Description
An anticipated loss of approximately $78 billion in 2009 - 2014 resulting from patent cliffs. Shrinking profit margins and increasingly heavy competition. Growing regulatory pressure due to highly publicized drug dangers. Recurring threats of litigation over real or perceived drug side effects.
BIOTECHNOLOGY AND PHARMACEUTICALS
Outsourcing in the
pharmaceutical
industry: 2011 and
beyond
kpmg.ca/biotechandpharma
Corporate process outsourcing 2
R&D processes outsourcing 3
RDO drivers and benefits 4
RDO risk and mitigation 4
Regulatory affairs and operations processes outsourcing 5
Regulatory process outsourcing benefits 5
Regulatory outsourcing issues and hurdles 7
Pharmacovigilance outsourcing 8
Pharmacovigilance service providers 8
Looking ahead: The next 18 months 9
Conclusion 9
Table of Contents
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Outsourcing in the pharmaceutical industry: 2011 and beyond | 1
A
n anticipated loss of approximately $78 billion in 2009 - 2014 resulting from patent cliffs. Shrinking profit
margins and increasingly heavy competition. Growing regulatory pressure due to highly publicized drug
dangers. Recurring threats of litigation over real or perceived drug side effects. Shifting demographic trends
in both western and emerging markets, driving the demand for more and better pharmaceuticals. Growing
threats to intellectual property. Weak pipelines for new drugs in many large firms. Skyrocketing expenses.
These are just some of the challenges the global pharmaceutical industry is facing today.
To address these issues and minimize their negative impact to the extent possible, pharmaceutical firms are
proactively and significantly changing their business models. They are consolidating via mergers, acquisitions,
and joint ventures to leverage economies of scale, capitalize on synergies, and expand their pipeline (or
other lacking areas), into new markets and new product categories such as pharma plus biotech. They are
also increasing partnerships in areas previously considered proprietary, redefining corporate strategy via
diversification versus specialization, and deliberately focusing on improving collaborations.
They are continuing to implement across the board cost reduction programs to grow profit and offset
slowing sales growth by restructuring research and development (R&D) without impacting drug development
programs, reducing clinical phase and early stage R&D costs, decreasing their sales forces and conducting
internal audits when using a contract research organization (CRO).
And, they are increasingly leveraging outsourcing to enable focused excellence on the core business of
pharmaceuticals while abating the above issues.
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2 | Outsourcing in the pharmaceutical industry: 2011 and beyond
With its long R&D cycle and an acute
need for speed to market, the global
pharmaceutical industry was one of
the earliest adopters of information
technology outsourcing (ITO) and back-
office business process outsourcing
(BPO). Indeed, for years pharma
companies have been outsourcing
almost everything in IT, from mainframes
and servers to networks, call centers
and applications development and
maintenance (ADM), and most are in
their second, third or fourth iteration of
their outsourcing agreements in these
functions. These organizations have
also been progressive when it comes
to outsourcing other processes such as
Human Resources (HR), Finance and
Accounting (F&A), and Procurement.
Additionally, functions like Real Estate
and Facilities Management (REFM),
have risen in importance when it comes
to outsourcing alternatives.
For example, GlaxoSmithKline,
Novartis and Schering took the lead
in outsourcing REFM processes in
1999. AstraZeneca and Astellas began
outsourcing their IT infrastructure in
2001. In 2002, Johnson & Johnson was
the first pharma company to outsource
its ADM; it was also the first to engage
in legal process outsourcing (LPO)
in 2006. 2006 also marked the year
in which GlaxoSmithKline and Pfizer
embraced finance and accounting
outsourcing (FAO). And Bristol-Myers
Squibb was the pioneer in outsourcing
Order-to-Cash (OTC) and HR, in 2007
and 2008, respectively.
Corporate processes outsourcing
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The macro trends driving R&D
outsourcing (RDO), which are similar
to those driving other types of pharma
outsourcing, are spurring most major
global pharma firms to consider more
aggressive RDO uptake. However, given
that most global Pharma firms have grown
via extensive M&A efforts, both the level
of and philosophy toward RDO varies
across the organizations. For example,
per polling of a representative sample
of RDO decision makers and secondary
research conducted in late 2010, KPMG
has not found many pharma firms with
a single unified RDO strategy, much
less an operational plan of action and
timeline, which is in stark contrast to more
traditional and established BPO and ITO
efforts within these firms.
