Trending towards a strategic future: Looking at the growth in strategic outsourcing

Strategic outsourcing is trending within the pharmaceutical industry with companies relying on trusted and preferred suppliers in an integrated supply model, notes Justin Schroeder, executive director, Marketing, Business Development & Design at PCI Pharma Services.

Outsourcing in the pharmaceutical industry, once viewed with a certain degree of scepticism, is now accepted practice and is being bolstered by the trend toward strategic outsourcing with a focus on core competencies. The rise in emerging companies with ‘virtual’ supply models is also leading to outsourcing growth and is seen by many as the trend for the future.

In the past pharmaceutical companies have competed on the grounds of product innovation. Taking into account the high cost of R&D — combined with heightened regulatory scrutiny, increased internal diligence, and the economic and political pressures for better end product pricing — finding ways to reduce overall costs is now critical.

Outsourcing has not only helped to increase company product ranges, it has also reduced the time taken for a product to reach the market and this has become a vital factor in maintaining profitability. Furthermore, as the pharmaceutical market is increasingly global in nature, outsourcing with select CMOs can provide highly specialist experience and insight to access nuanced emerging markets.

In the make-or-buy decision process, pharmaceutical and biotech companies have to evaluate six key areas: capital investment, resource, risk, regulatory considerations, expertise, and experience. Drug companies are increasingly looking to select CMOs in a more strategic and inclusive fashion which provides the better option and frees them to devote resources to better pursuits.

Outsourcing partnership

Working closely with an outsourcing expert who understands the business and products and who can advise on those processes that can be transferred, while minimising any risk, provides pharma companies with a means of safely going down the outsourcing route.

The next step is to work with an outsourcing partner so that understanding is shared and risk minimised by clearly defining who is responsible for what, how and when. To that end, high performing and experienced providers such as PCI Pharma Services are being regarded more as strategic partners rather than just tactical outsourcing vendors.

As an outsourcing partner, there is an inherent requirement to deliver tangible value. Such ‘value’ may include cost savings or cost mitigation, but also may include ways to improve product quality and safety or reduce risk. It might also deliver ways to improve the patient experience or provide a means of improving the supply chain, or it may include any other initiative that enhances the overall performance of the client and provides competitive advantage in the demanding global healthcare market.

Progressive minded companies have developed scoring systems to evaluate strategic suppliers on this total performance metric — providing a methodology to measure intangibles such as innovation, risk mitigation, quality, loss/scrap reduction, price, performance and even facets such as environmental sustainability.

The supplier is expected to do more for the relationship than what is expected in a traditional tactical sourcing model, and the benefit is stable, secure product demand, information sharing and long-term commitment in the relationship.

Strategic partnership model

In a partnership model, not only is this value creation an expectation of the pharmaceutical company for supplier performance, but it also works as a motivation to the vendor partner — what is good for one party is mutually beneficial to the other, ultimately resulting in shared successful outcomes for both.

The other expectation in a strategic partnership model is the role of the supplier in anticipating, identifying and acting upon market factors and trends, translating them into strategies and service offerings that increase competitiveness for the client in both the current market environment, as well as the future.

A good example of PCI’s effective strategic partnerships is the way the company has worked with leading pharmaceutical companies and developer Capsugel to bring forth a fully contained Xcelodose unit in support of potent compound development.

This allows PCI to work with clients on developmental services for potent compounds that expedite clinical development and at the same time maintain all the safe and effective handling of these powerful therapies. This expertise and value creation has allowed clients to achieve speed-to-market in the highly attractive oncology market and considerably reduce costs in early phase development.

David O’Connell, PCI’s director of Pharmaceutical Development, explained, “Housed within the new containment facility at Tredegar, South Wales, the Xcelodose microdosing unit enables us to offer a premium service to our clients. PCI is continually investigating and investing in ways in which we can accelerate the manufacture of our clients’ products, while maintaining our uncompromising commitment to safety and quality.

“By involving our experts early in the strategic development of a client’s new product, we can assist in optimising the process, ensuring that regulatory hurdles are minimised and that the most efficient routes to clinic are delivered.”

Industrial evolution

As the pharmaceutical industry continues to evolve and rethink its strategies and tactics, there will be a greater reliance on outsourced service providers and the adoption of new logistical models. As a result, PCI is actively investing in its geographical presence for clinical trial supply.

“We have been very fortunate to be present for much of the dialogue around strategic outsourcing with our clients. It really is an industry shift as they reconcile their market competiveness and identify what is core to their business,” said Bill Mitchell, president and CEO of PCI Pharma Services.

“Pharma companies are rethinking their pipeline development strategies and tactics and adopting new logistical models. PCI is focused on providing advanced solutions for our clients that help them achieve both optimal supply as well as more effective execution.

“Our expert staff and the substantial investments we have made in infrastructure across our North American and European operations allow us to provide our clients with a more dynamic supply model. The customers that we work with tend to want to have companies that have a footprint not just in the US, but in other major global markets. That has been our strategy from day one and we continue to pursue it.”

Driving force of change

This trend towards strategic outsourcing is the driving force of change. Where the market had once been very transactional and tactical in nature, increasingly drug companies are relying on preferred and trusted suppliers in an integrated supply model.

With continued merger and acquisition activity in the pharmaceutical segment, coupled with large-scale vendor reduction initiatives, PCI sees this trend ever increasing. Pharmaceutical and biotech companies have been vocal of their desire to partner with leading service providers who can offer a multitude of development and commercialisation services, developed from a broad client base and deep specialist experience.

Mitchell sees tremendous value in this partnership model, stating, “At PCI, our number one commitment is to provide the industry’s leading customer experience. That singular focus translates into our own strategies and specific investments being very much aligned to the key insights and both current and future needs shared by our customers.”