Practically popular — outsourcing could offer a practical approach to drug development

As pressure to get drugs to the human clinical trial stage increases more companies are looking to outsource not only non-core functions but major areas of R&D. Here, Praveen C. Surana, senior director of Business Development, ELC Group, examines outsourcing projects in more detail. 

With increasing pressure to take potential drugs from discovery to human clinical trials as quickly as possible, many companies are moving towards outsourcing at least a portion of their drug development. Previously, major pharmaceutical companies outsourced mainly non-core functions. Now, more companies are outsourcing major areas of research and development activities, including formulation development — ranging from early formulation development for animal studies to optimisation for Phase I, II and III under cGMP compliance, to clinical or commercial supplies.

Outsourcing compresses the product development timeline, providing a cost-effective alternative to adding specialised resources and allowing variable cost structures. Crucially, a higher degree of efficiency can be attained at a lower cost, thus achieving early access to technologies and expertise. Outsourcing projects generally fall into two broad categories: those requiring specialised solution provider services to solve an existing product development problem, and those that have been planned entirely as outsourced activities from start to finish, as in the case of many generics.

Outsourcing is operated in multiple business models, the most common including:

a) Full time equivalent (FTE)-based model — a simple, risk-free model whereby the sponsor pays the service provider a set fee for a fixed period, depending on the number of scientists engaged for the specific project.

b) Fee for service — works on milestone-based payments, which are pre-determined and time-bound. The risks associated with the fee for service model are higher on the sponsor and the costs are less.

c) Out-licensing model — the service provider develops the product or technology until proof of concept is established, and then scouts for partners to invest further in formulation research or in manufacturing the drug product (a substantial part of the development).

d) Co-development — currently gaining popularity. Sponsor and service providers share the risk and reward in proportion to their respective investments. However, ownership of intellectual property here is a tricky issue. Co-development is suitable for companies with fewer financial resources, or companies with niche capabilities that come together to provide integrated solutions or products.

All outsourcing comes with potential challenges, including closure or takeover of facilities, breaking up of specialist teams or weakening of R&D capabilities and so on. Service providers are under intense productivity pressure, thus have less time to reflect, learn and train. The cost savings that result from outsourcing R&D can be easily overshadowed by the added complexity required to manage the process throughout the organisation.

Once the decision to outsource is made, sponsors may evaluate the following factors in choosing a contract service provider:

1. Is formulation development the core business of the service provider, are they specialised in it and do they have necessary capabilities to meet the requirements of the sponsor?
2. While many traditional service providers are focused on small molecule new chemical entities (NCEs), many are building speciality groups to deal with the increasingly diverse and specialised needs such as cytotoxic drugs, gene therapy, drug delivery technologies and biotechnology products.
3. For NCEs, an integral part of formulation development is defining the ultimate clinical dosage form. This decision is a combination of science and business. Once the delivery decision is made, it is important to check whether potential service providers have capabilities with the required dosage form.
4. For outsourcing decisions on formulation development, cost is obviously a factor, but choosing the most appropriate resource based on outsourcing objectives will be far less aggravating and result in less hand-holding.

In the current climate of declining research productivity and increasing pressure to maintain profitability, outsourcing formulation development can provide an effective approach to decrease the overall cost of drug development. It can also lead to faster formulation development, and incremental innovation leading to the creation of intellectual property. Companies planning to outsource need to realise that such projects require management and oversight by people familiar with the science of the project and of the project’s place in the larger scheme of things. There is no place for a ‘throwing it over the fence’ mentality.