As a result, there is much RDO
“dabbling” among pharma firms in
the market today. They are engaging
tactically, while simultaneously
defining a strategic direction. Clearer
visions than strategies typically exist
due to competing priorities, numerous
decision makers, and uncertainties
or disagreements over the expected
maturation and adoption pace of
RDO. Thus, RDO is not progressing
monolithically across organizations,
and different areas have different
agendas, goals and risk profiles.
In terms of outsourced RDO processes,
KPMG’s research in late 2010 found that
while pharma companies are mature
in areas such as preclinical and clinical
trials work, most are still exploring
other areas such as drug research and
registration work (see Figure 1).
R&D processes outsourcing
Figure 1: Pharma R&D outsourcing
O
p
e
r
a
t
i
n
g
M
o
d
e
l
A
c
t
i
v
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t
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e
s
O
f
f
s
h
o
r
e
d
Competitive
Intelligence
? Pipeline analysis
? Clinical trial mapping
Business
Intelligence
? Product/performance
tracking
Market Research
? Survey design
? Therapy area research
Captive +
Outsourced
Captive +
Outsourced
Captive +
Outsourced
Captive Outsourced
Preclinical
? Bioanalytics
? Pharmacokinetics
? Toxicology studies
Clinical Trails
? Programming/
scheduling
? Data management
? Site management
? Clinical statistics
Material Preparation
? Dossier production
? CD production
Analytics
? Commercial analytics
? Sales force analytics
? Brand modeling and
forecasting
Functional Genomcs
? Specialized chemistry
? Bioinformatics support
Lead identi?cation
Discovery chemistry
? Lead veri?cation
? Lead optimization
? Chemical synthesis
? Hit/lead optimization
Only Captive
Opportunity
Analysis
E
x
t
e
n
t
o
f
O
u
t
s
o
u
r
c
i
n
g
Drug
Research
Discovery Development Registration
Launch/
Marketing
Most outsourced Least outsourced
REGULATION REGULATION REGULATION REGULATION
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4 | Outsourcing in the pharmaceutical industry: 2011 and beyond
RDO drivers and benefits
While KPMG’s above-mentioned polling
of RDO decision makers did not confirm
a clear set of common RDO drivers
across major pharma firms, it did help
identify some directional trending. For
example, the three most cited RDO
drivers were:
• Gain cost savings to fund R&D
transformation
• Shift internal R&D focus to more
strategic activities
• Improve R&D performance
Interestingly, the benefits sought
by firms are mixed, and sometimes
inconsistent, with identified RDO
drivers, and most of the decision makers
KPMG polled indicated it was too early
to fully assess whether their firms
are consistently achieving the RDO
desired benefits. Per their responses,
straightforward goals such as cutting
costs are being more frequently
achieved, while more complex ones,
such as shifting the retained R&D
organization to more strategic activities,
are so far proving more elusive.
RDO risk and mitigation
Many buyers understandably feel that
the risks associated with RDO are
higher than with in-house R&D because
getting a drug to market in the most cost
effective and timely manner is a major
contributor to the success and growth of
any pharmaceutical company, and clearly
a strategic core competency. However,
the siloed manner in which many
pharma firms approach RDO allows
each functional area to have visibility
into and control of only its own scope.
While this strategy feels safer, from an
overall corporate benefit standpoint the
organization is leaving significant dollars
on the table, and failing to leverage
potential process improvement and
end-to-end performance enhancements.
