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Feature

The future is outsourced

Posted on: 23 Aug 04
The future is outsourced

Summary

As the pharmaceutical market becomes more competitive and the R&D process more complex, companies have began to use outsourcing on a longer-term basis than in the past. For observers in other R&D-based industries the pharmaceutical industry is a somewhat conservative user of outsourcing, and yet the pharmaceutical industry’s R&D investment as a proportion of sales is much higher than these other technology sectors.

R&D intensity


As the pharmaceutical market becomes more competitive and the R&D process more complex, companies have began to use outsourcing on a longer-term basis than in the past. For observers in other R&D-based industries the pharmaceutical industry is a somewhat conservative user of outsourcing, and yet the pharmaceutical industry’s R&D investment as a proportion of sales is much higher than these other technology sectors.


 


An analysis of US corporate R&D investment by the US government’s Technology Administration (TA) highlights the interesting relationship between overall investment and R&D intensity within the technology sectors (1). The TA revealed that in 2000 the information and electronics industry invested US$77 billion in R&D, whilst the medical industry (including pharmaceuticals) invested US$32.5 billion (1). However, when R&D intensity was assessed for the period between 1998 and 2000, the medical sector had an R&D-to-sales ratio of 12.3% whereas the information and electronics industry had an R&D-to-sales ratio of only 7.3% (1).


 


Challenges


The most dramatic increases in pharmaceutical R&D investment have been seen in the area of clinical development and companies are struggling to ensure that investment in this area pays off. However, it is not just cost that presents problems as key trials are becoming larger and more complex, regulatory requirements more stringent and failure rates remain stubbornly high. Furthermore, there is intense competition amongst those running trials in the main therapeutic areas and this can cause difficulties for patient recruitment and in terms of the capability of investigators to participate in proposed studies.


 


The number of innovative new drugs appearing on the world market continues to decrease, which suggests that other approaches need to be used to increase the efficiency and output of the clinical development process. In 2003, only 26 new molecular entities (NMEs – compounds that have not previously been made available as human therapeutics) were launched onto the world market and this modest output was preceded by equally disappointing results in 2002 and 2001 (2-4).


 


Outsourcing without compromise


The technical problems experienced in clinical development combined with the sheer expense means that few companies can develop all their drugs in-house and thus they have turned to specialist clinical research organizations (CROs) to carry out this function for them. This allows them to concentrate their resources for maximum effectiveness in a commercial context and yet not compromise on productivity and quality.


 


There remain some in the pharmaceutical industry who express unease about outsourcing, believing that it can result in a loss of control over a project, but CROs have worked on a number of successful projects over the years and this shows that it the approach to outsourcing is correct then the project will be a success. The growth of the CRO market is proof that it has a role to play in the future of pharmaceutical R&D. In 1993 Centerwatch valued the global outsourcing market for all R&D-related functions at US$1.6 billion but by 2003 increased their estimate to US$9.3 billion (5). Furthermore, they stated that whilst in 1995 CROs had played a major role on 46% of clinical projects of surveyed pharmaceutical companies, by 2003 they had a major role in 64% of such projects (5).


 


The US pharmaceutical industry has continued to be the most productive and commercially successful in the world - at a time when it is spending an increasing amount on outsourcing (6, 7). UBS Warburg found that of the US$30 billion that the US pharmaceutical industry invested in R&D in 2001, around 20%-25% of this was spent on outsourcing (7). The Pharmaceutical and Research Manufacturers of America (PhRMA) has stated that US companies have been responsible for producing eight of the top-selling ten pharmaceutical products, compared to two from Europe (6). Interestingly, the US pharmaceutical industry appears set to outsource even more of its R&D. UBS Warburg have estimated that the outsourced portion of pharmaceutical R&D spend would expand by 1% per year throughout 2005 (7).


 


References


1.       U.S. Corporate R&D Investment, 1994 – 2000 Final Estimates. Technology Administration (TA). http://www.technology.gov/Index.html


 



  1. Anon (2004). Innovation on the wane? CMR International. http://www.cmr.org



  1. P Sculthorpe and D Lowman. New Medicine Launches 2002. CMR International. http://www.cmr.org (2003).


4.       F Kermani and G Findlay. The Pharmaceutical R&D Compendium. CMR International. http://www.cmr.org/ (2000).


 


5.       M-J. Lamberti (2004). Centerwatch. The Changing Climate of Clinical Research. Presentation at the Association for Clinical Data Management (ACDM) Meeting (15-17 February 2004 Bristol, UK).


 


6.       Anon. Industry Profile. The Pharmaceutical Research and Manufacturers of America (PhRMA). http://www.phrma.org/ (2004).


 


7.       Anon. Pharmaceutical Outsourcing Trends: An Analysis of the CRO Market Opportunity to 2006. UBS Warburg. November 2001.


 

Dr Faiz Kermani

Last updated on: 27/08/2010 11:40:18

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