Vicki Phelan, Managing Director, Pharmaceutical and Life Sciences Practice
with Stan Lepeak, Managing Director, Global Research

I have just completed a five city North America tour in which I presented new EquaTerra research findings on trends in the life sciences and pharma research and development  outsourcing (RDO).   While the global pharma industry is of the most experienced when it comes to back-office business process and information technology outsourcing, the level of penetration and maturity is mixed when it comes to other emerging outsourcing areas such as R&D.   Many firms are mature relative to outsourcing activities such as preclinical and clinical trials RDO work but most are still exploring, for example, drug research and registration RDO work.

The macro trends driving RDO are similar to those driving other types of pharma outsourcing: difficult overall life science market conditions driven by the following.

• Falling off the patent cliff: the pharma industry will lose $78 billion between 2009-2014
• US prescription sales expected to decline over next 5 years
• US healthcare “reform” driving payers’ cost containment measures that will result in shrinking pharma profit margins and heavier competitive pressures
• Continued growing regulatory pressure

These trends impact and translate into additional challenges and pressures on pharma R&D.

• Challenges meeting capital expenditure requirements needed to invest adequately in R&D enabling technologies
• Overall cost pressures
• Less than anticipated R&D benefits from extensive pharma M&A efforts
• Skills shortages, protectionist immigration policies
• Emerging market competition and the need to get into emerging markets
• Lessening differentiation from commoditized R&D activities
• Improving “supply side” pharma R&D capabilities/offerings from third party service providers

RDO is just one tool pharma firms are employing to address R&D challenges.  Firms are employing other alternative sourcing delivery models such as the use of offshore captive or they are developing business alliances with third party firms that can complement and extend RDO.   More fundamentally, firms are undertaking internal efforts to improve R&D process efficiency and narrow the focus on R&D to the most promising efforts though this is often a moving target.  They are continually seeking to find and retain the best R&D talent.  These efforts are challenged by increased global competition for talent, especially in emerging markets. This, coupled with the associated escalating cost for talent and more restrictive immigration and visa practices in western markets,  are  driving the increased interest in RDO. So while RDO drivers are clear the benefits sought are more diverse and the process to achieve them are more variable.

Filed under: Market Trends and News, Offshore & Captive Centers, Outsourcing, Pharmaceutical Industry by EquaTerra