There are four major risk categories for
which pharma firms must account when
undertaking RDO. Following are some of
the ways to mitigate the risks:
Execution
• Ensure appropriate control, ongoing
monitoring and communication
• Start with small projects and expand
base on success and lessons learned
• Leverage SG&A outsourcing
experience, teams, and models
and, where practical, consider
expanding work in existing
service provider relationships
Contractual
• Develop strong business terms
focusing on intellectual property
protection, privacy, compliance and
indemnity clauses
Employee
• Communicate strategy and
plans clearly
• Focus on change management
requirements, especially related to
the transition process
Provider
• Test a few providers, geographies
and service models (onshore,
offshore, nearshore)
• Monitor dynamics of large players
expanding into RDO markets
• Monitor dynamics of smaller,
specialized provider growth and
market consolidation
Since many pharma companies have
already started with multiple small
projects, almost all of which are
distinct and separate from the other
RDO initiatives, it is time to deploy
a more overarching and integrated
RDO strategy. There are several
benefits to this approach:
• Better potential maximization of
cost savings
• Employment of a select group
of providers with consistent,
measurable and tracked metrics to
maximize accountability
• Development of partnerships
with providers with demonstrated
successes both onsite and offsite
• Establishment of a service provider
landscape that provides for
collaboration with the client and
among the service providers
Words of caution: successful
outsourcing of any kind requires
ongoing communication between
stakeholders and providers, as well
as well-defined governance structures
and processes. Additionally, there
is certainly no room for a one size
fits all strategy within RDO. A more
orchestrated sourcing strategy will
provide benefits that many pharma
firms are not achieving.
Finally, pharma buyers must recall and
leverage all their learnings from other
outsourcing efforts. From involving
key senior management to getting all
stakeholders on board early to striving
to maintain a transparent and fact-
based process, these practices are as
critical to RDO as to any other type of
Pharma outsourcing.
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Traditionally, outsourced regulatory
services were linked directly to the
effort necessary to support clinical
trials. For CROs, this ran the gamut
from a per-trial basis for under-resourced
pharma/biotech organizations to a
virtual regulatory affairs department.
In the new economic reality of drug
development, the leveraged outsourcing
model that has been successfully used
to support clinical trials is now being
seriously tested for regulatory affairs and
operations support.
Regulatory affairs and operations
processes ripe for outsourcing include
medical writing, report publishing,
submission publishing, submission
planning, regulatory data management,
regulatory information management,
country regulatory affairs, regulatory
chemistry, manufacturing, and
controls (CMC), labeling, agency
liaison, regulatory strategy, translation,
administrative documents, dossier
conversion and literature searches.
Regulatory process outsourcing
benefits
The benefits pharma companies can
realize from outsourcing regulatory
affairs and operations processes include:
Cost efficiencies
• Moving from high fixed costs
of in-house resources for all
regulatory activities
– Fringe benefits
– Facilities and technology
– Training
– Relocation
– New hires in new geographies
– New hires with specialized
expertise
• To a blended variable-cost approach
– Cost of consulting fees versus
full-time staffing costs for
a defined set of functions,
programs and products
– Saving on staff reductions
– Savings achieved by refocusing
stranded employees on other
essential activities
Increased asset value by keeping
products on the market and
expanding market share
• Implement proactive compliance
• Prevent revenue loss by staying in
the market
• Gain revenue in new markets
• Increase speed to new market
approvals
• Increase percent of market share
(reimbursement, exclusivity)
• Extend brand formulations and
indications
Gain from new product approvals and
optimized reimbursement
• Priority approvals valued, on average,
at $448 million* in additional revenue
• First cycle approvals valued,
on average, at $640 million* in
additional revenue
• Increased market share and
product advocacy
Proactive risk management
• Loss from product approval delays
or recalls
– Additional development costs
per day
– Loss of product revenue valued,
on average, at $1.08 million* per
new molecular entity per day
• Fines, penalties and loss of
reputation
• Loss of stock price and/or investor
funding
*
Source: David P. Katz, Ph.D., KPMG, 2010
Outsourcing in the pharmaceutical industry: 2011 and beyond | 5
Regulatory affairs and operations
processes outsourcing
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6 | Outsourcing in the pharmaceutical industry: 2011 and beyond
Figure 2 compares current models of regulatory support with the traditional model,
which focused solely on the outsourcing of clinical trial applications, primarily to
CROs. In the current model, CROs and others are now interested in expanding their
services and scope to include all five categories in the lifecycle.
