Outsourcing in Life Sciences: R&D Outsourcing Expected to Increase

Through a survey conducted in collaboration with BayBio, Booz & Company details the reasons why life science companies and large pharmaceutical firms are increasingly outsourcing clinical development programs.

Growing business pressure to cut costs and speed development of new products means the life sciences and pharmaceuticals industry is turning increasingly to outside research. Discussions between BayBio, the industry organization representing and supporting Northern California’s life science community, and experts from international strategy consulting firm, Booz & Company, suggest that companies may be looking to increase the amount of work they outsource and that the structure of clinical research organizations (CROs) is evolving. Together, Booz & Company and BayBio undertook a survey to further explore and detail ways in which the industry can benefit from current trends.

The collaborative study sought to gain insight into clinical development outsourcing practices among BayBio members. Key findings include (among others):

  • Survey respondents expect growth in R&D outsourcing
  • Companies outsource to reduce costs, access new patient samples and meet regulatory requirements
  • When selecting an outsourcing vendor, the majority of respondents (61 percent) seek a long-term strategic relationship rather than a looser transactional or partnership arrangement.
  • High-quality, reliable service is paramount to price, geography, and both regulatory and technological expertise.
Life Science Outsourcing Trends
Today two trends—life science companies’ need to add capability, and pharmaceutical companies’ desire to vary and offload capabilities—are fueling the growth of large, capable third-party CROs. These industry players are building out their own capabilities to take on an increasing amount of work for life science and pharmaceutical companies.

Booz & Company explored trends in life science clinical outsourcing by assessing the practices of BayBio members. Research found that, generally, survey respondents expect R&D outsourcing to grow and shift geographically from the United States and Western Europe, to countries such as China and India.

“For many companies, a lack of internal capabilities drives the decision to outsource. Companies view using CROs as a way to compensate for internal constraints, if the CROs can offer a long-term strategic relationship and provide top-quality service,” said Gaby Chahine, Partner at Booz & Company. “Internal company pressures were the most frequently cited reasons that firms decide to outsource. Fifty-three percent of respondents reported that they would turn to outsourcing to make up for a lack of internal capabilities or capacity while 44 percent cited a desire to reduce costs of development.  Increasing use of CROs is likely to be accompanied by a focus on quality.”

Pharmaceutical and biotechnology managers said they are willing to pay more for outsourcers that provide reliable, on-time, and accurate services. Life science companies look to CROs to lower costs, access new patient samples, and comply with complex regulatory requirements.

Most respondents from BayBio believe that using CROs could improve their value proposition. Life science executives surveyed were most interested in using CROs that are able to deal with patient recruitment issues, respond to specific customer needs, demonstrate strong regulatory and communications expertise, and offer flexible service

When selecting an outsourcing vendor, the majority of respondents (61 percent) are interested in developing a long-term strategic relationship, not simply maintaining a loose transactional or partnership arrangement. The most important characteristic for a vendor is the ability to provide high-quality, reliable research and development work, described by respondents as ‘best quality,’ ‘high fidelity,’ and ‘best service.’ This capability is paramount to price, geography, and both regulatory and technological expertise.

When asked about the outlook for outsourcing, an overwhelming number of survey respondents said they expect growth. Two-thirds anticipate ‘more’ outsourcing in the future. A number of factors underlie this expectation. First, limited budgets at biotechnology and pharmaceutical firms will push companies to reduce costs by outsourcing. In addition, life science companies could use outsourcing vendors as an unbiased external party in clinical study design and execution. Third, growing acceptance of R&D outsourcing and the use of overseas vendors makes firms more comfortable with the decision to outsource. Only 11 percent expect less outsourcing, citing growing internal budgets and the intent to grow capabilities in-house.

Though the majority of outsourcing is in the United States and Western Europe today, future growth is expected to occur overseas, largely in China and India. Some growth will occur in Europe, but the number of U.S. trials will be flat going forward, according to those surveyed. By geography, the location of trials today is inversely correlated with growth expectations. China and India conduct very few trials now but are projected to experience the most growth in the next two to three years.

The research shows that companies send trials overseas for three main reasons: as part of a regulatory approval strategy (36 percent), to cut costs (23 percent), and to gain access to patient samples (23 percent). No response dominates, suggesting that a variety of underlying preferences of biotechnology and pharmaceutical firms will drive outsourcing overseas.

