deeper breadth of service capabilities with their Biopharma customers often indirectly through partnerships and alliances.

A second outsourcing strategy to be used by Biopharma over the next few years will be to shift from transactional to more strategic relationship models with CROs. In its research, LSSG found that both large and small/mid-size Biopharma will decrease its use of fee-for-service (transactional) types of CRO relationships while increasing its use of preferred-provider and strategic partnerships. Specifically, large Biopharma respondents expect use of fee-for-service relationships to decrease from 24% to 19% of trials while use of strategic partnerships will increase from 23% to 28% of trials. Small/mid-size Biopharma respondents indicate a similar trend with fee-for-service relationships decreasing from 40% to 32% of trials while strategic partnerships should increase from 15% to 21% of trials.

A third outsourcing strategy Biopharma will utilize to drive further efficiency with CROs is service bundling. In particular, large Biopharma expects to increase bundling of routine study conduct activities with upstream study feasibility support, among other areas. Small/mid-size Biopharma respondents anticipate further service bundling across trial planning, conduct, technology and reporting services.

Clinical Trial Services Bundling

Pic 3 Source: The Future of Pharma Outsourcing, Life Science Strategy Group, LLC, 2014

Considering the current pressures facing the Biopharma industry and the need to drive innovation under increasing complexity, it is clear CROs will play an increasing role as an enabler of success in the future. As such, Biopharma will continue to evaluate its relationships with CROs and how it can maximize its return on its investment. Over the next 2-3 years and (likely) beyond, it is clear that Biopharma companies will look to further streamline and improve relationships with CROs. Strategies including greater use of preferred and strategic partnerships, more careful CRO selection and further service bundling are but a few of the strategies Biopharma will utilize with the goal of reducing administrative time, FTEs and spend. The goal of these strategies will be to ensure resources are more efficiently allocated to Biopharma’s core competencies such as the science and execution of R&D with the goal of doing more with less and improving drug development success.