Figure 2: Current modes of outsourced regulatory support
Lifecycle Management of Products Pre-IND IND/CTA Ph. I Ph. IIa Ph. IIb Ph. III NDA/MAA
Timeline
Key Partnering
Offerings
Clinical Trial
Applications
Pediatric
Investigational
Plans
NDAs/MAA
“Maintenance”
Activities
New “Regional
Entry”
NDA/MAAs
MAH Transfers
Managing
regulatory
requirements
involved in
initiating and
conducting
clinical trials
Designing and
implementing
Pediatric
Investigational
Plans
Managing the
extensive set
of business
processes
supporting
upkeep of
marketing
applications
Extending our
client’s footprint
by managing all
regulatory
activities
associated with
registering
products in new
markets
Managing all
activities
involved in the
transfer of
product
ownership, both
for buyers and
sellers
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Outsourcing in the pharmaceutical industry: 2011 and beyond | 7
As depicted in Figure 3, regulatory service delivery models are highly flexible,
and sliceable by region, product or function, depending on what strategy best
suits the organization.
Regulatory outsourcing issues and hurdles
Just as with outsourcing any process or set of processes, potential regulatory process
outsourcing buyers have a wide range of concerns. In the regulatory environment,
these issues include data security, system access, third party performance, internal
change management, increased compliance risk, loss of control, resolving shared internal
responsibility, unsustainable savings, internal process codification, and trust. According to the
results of a leading service provider’s query to its client advisory board members, the top three
concerns are, not surprisingly: data security, system access and third party performance.
Figure 3: Global presence and capability can support strategic regulatory outsourcing
Bene?t Dimension
Objective
By Region By Product
Register in New
Regions
Maintain a
Speci?c Class of Product
Improve and/
or Transfer a Function
By Function
3 2 1
Lifecycle Management of Products Pre-IND IND/CTA Ph. I Ph. IIa Ph. IIb Ph. III NDA/MAA
Timeline
Key Partnering
Offerings
Clinical Trial
Applications
Pediatric
Investigational
Plans
NDAs/MAA
“Maintenance”
Activities
New “Regional
Entry”
NDA/MAAs
MAH Transfers
Managing
regulatory
requirements
involved in
initiating and
conducting
clinical trials
Designing and
implementing
Pediatric
Investigational
Plans
Managing the
extensive set
of business
processes
supporting
upkeep of
marketing
applications
Extending our
client’s footprint
by managing all
regulatory
activities
associated with
registering
products in new
markets
Managing all
activities
involved in the
transfer of
product
ownership, both
for buyers and
sellers
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8 | Outsourcing in the pharmaceutical industry: 2011 and beyond
Pharmacovigilance work requires highly
skilled individuals, from registered
nurses to specialist doctors, who
perform relatively clerical functions
such as sifting through data and probing
case reports. Despite the clerical
nature of the work, it requires such a
high level of expertise that it carries a
very high price tag. Additionally, the
requirements and the stakes of this kind
of work continue to rise. Exacerbated
by negative news coverage, each new
drug is heavily scrutinized, and the
volume of events to be reviewed and
addressed is increasing at an incredible
rate, driving costs even higher. As a
result, pharmacovigilance – not only
for cost savings but also for process
efficiency – is growing in popularity
as an outsourced function, especially
to offshore locations. Further, while
pharma companies were traditionally
somewhat reluctant to partner with a
third-party for pharmacovigilance as the
data managed and interpretations made
requires such deep medical knowledge,
they are becoming more comfortable
with outsourcing as many of the service
providers have extremely experienced
MDs and PhDs working on their teams.
Pharmacovigilance service providers
There are essentially two classes of
providers moving strategically, and
quickly, into the pharmacovigilance
space. The first is traditional CROs,
those companies focused on drug
development and managing trials
through their various steps and
processes. These companies, such as
Quintiles, Covance and MDS Pharma
Services, are well suited to step up
and address pharmacovigilance. From a
staffing perspective, they have the right
ingredients, with doctors on staff who
are focused on the relevant processes.
The second is traditional BPO
organizations, particularly those based
in India or with large Indian operations,
such as Capgemini, Tata Consultancy
Services (TCS), Infosys and Keane. India
is the most obvious choice for offshore
pharmacovigilance outsourcing for a
number of reasons.
