Pharmaceutical Outsourcing Market - Research Paper Example

? The Overview of Pharmaceutical Outsourcing Market Over the last decade The U.S. drug industry has had to deal with spiralling costs of new pharmaceuticals development, while the productivity of Research & Development has been found to stall. In order to tackle the situation, companies have increasingly outsourced drug development work to third parties, predominantly to emerging pharmaceutical markets, like India, China, Eastern Europe, etc1. This report highlights the growth of drug outsourcing and evaluates the impact it has on drug development. By definition, the term “outsourcing” means farming out certain work to outside sources that will perform it under contract. These sources are CROs (contract research organizations) and CMOs (contract manufacturers)2. Presently, almost each part of the drug Research & Development process is being outsourced. Today outsourcing is known to cover nearly whole spectrum of pharmaceutical, as well as biotech value chain, starting with services of drug discovery to the production of intermediates, doses, and various pharmaceutical ingredients. The growing market of pharmaceutical outsourcing is known to provide services in all parts of pharmaceutical value chain, as it is illustrated in Figure 1 below. Figure 1 Pharmaceutical Value Chain3 By latest estimate, the outsourcing share in various elements of the value chain may range from 15 up to 100 per cent. The outsourcing market in the pharmaceutical industry was estimated to overcome the figure of $70 bn back in 2008. It is known to be growing at a rate higher than that of the pharmaceutical market development in general (as shown in Figure 2). Figure 2 The Growth of Outsourcing Share4 The pharmaceutical industry in the United States has been increasingly utilizing outsourcing as a primary R&D strategy of late. Specifically, the data from the private banker known as UBS Warburg evidence that out of the 30 billion U.S. dollars that were invested in Research & Development within the American pharmaceutical industry back in 2001, approximately 20-25 % were invested in outsourcing (Hemphill, 2010, www.innovation-enterprise.com). The R&D expenditure in the States is known to outperform that in Europe and Japan, as shown in Figure 3. Today 15% of overall expenditures in R&D are known to be outsourced to CROs. The 10 biggest CROs make up 60% of market revenues, which can be interpreted as a global oligopoly (See Figure 4). Figure 4 5 One of the current trends in the CRO industry is having clinical trials in the world’s emerging markets in India, China, Latina America, etc. This is explained by the availability due to low cost of large patient pools whose population is generally treatment-naive, yet characterized by western-like epidemiology. Still, hospital infrastructure is allegedly poor, and it is problematic to maintain compliance to ICH/GCP, as well as overcome regulatory, language and cultural barriers. Figure 4 Top 10 CROs6 Currently about one third of the overall pharmaceutical output, which is nearly $130 bn, is produced by what is thought to be the third parties. CMOs are especially well-known in API production, as well as loan manufacturing (See Figure 5). Figure 5 Major CMOs7 Reasons for Outsourcing Both small and large pharmaceutical companies recognize the need to possess flexibility in order to implement crucial projects on time and effectively master the whole skill range in the pharmaceutical industry. Outsourcing has been viewed as a viable choice in this context. It has also been widely employed for moving forward multiple projects in a simultaneous manner. Below one may find specific reasons for outsourcing based on classifying them as organizational/operational, staffing, financial & cost control, quality assurance, governmental & regulatory, and competitive. Organizational & operational reasons are based on recognition that outsourcing helps to ease the process of the consolidation of services in the pharmaceutical industry with focus on integrated health systems; helps to resolve the inefficiencies of operational nature; helps to provide compounded preparations apart from the scope of routinely provided preparations; enables the company to acquire more resources and better expertise in order to carry out other priorities. The reasons related to staffing are outsourcing helps the firm to staff the pharmacy positions that are hard to fill, addresses the problem of staffing the existing pharmacies. Outsourcing enables the company to reach adequate levels of staffing in order to attain set productivity goals. Financial & cost control reasons are outsourcing helps to control as well as reduce the organization’s services cost; helps to control as well as reduce costs related to labor; enables the company to get a business partner with which the risks will be shared, as well as other liability; saves the costs of remodelling the existing facilities. Quality assurance reasons are outsourcing helps to provide pharmacy services in a consistent manner; enable the firm to maintain or even advance the quality of patient care; helps to provide adequate support for the medical staffs and improve the collaboration between physicians, nurses and a given pharmacy; improves the procedures within the organization. Governmental & regulatory reason is outsourcing helps and ensures compliance with the requirements of legal, certification, regulatory, and accreditation kind. Last but not least, competitive reasons are outsourcing enables the company to gain an edge on numerous competitors in the industry through potential improvements in either service or quality/price. Statistically, 55% of organizations outsource in order to improve their organization focus. Roughly 54% depend on outsourcing in their practice of reducing/ controlling the organization’s operating costs. 38% say they want to free resources for many other purposes. 