The Future of R&D Outsourcing: Investigating development hurdles, key challenges & strategies to optimize CRO relationships

• Publication date: January 2010

For several years, drug developers have been under intense pressure to introduce new products in an environment of escalating R&D costs, blockbuster patent expiration and resulting generic competition, increasingly complex science, heightened regulatory scrutiny, and other pressures. The global economic meltdown has exacerbated these challenges with new R&D staff and budget reductions. In order to remain competitive, drug makers must now do more ...

For several years, drug developers have been under intense pressure to introduce new products in an environment of escalating R&D costs, blockbuster patent expiration and resulting generic competition, increasingly complex science, heightened regulatory scrutiny, and other pressures. The global economic meltdown has exacerbated these challenges with new R&D staff and budget reductions. In order to remain competitive, drug makers must now do more with less. Outsourcing, particularly to low cost offshore venues like India and China, offers a means to maintain productivity within new cost parameters.

However, while some drug makers have optimized their R&D outsourcing methodologies and have developed sophisticated processes to select, monitor and manage a wide range of projects, many other R&D outsourcing projects fail due to poor planning on the part of sponsors. A large proportion of these failures could be averted as many of the most common reasons for failure are preventable problems relating to R&D outsourcing strategy, supplier evaluation & selection, contracting, project organization and expectations, supplier management, culture, staff turnover and intellectual property.

Key features of this report

• Discussion of the factors leading to current imperatives to increased outsourced R&D.

• Detailed descriptions of both effective and ineffective R&D outsourcing approaches.

• In depth analysis of the types of different R&D outsourcing relationships, their advantages and disadvantages.

• 5 case studies that illustrate R&D outsourcing best practices.

• Comprehensive discussion of offshore R&D outsourcing, particularly focusing on India and China.


Scope of this report

• Understand the driving forces behind R&D outsourcing.

• Save time and money with the report’s succinct compilation and analysis of current R&D outsourcing trends.

• Learn how R&D outsourcing will evolve over the next several years and why.

• Assess your competitive position vis-à-vis other drug makers and learn about R&D outsourcing best practices via detailed case studies.

Key Market Issues

(1) Although cost cutting has previously not been a concern for R&D departments, the current economic environment has brought expense reduction programs into research labs. Most of the leading drug makers have recently undertaken and/or are currently in the midst of broad R&D cost cutting programs

(2) Because drug makers must continue to introduce new products, maintaining high productivity is key. R&D outsourcing offers a means to achieve this, particularly via low cost offshore outsourcing.

(3) Most R&D outsourcing programs do not focus on a single approach but include several different types of relationships with contractors. The savviest drug makers combine these approaches in a well thought-out, synergistic manner while many others will implement them in a slipshod, ineffective fashion that results in high project failure rates.

Key findings from this report


(1) Usage of CROs will rise by 9.9% annually through 2014 with the greatest growth in Phase IIIb and IV testing at 13.8% per year.
(2) While the top 10 CROs account for more than half of all R&D outsourcing, more than 1,000 others comprise the remaining 44%.
(3) Offshore outsourcing, particularly to India and China, offers cost savings of 30% to 60% compared to the US and Western Europe.
(4) The 100 Indian CROs tend to be larger and more focused on clinical trials while the 300 Chinese CROs are smaller and many are building strong pre-clinical capabilities.

Key questions answered

• Why is R&D outsourcing rising?
• Which types of R&D outsourcing approaches are currently most common?
• Which forms of R&D cost cutting will increase most in the future?