India-based operations have employees
with excellent language skills and a
large number of doctors and other
medical professionals who are looking
for higher-dollar work in a related field.
And although India’s labor arbitrage
appeal is decreasing, performing
pharmacovigilance work in India is still
quite inexpensive by US standards.
Pharmacovigilance outsourcing
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Outsourcing in the pharmaceutical industry: 2011 and beyond | 9
The pharmaceutical industry is looking at
emerging market expansion and growth
potential of 12 percent year on year,
and the biologics market is expected to
grow to $41 billion by 2014. There will be
continued and accelerated consolidation
through M&A activity, including spin-offs
to allow increased focus on corporate
strategy and core competencies. And
because of the volatility of the market,
cost reduction programs will become
more rigorous and closer to the bone.
As a result, we will see:
• Creative alliances and significant
outsourcing relationships evolving
in areas including real estate and
facilities, regulatory, R&D, legal and
government pricing
• Providers proving greater experience
in dealing with multiple regulatory
regimes, but recognizing that
regulations will continue to evolve
• Increased emphasis on the role of
governance for new and modified
existing contracts
• Outreach for expert assistance on
an operational level regarding ways
of bringing together or tearing apart
existing outsourcing contracts due to
anticipated mergers and spin-offs
• Expanded use of third-party service
providers in both operational and
strategic process areas such as R&D,
sales and marketing
• Continued review of what is
considered core and non-core as
these definitions continue to morph
• Deeper penetration into existing
outsourcing areas
• Greater focus on more immediate
cost savings; while desire for
transformation and innovation have
not disappeared, up-front emphasis
will be placed on labor arbitrage to
drive nearer-term savings with less
risk of achieving benefits
• Fewer full-bundled deals, more
targeted aggregation and
multisourcing
• Smaller deals with, over time, a
progressive rollout of increased
scope
• Selling of captives or more hybrid
models to manage sustainability risk
• Greater attention to volume volatility
• More outsourcing contract
renegotiations to reduce pricing
• Increased due diligence, governance
focus and flight to quality
• Emergence of enterprise-wide
sourcing governance and global
business services
• An increasing move toward a
diversified global business model to
access alternative sources of growth
and reduce risk
• Delivery of more, and more valuable,
products to guard against blockbuster
dependence and to mitigate pricing
pressures, underpinned by cost
controls to generate sustainable
sales/earnings growth and improve
returns to shareholders
There’s no question that today’s pharmaceutical companies are facing a multitude of unyielding challenges. But substantial,
strategic alterations to their business models will help them tackle the issues and lessen their detriment.
Conclusion
Outsourcing in the pharmaceutical industry: 2011 and beyond | 9
Looking ahead: The next 18 months
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Contact us
National
Bob Jolicoeur
National Sector Lead,
Biotechnology and Pharmaceuticals
T: +1 416 777 3733
E: [email protected]
Paola Cipolla
Partner,
Sector Lead, Biotechnology
T: +1 416 777 8346
E: [email protected]
Montréal
Gino Cordi
Partner, Audit
T: +1 514 840 2315
E: [email protected]
Carl Deslongchamps
Partner, Tax
T: +1 514 840 2135
E: [email protected]
Mark Tétreault
Partner, Audit
T: +1 514 840 2334
E: [email protected]
Toronto
David W Regan
Partner,
Tax, SR&ED
T: +1 416 549 7809
E: [email protected]
Doug Varty
Partner, Audit
T: +1 416 777 8520
E: [email protected]
Vancouver
Paul Wilkinson
Partner, Audit
T: +1 604 646 6391
E: [email protected]
kpmg.ca/biotechandpharma
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or
entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as
of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6457
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
doc_795313457.pdf
An anticipated loss of approximately $78 billion in 2009 - 2014 resulting from patent cliffs. Shrinking profit margins and increasingly heavy competition. Growing regulatory pressure due to highly publicized drug dangers. Recurring threats of litigation over real or perceived drug side effects.
