Product manufacturers in the pharmaceutical industry are finding it increasingly difficult to drive strong growth, for reasons such as governmental global cost-containment measures such as promoting more economical generic drugs. The pharmaceutical industry is suffering from low R&D productivity, which has fallen to its lowest levels in 20 years, despite companies making record levels of investment in R&D, according to a new report from Datamonitor, an online provider of global data, analysis and forecasting for major industry sectors.
These and other changes in the pharmaceutical environment are prompting product manufacturers to find novel ways to overcome the challenges facing them. A new report from Datamonitor finds that one solution gaining increasing favor is the reliance on third-party providers. Pharmaceutical companies are shifting toward a "network pharma" model. In this model, companies virtualize key parts of their business—including package development—to drive productivity and efficiencies, says Joanna Chertkow, Datamonitor pharmaceutical markets lead analyst.
"The network pharma model relies on four key types of relationships—in-licensing, out-licensing, collaborations, and outsourcing—to carry out a variety of functions across the business, using a network of partners," Chertkow adds.
Outsourcing is proving to be a useful tool for pharmaceutical companies to manage core product manufacturing and packaging functions, the report says. Outsourcing provides opportunities for time and cost savings, as well as benefits from financial and operational flexibility. However, issues over loss of control, intellectual property, and confidentiality remain as concerns for many pharmaceutical companies when considering the use of contract packagers and manufacturers, Chertkow says.
Despite those concerns, pharmaceutical companies "must embrace outsourcing, taking the necessary precautions to offset the associated risk of using this valuable tool," she says.
The report says product manufacturers can mitigate risk and maximize the value they receive through outsourcing agreements, such as those with contract packagers and manufacturers, by following four steps:
1. Product manufacturers should have a robust screening process using carefully chosen criteria to identify the most suitable partner.
2. Make cost a secondary factor and put greater emphasis on the track record and expertise of the contractor.
3. After the vendor has been selected and the agreement signed, continue to be proactive in the partnership by actively managing it.
4. Consider leveraging contractors strategically rather than tactically to exploit the opportunity to focus on core internal competencies.
--By Jim George, Contributing Editor
