Business Club March 2 News Now that outsourcing has increasingly become synonymous with corporate cost cutting, the importance of outsourcing is even more acute when the economic crisis forces biopharmaceutical companies to evaluate almost every budget item. Although the economy is gradually picking up and companies' profitability has improved, preliminary data from BioPlan Associates' "Annual Report on the 8th Annual Production of Biopharmaceutical Products" shows that biopharmaceutical companies will continue to focus on how to reduce costs. The outsourcing of important corporate functions may affect the long-term competitiveness of manufacturers.
BioPlan's research found that one-tenth of biopharmaceutical companies have outsourced process development and biopharmaceutical production tasks to reduce costs in response to the 2011 market environment (see Figure 1). This outsourcing is occurring almost twice as often as research and development (R&D) work transfer (that is, 7.2% and 4.6% of biopharmaceutical companies will outsource production activities to domestic and foreign suppliers, respectively). All these activities are considered to be the core strengths of biopharmaceutical companies, and when these jobs are outsourced, they are often outsourced as experience, just as infrastructure relocation.
Outsourcing key business
The outsourcing data in the BioPlan Associates report involves some important production issues. To this end, it conducts annual research on more than 300 biopharmaceutical companies and contract production organizations (CMOs) around the world to discuss these issues. This report provides comprehensive observations and trend analysis given by biopharmaceutical companies in 35 countries around the world. It includes capacity constraints, expansion, use of disposables, new trends and budgets, downstream purification, quality management and control, employment issues, employment and training.
At present, industry service providers are recognizing this change and have begun to increase the types of services they provide. Many CMOs have added potting/encapsulation capabilities, as well as testing and product characterization services, while other CMOs have demonstrated greater flexibility and they provide clinical production in a single-use bioreactor system. All of these reflect a trend of continuous development. Service providers respond by adding business capabilities to these support services.
In the 2011 study, BioPlan Associates also evaluated the top 23 biopharmaceutical manufacturing operations currently being outsourced (see Figure 2). According to the survey, approximately 35% of respondents will outsource the canning/packaging business. This is not surprising. This level of outsourcing is consistent with the findings of last year's survey. About 26% of respondents said they would outsource the toxicity test. In addition, in 2011, 10.0% and 10.4% of the upstream and downstream businesses were outsourced respectively, an increase of approximately 2 percentage points compared with 2010.
Future trends
Many service providers insist that outsourcing can improve organizational efficiency for their customers, and service providers can often provide better quality and more efficient services. These services are not just for repetitive, low-value activities, or for inspection or canning/encapsulation.
The 2011 study confirmed this when measuring outsourcing trends. When asked what activities they expect to outsource in the next two years at a "significantly higher level", surprisingly, respondents said that upstream and downstream businesses will be at a higher rate than in previous years. Outsourcing. The growth rate of other relatively minor business is roughly flat. For example, the percentage of respondents who think that canning/packaging activities will be outsourced at a higher rate was 24.6% in 2011, compared to 24.8% in 2010.
Product testing and other areas of inspection and analysis will continue to grow at a double-digit rate. For example, nearly 20% of respondents stated that they will significantly increase the outsourcing of product characterization trials in the next two years. Tim Lee, deputy director of Sanofi Pasteur’s mass production operations, pointed out that the outsourcing of analytical test methods applied to product characteristics is a major trend, because the pharmaceutical company’s laboratories for internal tests have undertaken the task of releasing products to the market as soon as possible. Full-load production test tasks, in addition, many outsourced laboratories hold expertise that is not available within the pharmaceutical industry.
As the slow economic recovery and uncertainties continue to constrain the recruitment of personnel, the pressure on outsourcing business has not yet been eliminated. BioPlan's research also shows that many contract production organizations and service providers have been facing greater pressure from customers: control costs, reduce unnecessary services, otherwise it will cut the budget. This pressure, in turn, forces service providers to implement more streamlined services and cut down on high value-added services that might otherwise be offered to customers. Although the contract manufacturing industry will continue to see the development of emerging biopharmaceutical contract manufacturing providers in India and other parts of the Asia Pacific region, the operating performance of U.S. and Western European suppliers will also be moderately improved.
Economic uncertainty also makes short-term contracts more popular, and customers are increasingly looking forward to the completion of corresponding work based on short-term cost performance rather than making long-term commitments and establishing partnerships. The price cuts and shifting to more transaction-based short-term business may damage long-term cooperation and reduce the potential strategic value that outsourcing can bring to customers.