BIOTECHNOLOGY AND PHARMACEUTICALS
Outsourcing in the
pharmaceutical
industry: 2011 and
beyond
kpmg.ca/biotechandpharma
Corporate process outsourcing 2
R&D processes outsourcing 3
RDO drivers and benefits 4
RDO risk and mitigation 4
Regulatory affairs and operations processes outsourcing 5
Regulatory process outsourcing benefits 5
Regulatory outsourcing issues and hurdles 7
Pharmacovigilance outsourcing 8
Pharmacovigilance service providers 8
Looking ahead: The next 18 months 9
Conclusion 9
Table of Contents
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Outsourcing in the pharmaceutical industry: 2011 and beyond | 1
A
n anticipated loss of approximately $78 billion in 2009 - 2014 resulting from patent cliffs. Shrinking profit
margins and increasingly heavy competition. Growing regulatory pressure due to highly publicized drug
dangers. Recurring threats of litigation over real or perceived drug side effects. Shifting demographic trends
in both western and emerging markets, driving the demand for more and better pharmaceuticals. Growing
threats to intellectual property. Weak pipelines for new drugs in many large firms. Skyrocketing expenses.
These are just some of the challenges the global pharmaceutical industry is facing today.
To address these issues and minimize their negative impact to the extent possible, pharmaceutical firms are
proactively and significantly changing their business models. They are consolidating via mergers, acquisitions,
and joint ventures to leverage economies of scale, capitalize on synergies, and expand their pipeline (or
other lacking areas), into new markets and new product categories such as pharma plus biotech. They are
also increasing partnerships in areas previously considered proprietary, redefining corporate strategy via
diversification versus specialization, and deliberately focusing on improving collaborations.
They are continuing to implement across the board cost reduction programs to grow profit and offset
slowing sales growth by restructuring research and development (R&D) without impacting drug development
programs, reducing clinical phase and early stage R&D costs, decreasing their sales forces and conducting
internal audits when using a contract research organization (CRO).
And, they are increasingly leveraging outsourcing to enable focused excellence on the core business of
pharmaceuticals while abating the above issues.
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2 | Outsourcing in the pharmaceutical industry: 2011 and beyond
With its long R&D cycle and an acute
need for speed to market, the global
pharmaceutical industry was one of
the earliest adopters of information
technology outsourcing (ITO) and back-
office business process outsourcing
(BPO). Indeed, for years pharma
companies have been outsourcing
almost everything in IT, from mainframes
and servers to networks, call centers
and applications development and
maintenance (ADM), and most are in
their second, third or fourth iteration of
their outsourcing agreements in these
functions. These organizations have
also been progressive when it comes
to outsourcing other processes such as
Human Resources (HR), Finance and
Accounting (F&A), and Procurement.
Additionally, functions like Real Estate
and Facilities Management (REFM),
have risen in importance when it comes
to outsourcing alternatives.
For example, GlaxoSmithKline,
Novartis and Schering took the lead
in outsourcing REFM processes in
1999. AstraZeneca and Astellas began
outsourcing their IT infrastructure in
2001. In 2002, Johnson & Johnson was
the first pharma company to outsource
its ADM; it was also the first to engage
in legal process outsourcing (LPO)
in 2006. 2006 also marked the year
in which GlaxoSmithKline and Pfizer
embraced finance and accounting
outsourcing (FAO). And Bristol-Myers
Squibb was the pioneer in outsourcing
Order-to-Cash (OTC) and HR, in 2007
and 2008, respectively.
Corporate processes outsourcing
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The macro trends driving R&D
outsourcing (RDO), which are similar
to those driving other types of pharma
outsourcing, are spurring most major
global pharma firms to consider more
aggressive RDO uptake. However, given
that most global Pharma firms have grown
via extensive M&A efforts, both the level
of and philosophy toward RDO varies
across the organizations. For example,
per polling of a representative sample
of RDO decision makers and secondary
research conducted in late 2010, KPMG
has not found many pharma firms with
a single unified RDO strategy, much
less an operational plan of action and
timeline, which is in stark contrast to more
traditional and established BPO and ITO
efforts within these firms.
