Outsourcing advantages

Outsourcing offers multiple benefits for pharmaceutical companies. NGP asked Marcel Velterop of Dr Reddy’s how it can help reduce costs, achieve higher levels of performance, free up resources for higher value activities and gain access to capabilities and resources that are not available internally.

NGP. What aspects of a pharmaceutical company’s activities can be outsourced? Why is it beneficial to outsource certain aspects of drug R&D rather than keep processes in-house? 
MV. CMC development and drug substance and product manufacturing are core aspects which can benefit from outsourcing. In addition, clinical trials and related documentation activities are already outsourced to a great deal. As to outsourcing aspects of drug R&D, this can have great benefits both in view of capacity and costs. A good example is the increase in number of lead generation and pre-clinical R&D deals in India. Most companies have finite in-house capacity to handle a certain number of development projects. When the number of leads increases, this leaves the company with the option of either investing in further in-house capacity or delaying their development. Clearly not a preferred scenario in view of the volatile nature of lead development and costs associated with it. Outsourcing allows parallel development of new leads as well as keeps costs variable. In many cases costs will actually decrease compared to fully allocated in-house costs.

NGP. Drug research is a highly competitive arena. What do you think sets you apart from your competitors? 
MV. Speed and quality of delivering the objective at competitive costs. We have worked on well over 100 NCE projects from a range of innovator customers in the USA, EU and Japan, with a wide variety in complexity. We have the sense of urgency and ability to overcome inevitable challenges in CMC development and scale-up. This is supported by state-of-the-art R&D and Analytical Development labs operated by very skilled scientists and engineers. Transparent communication and up to date project management techniques are the basis of our successful model.

Furthermore, the fact that we can cover the entire scale range in both API and dosage form development and manufacturing allows for further reduction in project time-lines. Finally, in specific cases, we can add additional IP, developed in-house as part of our generic efforts, to enhance the value of an innovator programme. An example is the combination of generic APIs with still patented APIs from an innovator company. Our very high percentage of repeat business at existing clients as well as the rate of adding new clients is testimony to our differentiating model.

NGP. What challenges might be faced between partners? Are there measures that can be taken to help mitigate the chance of these occurring? 
MV. In any relationship there will be challenges and periods of reducing trust. Questions of competence and commitment then arise and the mood can change. From the start, both parties should make efforts to establish good rapport and enable communication between the relevant set of people. Then start building the systems software of the project, i.e. agreed formats, technical detail, progress frequency and so on. Measures are usually the pragmatic ones, aside from having some sort of service agreement in place, which can be used when normal communication failed. Face-to-face discussions and joint problem solving is most of the time the best option for the project and ensures that energy is spent where it matters most.

NGP. What trends and developments do you expect to see in pharmaceutical outsourcing over the next 12-18 months?
MV. The two main challenges facing our industry today are the slow-down in innovation and cost pressures from society. To the extent that outsourcing can offer a solution here, I expect it to accelerate over the next years. Companies deciding to focus on their core competencies, a trend evident in other industries for many years and by no means novel, will drive this further. It will allow a company’s resources to be spent in those areas that improve innovation and supply of products to patients globally.

A further trend is the reducing emphasis on blockbuster drugs and an increase in niche product development. This will put a further strain on manufacturing and supply chain and thus increasing the need for outsourcing. Clearly India has a significant role to play which will only increase given its abundance of human capital and high education standards in combination with still very competitive costs.

Marcel Velterop joined Dr Reddy’s Laboratories in January 2004 to develop its European Custom Pharmaceutical Services business. Prior to that, he held various marketing and sales positions within DSM. He currently heads up the European marketing and business development team for Dr Reddy’s Custom Pharmaceutical Services business.