Research And Development Industry in Europe

Table of Contents
The Future of R&D Outsourcing
Challenges facing drug developers 10
Dynamics of outsourced R&D 11
R&D outsourcing in Asia 12
Strategies to optimize R&D outsourcing relationships 13
The future of R&D outsourcing 14
Chapter 1 Challenges facing drug developers 16
Summary 16
The drug approval process 17
US 17
Europe 21
The Mutual Recognition Procedure (MRP) 21
The National Competent Authorities 23
Rising financial pressure 24
Expiring patents on blockbusters 24
Decreasing market exclusivity 27
Healthcare cost containment 28
Rising usage of generics 28
Elimination of coverage 30
Step therapy 31
Utilization of OTCs 31
Manufacturer rebates 32
Consumer skepticism of drug benefits 32
Drug development imperatives 33
Targeting large markets 34
Focus on efficacy 34
Expansion into biologicals 36
Decreasing time to market 36
Drug development hurdles 37
More complicated disease targets 38
Rapidly escalating costs 38
Reduced R&D staff 40
Heightened regulatory scrutiny 43
Declining drug approvals 44
Conclusion 46
Chapter 2 Dynamics of outsourced R&D 50
Summary 50
Contract research organizations 51
The role of CROs 51
Services offered by CROs 51
Discovery 53
Preclinical evaluation 54
Clinical trials 54
Repositioning 55
Expanding technological expertise 56
Reasons for outsourcing R&D 56
Types of relationships 60
Preferred vendors 63
Functional service providers 64
Risk sharing 64
Technology partnerships 65
Drug licensing 66
Benefits and limitations of using CROs 66
Long term cost savings vs. high short term expenses 67
Speed to market vs. potential project overruns 68
Access to expertise vs. CRO staff turnover 70
Flexibility vs. loss of control 71
Ability to customize research vs. CRO clutter 72
CRO usage 72
Usage estimates 2009 - 2014 73
Leading CROs 73
Conclusion 74
Chapter 3 R&D outsourcing in Asia 78
Summary 78
Introduction 79
Offshore outsourcing of clinical research 81
Offshore outsourcing of preclinical research 82
Contract research in India 84
Key outsourcing issues 86
Intellectual property 86
Regulatory issues 87
Business issues and infrastructure 88
Leading players 90
CRO usage and market size 90
CRO developments in India 91
Case study: GlaxoSmithKline 92
Contract research in China 95
Key outsourcing issues 96
Intellectual property 97
Regulatory issues 98
Business issues and infrastructure 100
Leading players 102
CRO usage and market size 103
CRO developments in China 103
Case study: Eli Lilly 106
Offshore outsourcing partnerships 108
Types of relationships 108
Early stage collaborations 109
Global networks 110
Conclusion 111
Chapter 4 Strategies to optimize R&D outsourcing relationships 114
Summary 114
Introduction 115
Key causes of and remedies for R&D outsourcing failures 116
Outsourcing strategy 118
Supplier evaluation and selection 119
Contracting 122
Renegotiation 124
Project organization and expectations 125
Supplier management 126
Culture 128
Corporate cultural differences 129
Ethnic divergence 130
Management changes and personnel turnover 131
Management changes 131
Personnel turnover 133
Intellectual property 133
R&D outsourcing best practices 134
Case study: Wyeth 134
Case study: AstraZeneca 135
Case study: Eisai 136
Conclusion 137
Chapter 5 The future of R&D outsourcing 140
Summary 140
Introduction 141
The drug development landscape in the US and EU 142
Near term: 2010 - 2011 143
Long term: 2012 - 2015 146
R&D outsourcing trends 147
Near term: 2010 - 2011 152
Long term: 2012 - 2015 154
Conclusion 155
Index 156

List of Figures
Figure 1.1: US and EU spending on generic drugs, 2009 30
Figure 1.2: US NME approvals vs. R&D spend ($bn), 1990-2009* 46
Figure 1.3: Average US R&D spend per NME approval ($m), 1990 – 2009* 47
Figure 2.4: Services offered by CROs 52
Figure 2.5: Potential benefits and limitations of using a CRO 68
Figure 2.6: Growth of outsourced R&D by segment ($m), 2009-14 74
Figure 2.7: Market analysis of major CROs, 2009 75
Figure 3.8: Advantages and disadvantages of leading Asian outsourcing venues 80
Figure 3.9: Clinical and preclinical test capabilities of India and China 83
Figure 3.10: Growth of outsourced R&D to India by segment, 2009-14 91
Figure 3.11: GlaxoSmithKline sales vs. R&D expense (£m), 2000-09 94
Figure 3.12: Growth of outsourced R&D to China by segment ($m), 2009-14 104
Figure 3.13: Eli Lilly sales vs. R&D expense ($m), 2000-09 107
Figure 3.14: Key characteristics of offshore partnering relationships 109
Figure 4.15: Risk factors when outsourcing R&D 117
Figure 5.16: Confidence level of drug development & outsourcing predictions, near vs. long term 143
Figure 5.17: Drug development trends, near vs. long term 144
Figure 5.18: Relative usage & growth of different types of R&D outsourcing relationships, near vs. long term 148
Figure 5.19: R&D outsourcing trends, near vs. long term 151

List of Tables
Table 1.1: CDER Drug Advisory Committees, December 2009 21
Table 1.2: Leading European National Competent Authorities, 2009 25
Table 1.3: Leading European National Competent Authorities, 2009 (ctd) 26
Table 1.4: Revenues and patent expirations for selected companies’ blockbusters, 2009 27
Table 1.5: Leading medicinal research areas, 2009 35
Table 1.6: Significant R&D staff reductions, 2008-09 41
Table 1.7: US NME approvals, 2000-09 45
Table 1.8: US R&D spend for approved NMEs ($), 1990-2009 45
Table 2.9: Key characteristics of CRO partnering relationships 62
Table 4.10: Reasons for time and budget overruns 127
Table 4.11: Corporate cultural characteristics of sponsors and contractors 129
Table 5.12: Global growth of outsourced R&D by stage ($bn), 2009-14 153



Companies mentionedGlaxoSmithKline, Eli Lilly, Wyeth, AstraZeneca, Eisai,