As a result, there is much RDO
“dabbling” among pharma firms in
the market today. They are engaging
tactically, while simultaneously
defining a strategic direction. Clearer
visions than strategies typically exist
due to competing priorities, numerous
decision makers, and uncertainties
or disagreements over the expected
maturation and adoption pace of
RDO. Thus, RDO is not progressing
monolithically across organizations,
and different areas have different
agendas, goals and risk profiles.
In terms of outsourced RDO processes,
KPMG’s research in late 2010 found that
while pharma companies are mature
in areas such as preclinical and clinical
trials work, most are still exploring
other areas such as drug research and
registration work (see Figure 1).
R&D processes outsourcing
Figure 1: Pharma R&D outsourcing
O
p
e
r
a
t
i
n
g
M
o
d
e
l
A
c
t
i
v
i
t
i
e
s
O
f
f
s
h
o
r
e
d
Competitive
Intelligence
? Pipeline analysis
? Clinical trial mapping
Business
Intelligence
? Product/performance
tracking
Market Research
? Survey design
? Therapy area research
Captive +
Outsourced
Captive +
Outsourced
Captive +
Outsourced
Captive Outsourced
Preclinical
? Bioanalytics
? Pharmacokinetics
? Toxicology studies
Clinical Trails
? Programming/
scheduling
? Data management
? Site management
? Clinical statistics
Material Preparation
? Dossier production
? CD production
Analytics
? Commercial analytics
? Sales force analytics
? Brand modeling and
forecasting
Functional Genomcs
? Specialized chemistry
? Bioinformatics support
Lead identi?cation
Discovery chemistry
? Lead veri?cation
? Lead optimization
? Chemical synthesis
? Hit/lead optimization
Only Captive
Opportunity
Analysis
E
x
t
e
n
t
o
f
O
u
t
s
o
u
r
c
i
n
g
Drug
Research
Discovery Development Registration
Launch/
Marketing
Most outsourced Least outsourced
REGULATION REGULATION REGULATION REGULATION
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4 | Outsourcing in the pharmaceutical industry: 2011 and beyond
RDO drivers and benefits
While KPMG’s above-mentioned polling
of RDO decision makers did not confirm
a clear set of common RDO drivers
across major pharma firms, it did help
identify some directional trending. For
example, the three most cited RDO
drivers were:
• Gain cost savings to fund R&D
transformation
• Shift internal R&D focus to more
strategic activities
• Improve R&D performance
Interestingly, the benefits sought
by firms are mixed, and sometimes
inconsistent, with identified RDO
drivers, and most of the decision makers
KPMG polled indicated it was too early
to fully assess whether their firms
are consistently achieving the RDO
desired benefits. Per their responses,
straightforward goals such as cutting
costs are being more frequently
achieved, while more complex ones,
such as shifting the retained R&D
organization to more strategic activities,
are so far proving more elusive.
RDO risk and mitigation
Many buyers understandably feel that
the risks associated with RDO are
higher than with in-house R&D because
getting a drug to market in the most cost
effective and timely manner is a major
contributor to the success and growth of
any pharmaceutical company, and clearly
a strategic core competency. However,
the siloed manner in which many
pharma firms approach RDO allows
each functional area to have visibility
into and control of only its own scope.
While this strategy feels safer, from an
overall corporate benefit standpoint the
organization is leaving significant dollars
on the table, and failing to leverage
potential process improvement and
end-to-end performance enhancements.
There are four major risk categories for
which pharma firms must account when
undertaking RDO. Following are some of
the ways to mitigate the risks:
Execution
• Ensure appropriate control, ongoing
monitoring and communication
• Start with small projects and expand
base on success and lessons learned
• Leverage SG&A outsourcing
experience, teams, and models
and, where practical, consider
expanding work in existing
service provider relationships
Contractual
• Develop strong business terms
focusing on intellectual property
protection, privacy, compliance and
indemnity clauses
Employee
• Communicate strategy and
plans clearly
• Focus on change management
requirements, especially related to
the transition process
Provider
• Test a few providers, geographies
and service models (onshore,
offshore, nearshore)
• Monitor dynamics of large players
expanding into RDO markets
• Monitor dynamics of smaller,
specialized provider growth and
market consolidation
Since many pharma companies have
already started with multiple small
projects, almost all of which are
distinct and separate from the other
RDO initiatives, it is time to deploy
a more overarching and integrated
RDO strategy. There are several
benefits to this approach:
• Better potential maximization of
cost savings
• Employment of a select group
of providers with consistent,
measurable and tracked metrics to
maximize accountability
• Development of partnerships
with providers with demonstrated
successes both onsite and offsite
• Establishment of a service provider
landscape that provides for
collaboration with the client and
among the service providers
Words of caution: successful
outsourcing of any kind requires
ongoing communication between
stakeholders and providers, as well
as well-defined governance structures
and processes. Additionally, there
is certainly no room for a one size
fits all strategy within RDO. A more
orchestrated sourcing strategy will
provide benefits that many pharma
firms are not achieving.