“In short, our study of BayBio members suggests that clinical development outsourcing will continue to expand. As the outsourcing market matures, however, we expect to see a shift in the nature of outsourcing relationships—from transactional to strategic—as drug developers decide which capabilities should be outsourced and which should stay in-house,” said Jad Bitar, Principal with Booz & Company.

Based on interviews with key industry executives, further research conducted by Booz & Company sheds additional light on the drivers and constraints for clinical development outsourcing. Findings from the study are as follows:

  • While pharmaceutical executives differ significantly in their views and preferences for CRO partnerships, the trend toward outsourcing will continue to increase.
  • Current outsourcing strategies vary along four key dimensions: what work is outsourced, why it is outsourced, how outsourcing is done, and the level of innovation required from a CRO.
  • Drug companies tend to retain design and analytic competencies while outsourcing clinical monitoring activities, data management, and central labs.
  • Only half of those interviewed appear to have thought through a broad-based, strategic approach to clinical outsourcing.
  • Several companies find that in spite of their best intentions to establish strategic partnerships with CROs, dialogue remains at an operational level.
Pharmaceutical companies welcome the opportunity to align capabilities with CROs at a strategic level. They are looking to work with CROs that have clearly defined capabilities, such as high-quality service and execution, talent models that encourage retention, and the ability to use proprietary data to enhance recruiting and efficiency.

In addition to Booz & Company’s focus on the broader issue of clinical research and development outsourcing, the study asked BayBio members specific questions regarding views on the emerging use of third parties for data collection, management, and analysis.

“Following breakthroughs in cloud computing, big-data analytics, and collaborative workflow technologies, IT companies increasingly are approaching the industry to take on some of the burden of clinical research and development, and we sought to assess respondents’ views on this topic,” said Raffi Boladian, Associate with Booz & Company. “We presented a list of new products and services and asked which would be of interest; most respondents expressed at least some interest in collaboration tools and data storage and access.”

When asked to detail what would be most important in these new IT-enabled approaches to clinical research and development, the response received was in line with what Booz & Company sees in other industries considering transitions to cloud-based offerings.

First, security is a critical issue that must be addressed before considering migrating any data and analysis to a third-party platform. Interviews confirm that this concern stems not only from the regulatory framework surrounding life science data collection and use but also from the competitive advantage derived from confidential data and insights in this industry.

However, the professionals surveyed point to a wide range of factors they consider important in future decisions regarding IT-enabled offerings.

Summary of Findings
In conclusion, key findings suggest continued growth in clinical development outsourcing, with a significant amount of growth occurring overseas. The need for external capacity and capabilities is a key driver of outsourcing today, with a significant focus on reliable, on-time service.

Bitar concluded, “Current CRO relationships appear to leave significant room for improvement. Patient recruitment, customer-centricity, regulatory compliance, and flexibility of service plans were mentioned as particular areas in which CROs could do a better job. Overall, as companies look to CROs as the answer to internal constraints, they would also like to shift emphasis from today’s transactional relationships to long-term strategic development partnerships.”

Finally, the industry is also interested in IT-enabled offerings, but only if the central issue of security is resolved.

Background information on life science companies
Life science companies have emerged from the genetic revolution that was ushered in during the 1980s and are gaining momentum as new and powerful technological breakthroughs create commercial blockbuster drugs and new market opportunities.

At first, life science companies were primarily research-based organizations, with strong laboratory capabilities but little in the way of clinical development, trial management, and go-to-market capabilities. In addition, early-stage life science companies lacked manufacturing capabilities because their focus was on small product lots required for research and initial clinical work.

To make up for these capability shortfalls, companies either added people and processes as needed or partnered with larger pharmaceutical companies that already had deep and broad capabilities. Pharmaceutical companies and emerging life science firms turned to licensing, joint development, equity investments, and, in some cases, mergers.

After this first era of expansion, a few life science companies decided to ‘go it alone’, giving rise to third-party providers to fill the capability gap while allowing young life science companies to remain independent and in control of their development trajectory. A dedicated cadre of CROs emerged to provide missing capabilities ‘on demand’, typically through ‘work-for-hire’ arrangements.

In parallel, the largest pharmaceutical companies were increasingly looking to capture any growth that their own research efforts might enable. Even the largest among them, however, could not reach every global market opportunity. Meanwhile, increasing business and cost pressures were forcing pharmaceutical companies to be selective in the breadth and scale of in-house capabilities. Pharmaceutical companies began to explore the use of CROs to ‘staff to the peak,’ allowing them to vary personnel levels as specific trials demanded additional resources for set periods of time.

Click here to download the pdf report by Booz & Company.