Service Providers - Partners in Prime

Today's pharmaceutical services companies face the most challenging of tasks, as they are required to offer speed, flexibility and competitive pricing combined with impeccable standards. Yet, says Steve Kemp, Business Development Director of Brecon Pharmaceuticals, this ideal can be achieved when a partnership approach is adopted.

The rash of mergers and acquisitions over the past decade has transformed the research-based pharmaceutical sector. Almost without exception, the top companies in the sector are shedding 'non-core' functions such as manufacture and packaging, as a diverse range of operations is increasingly viewed as a hindrance rather than an asset in today's aggressive global market.

Traditionally, large companies existed to reduce transaction costs - that is, to retain the profit generated by each stage of product development, manufacture and sale. However, current business models suggest that focussing on core competencies is more desirable, and with improved communications and the globalisation of the economy, it is easier to identify the most suitable suppliers and the best prices for services on the open market. The attraction of variable rather than fixed costs is also considerable.

Many mergers and acquisitions have been justified on the basis of aggressive sales forecasts, which can only be achieved if companies are able to increase the number of new drugs coming out of their pipelines. Several of the world's top-selling drugs will come off patent in the next few years and these must be replaced by New Chemical Entities (NCEs) if revenue streams are to be maintained and increased. Most companies in this sector now have a clear strategy to focus on their core competencies of drug development and marketing, pledging publicly to increase the amount of sales revenue they spend on R&D; and to cut typical time to market for NCEs by as much as 30%.

These are ambitious targets indeed but in the context of the average of £350m development costs for each NCE and £1m sales revenue each day during patent protection, they are understandable enough.

With drug companies avowedly focussing on the beginning and the end of the product cycle, a wide range of services once performed by full- time employees is now outsourced. Estimated at £13bn in 1998, the pharmaceutical outsourcing market continues to grow at some 20% p.a.

Outsourcing creates access to expertise and production capacity and can be a major factor in reducing time to market for a new product. It also allows pharmaceutical companies to be fast and flexible, while avoiding the financial risk associated with investment in facilities and personnel. It is attractive because it provides the flexibility required, whatever the degree of success achieved by the product in question.

Providers of outsourced services take many and varied forms but they must all offer in common speed and flexibility of response. The degree of regulatory control applicable to the production of pharmaceutical products, however, means that no corners must be cut, whatever the pressure to offer flexibility and fast turnaround combined with a competitive price.

The nature and extent of outsourcing also varies widely from company to company and from product to product. The linchpin of many such arrangements is the contract research organisation (CRO). Established initially to take drugs through the clinical trials procedure, many CROs have now expanded the range of services they offer, with some now moving into early stage R&D;, while others are offering production, packaging or sales and marketing services. Others in turn contract out requirements such as the preparation of packs for clinical trials to companies with expertise in this area.

The growth in the outsourcing sector and the increased range of services it offers is engendering a new spirit of partnership with the pharmaceutical industry.

In common with most companies in the field, Brecon Pharmaceuticals has experienced significant changes in the past decade. A decade ago, outsourcing was generally viewed as something of an emergency measure, and certainly not a long-term option. Over the years this perception has changed and ongoing partnerships are now more the rule than the exception. Teamwork has replaced the old approach of simply handing over aspects of research, manufacture or packaging and naming a date by which the finished product must be delivered.

For example, on the packaging side, many pharmaceutical companies use contract houses as an extension of their in-house facilities. As order patterns become less predictable, these companies can remain efficient and competitive by outsourcing small orders and those requiring rapid turnaround, for which their in-house facilities are not always appropriate.

Most recently, the emergence of 'virtual' pharmaceutical companies, established for the sole purpose of drug discovery, has given a further boost to the sector. These companies require production on demand, with no overhead for production and packing facilities or personnel.

Selecting the right service provider is a lengthy and complex process - each company and each project has different criteria. However, there are certain requirements which are common to all and which should be addressed at the earliest stage of discussion.

  • Can the supplier demonstrate experience relevant to the project in hand?
  • Does the company have a track record of delivering on time and to the agreed specification?
  • Can it provide the required degree of flexibility, in terms of availability of suitably qualified personnel and relevant equipment?
  • Is it accredited by all the authorities appropriate to the project?
The level of expertise available in service companies is typically extremely high, as most tend to focus on a specific area of the supply chain. Moreover, established companies will have been audited many more times than their counterparts in the research-based pharmaceutical industry and be adaptable to the exigencies of their many different customers. Brecon, for example, has in the past developed a number of new services and facilities in direct response to customer requirements.

It may also be true that as service companies rely exclusively on fulfilling specific tasks and, ideally, retaining clients, the levels of service and quality are often greater than those achieved in-house. In certain circumstances, particularly when a partnership approach is adopted, the service provider can add value way beyond the simple fulfilment of the contract through the application of their experience and expertise.

A major contributing factor in the success of any such relationship is the degree of openness existing between the parties. A key aspect here is the audit process, conducted before any work commences. The more information provided by the Contract Giver at the audit stage, the better the Contract Acceptor will be able to perform, if and when an order is forthcoming. Many contract projects are undertaken in pressure situations, so time is of the essence.

Auditors should also be briefed by their employers on the precise nature of the project for which the potential supplier is being considered. A focused audit will produce much more satisfactory results for both parties than a non-specific one. Any perception of the audit as a negative process is now outdated: one the one hand, auditors should be looking to save their employer time and money by find a suitable supplier as quickly as possible, rather than seeking minor non-compliances. On the other, the potential supplier must view it as an opportunity to demonstrate the extent of his capabilities.

Successful outsourcing reduces costs, improves flexibility and enlarges the pool of expertise available to the research-based pharmaceutical sector. As such, it is now generally part of a strategic plan rather than an emergency measure. And long-term business relationships are most fruitful when founded on mutual trust and confidence.

First published in Manufacturing Chemist, September 2001

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