The outsourcing model by definition is the making of partnerships or contracting a third party for particular services or associated studies. The fully integrated pharmaceutical company (FIPCO) was a successful paradigm shift in business where research in drug discovery, manufacturing, marketing and development were done in-house. However, the trend has changed and most of the pharmaceutical companies are doing less drug Research and Development (R & D) in-house as they used to do in the past decades (Winny & Jennifer, 2012).
Nowadays, the common paradigm shift in business is the virtually integrated pharmaceutical company (VIPCO), or a company that outsources much of the drug development pipeline. Outsourcing is important especially in the drug production line to compensate for the huge number of drugs coming off the industry, low productivity in the industry and beat competition from generics (Winny & Jennifer, 2012).
Contract Research Organizations (CROs), clinical laboratories, in vitro diagnostic companies (IVD), contract manufacturing organizations (CMOs), and regulatory consultants all support the needs in conventional pharmaceutical outsourcing. Furthermore, pharmaceutical companies engage external relationships in the early stages of drug discovery. Outsourcing of drug discovery has been presented in the form of open innovation in which companies engage universities, government research institutes, specialty pharmaceutical companies or external partners in identification of drug candidates that match the interests of the business (Winny & Jennifer, 2012). The essay discusses the importance of the outsourcing model of drug development in the pharmaceutical industry
Outsourcing reduces financial risks in pharmaceutical companies by limiting capital investments such as real estate and lab equipment. Furthermore, fixed costs are converted into variable costs since researchers are not pharmaceutical companies’ employees but the CRO employees. Outsourcing allows biotech companies to hold off partnerships with major pharmaceutical companies. In addition, the companies retain large ownership rights of the drug. A considerable amount of money and time is saved during the drug approval stage. In case a drug delays to get into the market for a day, this can lead to major losses of about 1 million dollars. The companies outsource to complete a study sooner, and since the studies increase in complexity, outsourcing ensures attention to detail and accuracy (Squires, 2005).
Outsourcing accelerates the process of drug development. Pharmaceutical companies are employing a “fail first” approach that recognizes value in early discarding of compounds during Phase I or the preclinical stage, which is done after realization that the compounds may not succeed the process. The value of compounds that have failed accounts for approximately three quarters of the cost of producing a new drug. Consequently, more funds for viable candidates are available which results in a greater return on investment (Squires, 2005).
The introduction of proteomics and genomics has complicated the process of drug development since it is expected to increase drug targets from the current 500 targets to over 5, 000. It is an explosive increase in new drug targets therefore many will be poorly validated thus increase the risk of failure of a particular compound. The choice of the correct CRO with a strong clinical capabilities, experience and preclinical capabilities will be suitable in ensuring advancement of the right compounds (Squires, 2005).
The regulatory environment of the pharmaceutical industries is very tight, therefore making it important for such companies to obtain services of outsourcing companies. The time for approval of New Molecular Entities (NMEs) has increased to 15. 6 months. Therefore, the approval of new drugs by FDA has been reduced every year. 27 NMEs were produced in 2000 as opposed to the previous year where a high of 56 was produced. This signifies an increase in complexity and increase in data required by FDA. Consequently, it is fundamental for pharmaceutical companies to consider the services of outsourcing companies, which can handle the regulatory oversight by FDA (Squires, 2005).
The time new compounds enjoy exclusivity in the market has been reduced. Therefore, outsourcing done in partnership with an international CRO is appropriate to enable the pharmaceutical companies seek more support from many countries and maximize on the potential profit. The international CROs can also be engaged in recruitment of new patients that will enable the sponsors obtain sufficient participants, thus satisfy requirements of FDA in clinical trials (Squires, 2005).
All the major pharmaceutical companies have reprioritized their focus on therapeutics; they have abandoned some programs in their lines of production. In the next couple of years, the spending on global drug research and development will slightly decrease or remain flat. However, presently the companies are cutting on the fixed cost. In addition, they are improving on efficiency and productivity while increasing outsourcing of manufacturing and core drug R & D. The global industry on pharmaceutical outsourcing is expected to experience a fast growth in the next five years (Zhang, 2011).
The present R& D outsourcing in biotech and global pharmaceutical companies is approximately 37 % of the market value. The outsourcing proportion is expected to grow rapidly based on the current strategies in outsourcing and attain a 67 % mark by 2017. The fraction of fixed operation cost out of the total operation cost will be a third, a decrease from the current rate of two thirds. In the next couple of years, fierce competition is expected to occur in the global pharmaceutical outsourcing industry since most outsourcing providers are narrowing their pool of services to a couple of CROs that are specialized in the key sectors of service. Therefore, in the near future the industry anticipates consolidation of many CROs (Zhang, 2011).
In conclusion, the outsourcing model has turned out to be a fundamental model in drug development by pharmaceutical companies. Various services have been outsourced to different institutions such as universities, research institutes and other pharmaceutical companies. It is a model that has led to advantages such as reduced financial risks, it ensures attention to accuracy and it accelerates the process of drug development. In addition, it assists the pharmaceutical companies in handling regulatory oversight. Indeed, it is an important model in pharmaceutical industries.
Winny, T. & Jennifer, B.(2012). Industry Trends: Outsourcing Pharmaceutical Development & Innovation. Retrieved September 24, 2017, from Drug Development and Delivery.: https://www.specialtypharma.com/Main/Back-Issues/Industry-Trends-Outsourcing-Pharmaceutical-Develop-348.aspx
Zhang, J. (2011). New Global Pharmaceutical Trends. Retrieved Sepetember 25, 2017, from Pharmaceutical Online: https://www.pharmaceuticalonline.com/doc/new-global-pharmaceutical-outsourcing-trends-0001
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