Realize the potential of outsourcing in pharmaceutical packaging.
By Robert Carr, Director of Commercial Finance, Packaging Services; and Akan Oton, Director of Business Development, Product Ventures, Catalent Pharma Solutions
F aced with rising costs and prot pressures, pharmaceutical and biotechnology companies are seeking new ways to sustain growth. Increasing patent expirations, an uncertain political environment, and pressures from managed care, consumers, and governments to lower prices are the industry’s pri- mary challenges. Bob Carr To spur growth, consolidation and product in-licensing appear to be the strategies of choice for large pharmaceutical rms. Many have completed acquisitions of bio- technology and specialty companies to compensate for shrinking pipe- lines. Multinational generic compa- nies are facing pressures as well, with price and market access under threat. Large generics are pursuing acquisi- tions in order to build scale to counter the buying power of large retailers like Walgreens and Walmart, and also to ensure preferred access. Competition in the global health- care industry has never been greater. Considering that it takes 10 to 15 years to develop a new prescription drug, with the average cost exceeding $1.5 billion, accelerating development and streamlining the supply chain are criti- cal to success.1 Managers are pressured to cut costs, speed time to market, and meet new regulations. Many companies are reevaluating their approach to outsourcing and
leveraging its advantages as a valu- able new driver of growth. Contracting noncore functions, such as packag- ing, is becoming an important strat- egy for managing rapid change and creating a more cost-efficient, ex- ible infrastructure. Firms find that the functionality, brand awareness, and consumer preference ben- Akan Oton ets that packag- ing provides can best be achieved by a skilled outsource partner. Contract Pharma’s 2008 Out- sourcing Survey reports that 62% of pharma/biotech companies plan to spend up to 10% more next year on outsourcing, and nearly a quarter plan to spend more than 20%.2
DECISION DRIVERS One major advantage of outsourc- ing functions such as packaging is cost avoidance, particularly when specialized equipment and expertise are required. By using the supplier’s infrastructure, a firm avoids capital outlays; they can be used more effi- ciently for other purposes. Outsourc- ing is also a scalable resource that allows flexibility to better manage uctuations in demand at critical life cycle points, such as at product launch. External resources can then be scaled back or redeployed, improving effi- ciencies. Eliminating the need to re- allocate internal resources to adjust to demand allows rms to focus on brand