Executive Summary

The pharmaceutical industry provides essential support to the healthcare system by innovating, manufacturing, marketing and supplying drugs. Over the last few years, the most prolific change in the industry has been the expansion of focus, from primarily research and development to include, among others, sales and marketing and process re-­?engineering. The industry is not only re-­?examining the investment it makes in research and development, it is also attempting to move away from the traditional approach of direct sales.
In addition, on an average, it takes 8-­?16 years and costs between $800 million to $1 billion for a pharmaceutical company to develop a single drug. The expensive, lengthy drug development processes, especially those that do not produce results, are a big concern for the pharmaceutical companies, and the failure rates affect the profitability. To increase the efficacy of the R&D efforts and control the expenditure, pharmaceutical companies have begun working with other research companies. The reliance on partners, externalization, and collaboration with third parties is indicative of the new business model companies are adopting to stay afloat.
In the quest to develop innovative drugs, pharmaceutical companies have to be prepared for high capital investment and high risk. This is further accentuated by the pressure from generic drug companies and peer competition. The revenue generated

Due to these challenges, outsourcing of business processes emerged as a strategic and viable option. The pharmaceutical companies are now outsourcing both core and noncore activities through a third party collaborative approach. These partnerships bring cost benefit as they help in reducing capital outlay for the latest technology. It also allows for faster turnaround rates and time to market. The industry has benefited from the use of modular outsourcing with most of the top pharma companies outsourcing clinical trials.
As companies outsource different services such as drug development, clinical trials, manufacturing, BPO services, and marketing and sales, each one of them allows a reduction in costs with a direct impact on the bottom line. R&D challenges can also be addressed through clinical data management (CDM) and analytics offerings that provide meaningful data insights. Flexibility to scale up and down according to requirement also ensures that resources are optimized. The serviceproviders are capable of offering global delivery models. For instance, one service provider offers services from India, the Philippines, Mexico and the Czech Republic; while another one offers services from 10 global locations in 25 languages.
Flexibility allows companies to build front end capacity for essential sales and relationship building activities. Service providers offer an increase in efficiency for the repeatable processes. With the heavy focus on regulations and compliance across the healthcare segment, the need for this service is growing at rapid rates.
Most of the pharma majors are in the developed countries; however, outsourcing to developing economies like South Korea and India allows companies access to additional qualified resources. With some of the countries standing out in terms of specialties, it is easier for companies to look for and decide upon their partners. For instance, while India, China, Africa are gaining importance in drug discovery, there are multiple manufacturing centers in Asia Pacific. Countries like Brazil, India and China are preferred for contract research and manufacturing services (CRAMS), but the finished dosage forms are produced in the U.S. and UK. Service providers typically engage full time equivalent (FTEs) for the large pharma clients. This ensures that there is no loss of knowledge and continuity can be maintained. Most of the service providers also try to provide domain knowledge. If they cannot recruit enough subject matter experts (SMEs), they forge partnerships with niche providers. For example, a top tier IT-­?BPO company has partnered with another smaller CRO making their offering more complete. The added advantage is cost reduction as resources in most of these countries come at a much lower cost.
According to the U.S. National Institutes of Health (USNIH) data released in 2011, the U.S. hosted around 52,107 trials, while India and China have hosted 1,400 and 7,356 respectively. But the scenario is poised to change with the advantages that India and China offer. The array of disease profiles, drug naïve population, large gene pool and developing healthcare infrastructure make these locations very attractive as outsourcing destinations. The pharmaceutical companies are open to offshoring all the core functions like manufacturing, sales and marketing, and research. The shift in pharmaceutical companies' preference from onshore to offshore has also been driven by improvement in compatibility and coordination .
The benefits sought from outsourcing have also progressed beyond the cost and labor arbitrage. Services like billing, financial accounting, and call center management have traditionally been outsourced. But for many years, the outsourced services have moved up the value chain to include core functions like R&D and marketing. Though companies retain competencies in-­?house, they are increasingly using service providers to complement their capabilities and improve productivity. The larger pharmaceutical companies led the way, but now the mid-­?sized and the smaller companies are also taking advantage of outsourcing.
Current trends also indicate a shift toward FTE based pricing; however, many service providers are now offering transaction based pricing as they move up the value chain. Platform based services enable service providers to improve margins certain deals. Higher maturity has resulted in a growing trend towards transaction or outcome based pricing and is recommended for large and defined volumes.
To summarize, even as service providers reach out to the clients to establish the benefits they can bring to the table, it is important that they align their offerings to the client needs. The focus on improving client business is paramount. When companies look to outsource, cost arbitrage is a given. The focus now needs to be on increasing client revenue and business transformation. Buyers are looking for effectiveness of end-­?to end business solutions that integrate business process outsourcing with analytics, IT, and process re-­?engineering to deliver 2 5x higher impact on business outcomes. They need business partners, not necessarily service providers.

Company Mentioned

Genpact
Pfizer
Eli Lilly
Sanofi - aventis
Parexel and Icon
Cognizant
Covance
GlaxoSmithKline
PPD
Parexel
Bristol- Myers
Parexel
Squibb
Icon
Merck Sharp and Dohme (MSD)
HCL Technologies
Mahindra Satyam BPO
Sigma Pharmaceuticals
AstraZeneca
Infosys
Merck
inVentiv Health
TCS
Roche
Affiliated Computer Services (ACS)
Novartis
Accenture
IBM
Syntelinc
Wipro
Persistent Systems
Convergys
Quintiles
Veeda
Kendle
INC research
GVK Biosciences
Suven lifesciences
Ocimum biosolutions
PDI- inc
Syngene
HIKAL

Table Of Contents

1 Changes in the pharmaceutical industry
1.1 Race to innovate
2 Challenges to transform the pharmaceutical industry
2.1 Impending expiry of patents
2.2 RandD expenditure continues to increase
2.3 Pricing and other pressures squeeze profits
2.4 Regulation compliance across functions
2.5 Recession decelerates the industry
3 Outsourcing their way out of challenges
3.1 Reduction in overall costs
3.2 Improving efficiency across functions
3.3 Expand access to resources
4 Service providers expanding presence
4.1 Global vendor base gets competitive
5 Trends shaping the industry and the road ahead
5.1 Outsourcing of core services is common
5.2 Nature of partnership is more strategic
5.3 Opportunities ahead in RandD and clinical development
5.4 Potential for outsourcing sales and marketing
5.5 Benefits of offshoring acknowledged
5.6 Multiple vendor strategy to continue
5.7 Combined offering enables competitive pricing
6 About the authors
6.1 Phil Fersht
6.2 Deepali Sathe
7 About HfS Research

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