Regardless of the industry, the outsourcing of specific workflows within a company’s operations can offer key competitive advantages through allowing a company to focus on its core competencies where it derives the highest return on investment. This fundamental business principle was originally distilled into Wealth of Nations by Adam Smith 250 years ago and holds true on a macro as well as micro scale today. Focusing efforts on a core set of competencies allows for improvements in cost and business efficiencies that lead to a reduction in overhead and increased operational control over top priorities. Specific to the pharmaceutical and biotechnology fields, the outsourcing sectors have matured over the last two decades in terms of contract drug formulation and development, contract testing, contract manufacturing and packaging.
While commoditized assays have migrated from pharmaceutical and biotechnology companies, many pharmaceutical companies have decided to until recently retain their early stage drug discovery research in-house. However, recent advances and developments in automation technology as well as data processing, coupled with the ever-escalating costs of bringing a drug to market, have caused industry to rely more heavily upon academia and other alternative sources for the early stage drug discovery function.
New drug discovery by its nature is an incredibly expensive endeavor and major pharma continues to endure this cost and identify opportunities for cost reduction as they work toward the next big blockbuster. In simple terms, the lines of therapy that are being developed today such as CAR-T therapy tend to generally be much more complicated than drugs of the past. The low-hanging fruit have already been harvested and patients continually demand a higher standard of care and improved treatment regimens. For example, the introduction of biologics instead of small molecule drugs dramatically increased complexities with not only the drug discovery paradigm but also the manufacturing process and storage requirements. As such, the costs for discovery and development continue to skyrocket and new technological advances such as CRISPR/Cas9 and IPSCs continually increase the complexity of R&D projects.
The main challenge with the introduction of new technologies is that their adoption requires additional resources above and beyond a company’s existing infrastructure and many of these skills are well outside the core competencies of pharmaceutical companies. For example, rapid advances in many disparate fields such as genomics, machine learning and big data analysis now allow for reduced development costs and accelerated discovery but present the business question of implementation. These complex new fields and technologies lead to pharmaceutical companies more commonly evaluating their drug discovery competencies and determining which functions should be internalized and focused on and which ones are best executed by a third party.
Like we saw proliferate in the 1980’s and 90’s, companies are realizing that they can’t afford to have all the toys in the toy box. Back then, as companies expanded product lines from simple solid tablets, to liquids, patches and later pre-filled syringe dosage forms, they realized that maintaining multiple various production lines was inefficient and costly. This lead to the growth of the “contract manufacturing” market segment. A contract manufacturer that specializes in liquid dosage forms, can do it better and faster and most importantly, less expensive than the big pharma company. The capital expenditure and the annual maintenance dollars required to operate a large scale production plant can be better spent in other areas of the company.
The same basic concept applies in the new age of drug discovery that we are now in. For example, Big Pharma does not need to be in-house experts in advanced in vitro models, automation, high-throughput screening, imaging, data processing and machine learning. There are a host of new discoveries and associated companies that have already done the early heavy lifting and have specializations in these functions. The most successful Big Pharma companies going forward will be the ones that embrace the technology advances in drug discovery and find ways to work with – outsource – the early stage discovery operations to these new players.