The real issue in pharma is budget and structural change. There are no magic methods to overcome what Richard Nelson called "the simple economics of basic scientific research—patents or no patents, capturing the value that ultimately derives from fundamental research is extraordinarily difficult for profit-oriented organisations. “The world is changing fast and pharma runs an outdated business model in “Novus Ordo Seclorum”, where budgets for pharmaceuticals are reframed within healthcare cost containment. Outsourcing seems to be the universal answer; however there is more to the answer than meets the eye.
Questions: The Probability of Serendipity; the Outdated Business Model and Approaches to Innovation; the Outsourcing Answer; What Core Competencies Remain As Hallmark of Pharma Companies?
The probability of serendipity
“Now is the winter of our discontent, ‘not’ made glorious summer”: ten blockbuster patents will expire; Generics are top-level racing; pricing pressures chip away at profits; OTC’s belong to the wrong industry; the R&D Productivity Paradox is a nonsensical statement; the pipelines are clogged, and pharma engages in alliances, shops for Biotech, litigates and outsources away core competencies as if they are no better than a “me-too drug”.
When will pharma rethink the Value Proposition? The patent – cliff is now but the decision maker has changed; his name is “payer”, lives in economic crisis, has no job, his mind is set on healthcare cost control, and wants new cheaper and faster drugs.
- Dry pipelines:
A poor pipeline has a clear secondary effect on the OTC industry. An OTC product is an ex-Rx product that has been switched from RX status (prescription only) to OTC status to extend the life- cycle with new free OTC pricing.
- The OTC industry is increasingly moving towards the FMCG industry; a few years ago, FMCG companies bought some OTC businesses. Today, OTC’s are partly owned by FMCG and pharma companies.
- Pricing pressures
Unlike the US, EU countries have regulated pharmaceutical prices; to make matters worse, pricing systems are different in each country and there is no clear official guidance on how to harmonise
The outdated business model and approaches to innovation
The pharmaceutical industry has long operated on a closed model, developing and patenting new drugs, while retaining IP exclusivity. Open innovation means sourcing ideas from internal and external sources; the partnerships with biotech and CROs means sharing IP but also the cost/risk of drug development.
Companies are focusing on strategic alliances and partnerships with other companies and CROs to enhance product pipelines and manage clinical trials; pharmaceutical and biopharmaceutical companies are also joining in partnerships by licensing products to maintain revenue.
Pharma - biotech – complement strengths to compound co- development.
Biotech have high degree risk- projects with innovative approaches to diseases that may result in new pipeline products to pharma companies, which, in turn, offer expertise and resources to the partnership.
Pharma - CROs - work together in R&D for the compound development
CROs formed deep relationships, over time, with pharma companies and improved in drug development, knowledge and expertise; partnership was the logical next step.
The Outsourcing Answer:
What Is Pharmaceutical Outsourcing? What Are the Most Outsourced Stages of the Value Chain? What Are the Outsourcing Countries? What Will the Impact of US Healthcare Reform In Global Biosimilars Outsourcing Be?
- What Is Pharmaceutical Outsourcing?
Outsourcing has been called “one of the greatest organisational and industry structure shifts of the century”, with special influence in pharma industry, where pharmaceutical and biotechnology
companies are outsourcing at almost every stage of the value chain.
Procurement is essential to outsourcing; the right team/strategy will ensure: right service providers (CROs CMOs), communications, timelines, and contracts, due diligence, supply chain, and relationships with third parties. Sometimes procurement itself it outsourced.
- What are the most outsourced stages of the value chain?
R&D; Clinical Trials; Manufacturing; Logistics and Distribution; Supply Chain
R&D , Clinical Trials and Manufacturing
In the last couple of years, pharma witnessed a decline in R&D output ,in spite of escalating expenditures which prompted for drastic cost cuttings in order to stay competitive – outsourcing to off shore countries proved to be effective.
The emergence of virtual pharmaceutical and genomics companies granted an influx of lead compounds in the discovery pipeline and made the leap from traditional to strategic outsourcing.
CROs (Contract Research Organisations) must have good sized facilities, analytical instruments and certified quality systems, trained and trustworthy teams, knowledge of regulatory requirements, safe data storage and transfer, and be flexible enough for last-minute changes.
Written agreements with CROs are essential and should cover: protocol review; research-reporting obligations; research data ownership; auditing and monitoring rights; confidentiality of information; compliance with all regulatory obligations.
Pharmaceutical and bio manufacturing require both high-level technology and severe regulatory compliance; CMOs (Contract Manufacturing Organisations) provide the pharmaceutical industry with services ranging from drug development through manufacture. CMOs rely on their reputation and track record to deliver quality products and services on time and at a competitive price.
EMA and FDA monitor compliance with regulatory requirements and GCP principles in clinical research conducted in off shore countries.
Logistics and Distribution; Supply Chain
Outsourcing supply chain operations to a third-party logistics (3PL) provider, allows pharmaceutical companies to retain competitive advantage and overcome the counterfeiting issue. The outsourced partner must have cold chain management specialists, securing biotech and pharmaceutical companies’ strict regulatory compliance and product control, and concur to supply chain visibility and control.
EMA’s recent regulations make it imperative for supply chains to implement both a new process of coding to combat counterfeited drugs, and new technologies regarding the cold chain.
US current regulations: “When enforcement of federal drug pedigree requirements, originally established by the Prescription Drug Marketing Act of 1987, was put on hold by a legal challenge, some states opted to move ahead with their own requirements. As of March 2011, according to the Healthcare Distribution Management Association, 18 states had adopted final rules regarding distributor licensing and pedigree requirements, three states had enacted legislation but rules were pending, eight states had enacted legislation, one state had proposed pedigree legislation, and 20 states had no legislation or regulations on the topic.”
- What Are The Outsourcing Countries?
Off shore countries like India and China; China’s regulations emulate the FDA approvals system; China is the world's third-largest pharmaceutical market.
Outsourcing to emerging markets should be the next wise step: Patent protection was reinforced in some countries; clinical trials have huge pools of patients; research has lower costs, and frankly, for pharma companies, it all comes down to collaborate with the 17 pharmerging countries or face them as fierce competitors.
Emerging countries are also the next buyers. Although drug spend “per capita” is still low, the population size and economies’ growth is expected to place them in a full quarter share of the global pharma market in just a few years.
- What Will The Impact of US Healthcare Reform in Global Biosimilars Outsourcing Be?
US Healthcare Reform creates FDA approval pathway for competing versions of already-marketed biologic drug products, under the “Biologics Price Competition and Innovation Act” (BPCIA).
The next few years are expected to portray rapid growth of the biosimilars market; however, manufacturing biosimilars requires significant financial investment, which is why biopharmaceutical companies will outsource it to CMOs and CROs. In spite of their expertise, the companies will face several challenges with biosimilar products, because the BPCIA requires the disclosure of the biosimilar application to the innovator company, which will try to delay the biosimilar approval.
What Core Competencies Remain as Hallmark of Pharma Companies?
Pharmaceutical companies seem to be unsure of what their best choices and decisions are; is full outsourcing the answer or should there be a middle term? Should they go for partnerships or acquisitions? When is too much outsourcing? If pharma industries outsource R&D, clinical trials, manufacturing, logistics and distribution, supply chains and even procurement, what will remain of their core competencies which will acknowledge them as pharma?
The wiser answer is to repeat Chou En-Lai’s reply when asked by Henry Kissinger to comment on the impact of the French Revolution: "Too early to tell."
Contributor: Cristina Falcão