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The outsourcing model of drug development in the pharmaceutical industry.

Table of Contents

Introduction 2

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Why do pharmaceutical companies outsource? 3

Future outlook in outsourcing. 4

Conclusion 5


The outsourcing model by definition is the making of partnerships or contracting a third party for particular services or associated studies. A fully integrated pharmaceutical company (FIPCO) is a successful paradigm shift in business where research in drug discovery, manufacturing, marketing and development are all done in-house. However, the trend has changed and most of the pharmaceutical companies are doing less drug R & D in-house as they used to do decades ago (Winny & Jennifer, 2012).

Currently, the common paradigm shift in business is the virtually integrated pharmaceutical company (VIPCO), or a company that outsources much of the drug development pipeline. Outsourcing is important especially in the drug production line, to compensate for the huge number of drugs coming off the industry, low productivity of the industry and beat competition from generics (Winny & Jennifer, 2012).

Contract Research Organizations (CROs), clinical laboratories, in vitro diagnostic companies (IVD), contract manufacturing organizations (CMOs), and regulatory consultants all support the needs in conventional pharmaceutical outsourcing. Pharmaceutical companies engage external relationships in the processes during the early stages of drug discovery. Outsourcing of drug discovery, or the innovation stage, has been presented in the form of open innovation models in which the companies engages universities, government research institutes, specialty pharmaceutical companies or external partners in identification of drug candidates that match the interests of the business (Winny & Jennifer, 2012). The essay discusses the importance of the outsourcing model of drug development in the pharmaceutical industry

Why do pharmaceutical companies outsource?

Outsourcing reduces financial risks in pharmaceutical companies by limiting capital investments such as real estate and lab equipment while fixed costs are converted into variable costs as researchers are not pharmaceutical companies’ employees but the CRO employees. Outsourcing allows biotech companies, to hold off partnerships with major pharmaceutical companies furthermore, they keep large ownership of the drug. Significant amount of money and time is saved in the drug approval process. A day that a drug delays to get into the market can lead to major losses of about 1 million dollars. The companies are willing to outsource to complete a study sooner, and since the studies increase in complexity, outsourcing ensures attention to detail and accuracy (Squires, 2005).

Outsourcing accelerates the process of drug development. Pharmaceutical companies are employing a “fail first” approach, which recognizes value in an early discarding of compounds, during Phase I or during the preclinical stage, this is done after it has been determined that the compounds will fail. The cost of compounds that have failed is responsible for about 75% of cost to develop a new drug. This move leaves more funds for viable candidates; therefore, it results in a greater return on investment. (Squires, 2005).

The introduction of proteomics and genomics, has complicated the process of drug development since it is expected to increase the drug target from currently 500 to 5, 000 – 10, 000. This is an explosive increase in new drug targets therefore many will be poorly validated thus increasing the risk of failure of a particular compound. The choice of the correct CRO with a strong early clinical capabilities and preclinical capabilities will be suitable in ensuring the advancement of the right compounds (Squires, 2005).

The regulatory environment for the pharmaceutical industries is very tight, thus making it important for such companies to obtain the services of outsourcing companies. The time for approval of New Molecular Entities (NMEs) increased to 15. 6 months during 2000 from 11.6 months in 1999 and each year, the FDA has been approving very few newer drugs. In the year 2000, only 27 NMEs were made compared to the previous year 1999 where a high of 56 was made. This signifies an increase in complexity of data and increase in data required by FDA, this makes it fundamental for pharmaceutical companies to consider the services of outsourcing companies that can handle the regulatory oversight by NDA (Squires, 2005).

The amount of time new compounds enjoy the exclusivity in the market has been shortened dramatically , therefore outsourcing with an international CRO is required to allow the pharmaceutical companies to seek approval from a number of countries concurrently and maximize on the potential profit. The international CRO can also be engaged in recruitment of new patients and this will enable the sponsors to obtain sufficient participants and thus satisfy the requirements of FDA in clinical trials (Squires, 2005).

Future outlook in outsourcing.

All the major pharmaceutical companies have repriotized their focus on therapeutics, they have abandoned some programs in their lines of production. In the next couple of years, the spending on global drug research and development will slightly decrease or remain flat. However, presently the companies are cutting the fixed cost and improving on efficiency and productivity, they are all increasing outsourcing of manufacturing and core drug R & D. The global industry on pharmaceutical outsourcing is expected to experience a fast growth in the next five years (Zhang, 2011).

The present penetration in R& D outsourcing in biotech and global pharmaceutical companies is averagely approximated to be 37 %. The outsourcing proportion is expected to grow rapidly based in the current strategies in outsourcing and reach 67 % by 2017. The fraction of fixed operation cost out of the total operation cost will be a third, a decrease from the current rate of two thirds. In the next couple of years, fierce competition is expected to occur in the global pharmaceutical outsourcing industry since most outsourcing providers are narrowing their pool of services to a couple of CROs that are preferred in the key sectors of service. Therefore, in the future, a wave of CRO consolidation is expected to take place within the industry (Zhang, 2011).

The outsourcing model has turned out to be a fundamental model in the drug development. Various services have been outsourced to various institutions such as universities, research institutes and other pharmaceutical companies. It is a model that has led to many advantages such as reduction in the financial risks, it ensures attention to accuracy and detail and it accelerates the process of drug development. Furthermore, ensures that pharmaceutical companies can handle regulatory oversight. Indeed, it is an important model in pharmaceutical industries.


Squires, D. (2005). Outsourcing Drug Development. Retrieved Septemebr 25, 2017, from Contract Pharma:

Winny, T. & Jennifer, B.(2012). Industry Trends: Outsourcing Pharmaceutical Development & Innovation. Retrieved September 24, 2017, from Drug Development and Delivery.:

Zhang, J. (2011). New Global Pharmaceutical Trends. Retrieved Sepetember 25, 2017, from Pharmaceutical Online:

The outsourcing model of drug development in the pharmaceutical industry.

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