Numerous factors are driving the demand for outsourcing consulting services within the healthcare industry. Few of them are enlisted below:
- Increasing globalization facilitating product launches in new geographies having varying regulatory policies
- Rising activities such as mergers, take-overs, patent filing, and in-licensing
- Lining up of product pipelines requiring assistance in marketing and post-marketing maintenance
- Strengthening of regulatory compliance and amendments of by-laws
- Accelerated pace of changes in regulatory environment
- Strong growth of outsourcing market
- Increasing benefits in outsourcing such as cost efficiency, core competency focus, improved ROI and profit margins, reduced documentary burden and others.
Drug discovery and development is an integral sustainability strategy adopted by pharmaceutical manufacturers. Growing prevalence of chronic and long-term diseases has heightened the need for new drug development via extensive R&D investments. According to the estimates of PhRMA, the total drug development related R&D spending in 2014 amounted to USD 51.2 billion.
Global biotechnology/pharmaceutical services outsourcing market by region, 2015
Growing clinical trial failure rates coupled with increasing drug development costs cause huge loss in revenue for manufacturers. Statistics suggest that the failure rates of phase II clinical trials have increased from 82.0% in 2008 to 89.0% in 2012. Major reasons for these failures include low efficacy and safety concerns. These are taken care of by outsourcing companies thereby allowing better positioning of the pharmaceutical industries in R&D.
The higher level of expertise is anticipated to boost the demand for these services. Availability of well-established clinical research organizations, regulatory outsourcing firms, management consulting firms, and contract manufacturers is catering to complex demand of pharmaceutical and biotechnological sectors.
For instance, an organization conducting clinical trials for several years would certainly have greater success rate. Moreover, constant improvisation of in-house R&D capabilities is not always possible due to budget and resource constraints. Outsourcing is the best when it comes to save cost, time, and resources.
Furthermore, launch of advanced products helps companies generate more revenue. Competent R&D infrastructure and available funding is helping organizations expand depth and breadth of product portfolio. Launching new product involves lots of strategic intricacies regarding price, packaging, distribution, promotion, and regulatory approval, which can be solved through outsourcing of consulting services.
Merger acquisition and collaborative development is one of the long-term sustainability strategies. Creating partnership or an acquisition requires extensive expertise on financial aspects, operational performance, and cultural fit. This requires high level of consulting from experienced consultants, thereby boosting growth of the pharma/biotechnology services outsourcing market.
Owing to aforementioned factors, the demand for outsourcing of these services is expected to rise over the forecast period. The companies and outsourcing partners are chosen after thoroughly scrutiny owing to the risk one may face if things go wrong. Usually there are two engagement models adopted and are broadly classified as:
- Incremental outsourcing
- Total outsourcing
These models influence the pricing and contractual obligations between both the parties.
Incremental outsourcing is performed when a pharmaceutical/biotechnology firm wants a particular activity or project to be managed by a third-party. During this engagement model, the level of responsibility is shared between the vendor and outsourcing firm, and a two and fro dialogue is maintained thereby dividing the entire project into small tasks.
Total outsourcing involves outsourcing of entire activity for a project to a third party vendor. The vendor perform start to end management, at their own discretion with feedback from the clients and provide the final output. Rising trend of opting this model by small scale or virtual companies is anticipated over the forecast period. For instance, a startup pharmaceutical/biotechnology firm may outsource its legal representation to an established law firm, which manages end-to-end their investment plans to legal proceedings.
In-depth report on global biotechnology/pharmaceutical services outsourcing market by Grand View Research:
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