As long as the uncertainty of the global economy still exists, outsourcing will continue to be used as a buffer to cut costs, and hiring of high-level management personnel may continue to be postponed. If the pharmaceutical company’s core competencies and experience in production, process development, and research and development continue to be outsourced to external providers, these changes may eventually lead to a strategic shift in the value orientation of pharmaceutical companies.
BioPlan's research found that one-tenth of biopharmaceutical companies have outsourced process development and biopharmaceutical production tasks to reduce costs in response to the 2011 market environment (see Figure 1). This outsourcing is occurring almost twice as often as research and development (R&D) work transfer (that is, 7.2% and 4.6% of biopharmaceutical companies will outsource production activities to domestic and foreign suppliers, respectively). All these activities are considered to be the core strengths of biopharmaceutical companies, and when these jobs are outsourced, they are often outsourced as experience, just as infrastructure relocation.
Outsourcing key business
The outsourcing data in the BioPlan Associates report involves some important production issues. To this end, it conducts annual research on more than 300 biopharmaceutical companies and contract production organizations (CMOs) around the world to discuss these issues. This report provides comprehensive observations and trend analysis given by biopharmaceutical companies in 35 countries around the world. It includes capacity constraints, expansion, use of disposables, new trends and budgets, downstream purification, quality management and control, employment issues, employment and training.
At present, industry service providers are recognizing this change and have begun to increase the types of services they provide. Many CMOs have added potting/encapsulation capabilities, as well as testing and product characterization services, while other CMOs have demonstrated greater flexibility and they provide clinical production in a single-use bioreactor system. All of these reflect a trend of continuous development. Service providers respond by adding business capabilities to these support services.
In the 2011 study, BioPlan Associates also evaluated the top 23 biopharmaceutical manufacturing operations currently being outsourced (see Figure 2). According to the survey, approximately 35% of respondents will outsource the canning/packaging business. This is not surprising. This level of outsourcing is consistent with the findings of last year's survey. About 26% of respondents said they would outsource the toxicity test. In addition, in 2011, 10.0% and 10.4% of the upstream and downstream businesses were outsourced respectively, an increase of approximately 2 percentage points compared with 2010.
Future trends
Many service providers insist that outsourcing can improve organizational efficiency for their customers, and service providers can often provide better quality and more efficient services. These services are not just for repetitive, low-value activities, or for inspection or canning/encapsulation.
The 2011 study confirmed this when measuring outsourcing trends. When asked what activities they expect to outsource in the next two years at a "significantly higher level", surprisingly, respondents said that upstream and downstream businesses will be at a higher rate than in previous years. Outsourcing. The growth rate of other relatively minor business is roughly flat. For example, the percentage of respondents who think that canning/packaging activities will be outsourced at a higher rate was 24.6% in 2011, compared to 24.8% in 2010.
Product testing and other areas of inspection and analysis will continue to grow at a double-digit rate. For example, nearly 20% of respondents stated that they will significantly increase the outsourcing of product characterization trials in the next two years. Tim Lee, deputy director of Sanofi Pasteur’s mass production operations, pointed out that the outsourcing of analytical test methods applied to product characteristics is a major trend, because the pharmaceutical company’s laboratories for internal tests have undertaken the task of releasing products to the market as soon as possible. Full-load production test tasks, in addition, many outsourced laboratories hold expertise that is not available within the pharmaceutical industry.
As the slow economic recovery and uncertainties continue to constrain the recruitment of personnel, the pressure on outsourcing business has not yet been eliminated. BioPlan's research also shows that many contract production organizations and service providers have been facing greater pressure from customers: control costs, reduce unnecessary services, otherwise it will cut the budget. This pressure, in turn, forces service providers to implement more streamlined services and cut down on high value-added services that might otherwise be offered to customers. Although the contract manufacturing industry will continue to see the development of emerging biopharmaceutical contract manufacturing providers in India and other parts of the Asia Pacific region, the operating performance of U.S. and Western European suppliers will also be moderately improved.
Economic uncertainty also makes short-term contracts more popular, and customers are increasingly looking forward to the completion of corresponding work based on short-term cost performance rather than making long-term commitments and establishing partnerships. The price cuts and shifting to more transaction-based short-term business may damage long-term cooperation and reduce the potential strategic value that outsourcing can bring to customers.
As long as the uncertainty of the global economy still exists, outsourcing will continue to be used as a buffer to cut costs, and hiring of high-level management personnel may continue to be postponed. If the pharmaceutical company’s core competencies and experience in production, process development, and research and development continue to be outsourced to external providers, these changes may eventually lead to a strategic shift in the value orientation of pharmaceutical companies.
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