36% said they wanted to acquire access to world-class capabilities. The benefits of less time to market and that of risk sharing used to be found at 18% and 12%, yet due to the changes in U.S. climate of competition, difficulties of new product F.D.A. approvals, as well as downward tendency for prices these priorities moved to the leading positions on the list. 3. Ketek Case Ketek was the first of an emerging generation of seemingly highly effective antibiotics for the treatment of respiratory-tract infections. It was developed back in 1990 by the company Aventis Pharmaceuticals, later known as Sanofi-Aventis. In 2004 Ketek was certified both as safe and effective. Since outsourcing had been widely used in clinical trials for this drug, the certification decision relied on the findings by the studies conducted in Tunisia, Hungary, Turkey, and Morocco. The drug received approval in a month after a U.S. researcher Dr Anne Kirkman-Campbell was sentenced for the fact she falsified the enrolment of about 400 volunteers while having received $400 per one person participating in a drug trial. While 91 % of the data provided by the researcher were recognized falsified, Ketek was approved on the ground of trials conducted overseas. Sanofi-Aventis launched an advertising campaign saying that Ketek was the most successful of antibiotics in human history. However, in February 2005, about half a year after Ketek was introduced to the pharmaceutical market, the first Ketek-related death was reported to the federal authority. The patient who underwent treatment for a mild respiratory infection reportedly died from the liver failure caused by the use of Ketek. As a few more months passed, with numbers of Ketek users steadily climbing, the F.D.A. started to receive reports informing of heavy adverse reactions, which included the liver damage which could even have lethal consequences. The drug was still supported by the F.D.A. leadership despite the criticism expressed by F.D.A. researchers. While the F.D.A. was getting reports of serious adverse reactions to the marketed drug (93 reports, 12 of them with lethal consequences, 53 patients received serious hepatoxic damage), a trial was being conducted in more than 12 countries, with more than 4, 000 infants and older children involved. It wanted to test how effective Ketek was in treating ear infections, as well as tonsillitis. Despite new reports of Ketek’s inefficiency and harm that led to human suffering or deaths, it remained on the market the public being reassured that Ketek was an effective antibiotic. 4. Celebrex Case Celebrex is another drug whose outsourced clinical trials were the basis for fraud in the long run. It is a non-steroidal drug with alleged anti-inflammatory effect. Celebrex is known to have been widely promoted on television for nearly a decade. Pfizer, the company manufacturer and the world’s leading pharmaceutical company spent over 1 billion to advertise it as a pain remedy for a variety of medical conditions, including arthritis and menstrual cramps. While it was registered that there were 290 clinical trials involving Celebrex, 183 of these were conducted in the States, while the rest were involved in clinical trials in other countries. These numbers have been found to be largely underestimated. At least 200 trials were held in the developing countries, which was not reported to the F.D.A. since it was not obligatory. On the basis of the trials conducted in Estonia, Russia, Croatia, Columbia, Mexico, Brazil, China, Lithuania, Ukraine, and Costa Rica, the drug was said to be safe and effective. At the same time, outsourcing served as a tool for hiding the vital information since its major drawback was it caused people to suffer from strokes and heart attacks. In addition, Pfizer was known to suppress a study that aimed at calling attention to these issues. Yet, the findings in the Journal of the Royal Society of Medicine revealed a range of negative findings Despite this fact, Pfizer continued to promote the drug as a means of slowing the development of dementia. The sales reached 3.3 billion back in 2004 when they started to drop at a quick rate. Outsourcing Market Analysis and Future Market Outlook The analysis of outsourcing impact on drug development reveals its upsides, while troubles with outsourcing are evident. While outsourcing helps to save costs and develop drugs in a quicker manner, it may be associated with low quality products, disclosed adverse effects and may serve a tool in fraudulent marketing campaigns. For the buyer, whose primary concern is quality, this seems a serious impediment, while for the pharmaceutical company interested in revenues and new profits, outsourcing offers an effective way out in the time of economic stagnation. Therefore, today outsourcing is a leading way of drug industry growth, it ositively influences the development of new pharmaceuticals and reduces the drugs’ cost for the consumer. Figure 6 Impediments and Drivers for Outsourcing8 Yet, taking into account the number of legal, quality and economic concerns, a balanced use of outsourcing should be encouraged, with a clear view of both positive and negative impacts. This means that the proportion of positive and negative effects of outsourcing, as shown in Figure 6, has to be urgently rethought with more focus on quality problems and ethical issues. Outsourcing is becoming more and more popular today, and so it will in the future. If regulated adequately and effectively controlled it may bring significant benefits to the humanity. Yet, danger exists that outsourcing may turn into a dangerous tool of drug fraud and lead to unexpected deaths and patients’ suffering. Conclusion Outsourcing remains and will remain a solid force of drug development and pharmaceutical industry growth. In the time of steady increase of world population, new diseases, economic crisis, it offers a way out of expensive drug development process. Predictably, both manufacturers and consumers win in this case. However, the positive economic and R&D contribution of outsourcing should be considered only after its possible negative effects, which need to be handled through regulation, control, and openness to be demonstrated by the leading pharmaceutical companies. This will not just help the industry to increase revenues, but enable healthcare industry save costs, and more importantly improve the lives of many patients and their families. Figure Index Figure 1. Pharmaceutical Value Chain Figure 2. The Growth of Outsourcing Share Figure 3. Pharmaceutical R&D Expenditure in Europe, USA, and Japan. Figure 4. Top Ten CRO’s Figure 5. Major CMOs Figure 6. Impediments and Drivers for Outsourcing References 1. CEPTON, “Strategic Outsourcing Across the Pharmaceuticals Value Chain” 2. Barlett, D. & Steele, J. (2011) “Deadly Medicine Politics”, Vanity Fair. 3. Ross, D. (2007) Perspective: The FDA and the Case of Ketek. The New England Journal of Medicine. http://www.nejm.org/doi/full/10.1056/NEJMp078032. 4. INTERPHEX (2004) Report: Outsourcing the Pharmaceutical Industry’s Choice for Managing Risk and Rapid Change. 5. ASHP (2010) ASHP Guidelines on Outsourcing Sterile Compounding Services. Am J Health-Syst Pharm. 2010; 67:757-65. 6. ATOS Consulting (2006) Trends and Issues. Pharmaceutical Industry. 7. Ternansky, B. (2007) Pharmaceutical Outsourcing. Read More