Outsourcing Pharmaceutical R&D: Risks and Rewards

Outsourcing is a popular and profitable strategy that allows large companies to contract out what they consider to be non-critical processes and services – something most of us associate with routine customer service and IT support.

Pharma companies have been key players in this trend for years, outsourcing almost everything in IT, including mainframes, networks and call centres. Over the past decade, progressive organizations have even begun contracting out human resources, finance and accounting, and facilities management.

Since the late 1990s, GlaxoSmithKline, Novartis, Johnson & Johnson, and Pfizer have taken the lead in outsourcing an increasing number of operations.  It has become commonplace for them to outsource testing and trials, and other processes associated with clinical research. But now, with the upcoming patent expirations of numerous brand name drugs, industry giants are once again hoping to expand the conventional limits of outsourcing.

They are casting their eyes eastward, looking to contract off-shore services for a sector once seen as completely off-limits for outsourcing: Research and Development.

Outsourcing R&D to Asia

In an effort to reduce costs and restructure inefficient business models, pharma companies are looking to Asia for more than typical testing, drug trials, and processes associated with pharmaceutical quality control.

China for example, is an emerging market of educated professionals and has evolved into a hot zone for R&D investment and recruitment. At increasing rates, Big Pharma is sourcing Asia for talented graduates of pharmaceutical courses and experienced professionals in the field to fulfill advanced staffing needs. Asian countries are also investing in the trend, prompted by increases in chronic disease, pollution, and limited healthcare options. The burgeoning population promises growing demands for new drug therapies.

Obstacles and Risks

Analyses of initial explorations reveal that pharmaceutical companies face considerable risk when they endeavor to outsource core functions.

The dominant areas of concern include:

  • Selecting an appropriate provider/location for staffing needs
  • Ensuring ongoing control and monitoring of projects/staff
  • Developing effective communication with outsourced employees and management
  • Ensuring strong business terms, including robust protection of intellectual property

Contracting off-shore staff for advanced operations does not guarantee savings or increased efficiency.  Traditional outsourcing relies on heavily regulated standard operating procedures, which mitigate risk and error. On the other hand, drug development relies on innovation and creativity – facets of the industry that are difficult to standardize, structure, and control. In order to be successful off-shore, pharma companies must develop sophisticated sourcing strategies, navigate the complex terrain of cross-continental relationships, and negotiate differences in culture and policy.

Do you think the outsourcing of R&D will benefit the pharmaceutical industry?