Finally, pharma buyers must recall and
leverage all their learnings from other
outsourcing efforts. From involving
key senior management to getting all
stakeholders on board early to striving
to maintain a transparent and fact-
based process, these practices are as
critical to RDO as to any other type of
Pharma outsourcing.
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Traditionally, outsourced regulatory
services were linked directly to the
effort necessary to support clinical
trials. For CROs, this ran the gamut
from a per-trial basis for under-resourced
pharma/biotech organizations to a
virtual regulatory affairs department.
In the new economic reality of drug
development, the leveraged outsourcing
model that has been successfully used
to support clinical trials is now being
seriously tested for regulatory affairs and
operations support.
Regulatory affairs and operations
processes ripe for outsourcing include
medical writing, report publishing,
submission publishing, submission
planning, regulatory data management,
regulatory information management,
country regulatory affairs, regulatory
chemistry, manufacturing, and
controls (CMC), labeling, agency
liaison, regulatory strategy, translation,
administrative documents, dossier
conversion and literature searches.
Regulatory process outsourcing
benefits
The benefits pharma companies can
realize from outsourcing regulatory
affairs and operations processes include:
Cost efficiencies
• Moving from high fixed costs
of in-house resources for all
regulatory activities
– Fringe benefits
– Facilities and technology
– Training
– Relocation
– New hires in new geographies
– New hires with specialized
expertise
• To a blended variable-cost approach
– Cost of consulting fees versus
full-time staffing costs for
a defined set of functions,
programs and products
– Saving on staff reductions
– Savings achieved by refocusing
stranded employees on other
essential activities
Increased asset value by keeping
products on the market and
expanding market share
• Implement proactive compliance
• Prevent revenue loss by staying in
the market
• Gain revenue in new markets
• Increase speed to new market
approvals
• Increase percent of market share
(reimbursement, exclusivity)
• Extend brand formulations and
indications
Gain from new product approvals and
optimized reimbursement
• Priority approvals valued, on average,
at $448 million* in additional revenue
• First cycle approvals valued,
on average, at $640 million* in
additional revenue
• Increased market share and
product advocacy
Proactive risk management
• Loss from product approval delays
or recalls
– Additional development costs
per day
– Loss of product revenue valued,
on average, at $1.08 million* per
new molecular entity per day
• Fines, penalties and loss of
reputation
• Loss of stock price and/or investor
funding
*
Source: David P. Katz, Ph.D., KPMG, 2010
Outsourcing in the pharmaceutical industry: 2011 and beyond | 5
Regulatory affairs and operations
processes outsourcing
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6 | Outsourcing in the pharmaceutical industry: 2011 and beyond
Figure 2 compares current models of regulatory support with the traditional model,
which focused solely on the outsourcing of clinical trial applications, primarily to
CROs. In the current model, CROs and others are now interested in expanding their
services and scope to include all five categories in the lifecycle.
Figure 2: Current modes of outsourced regulatory support
Lifecycle Management of Products Pre-IND IND/CTA Ph. I Ph. IIa Ph. IIb Ph. III NDA/MAA
Timeline
Key Partnering
Offerings
Clinical Trial
Applications
Pediatric
Investigational
Plans
NDAs/MAA
“Maintenance”
Activities
New “Regional
Entry”
NDA/MAAs
MAH Transfers
Managing
regulatory
requirements
involved in
initiating and
conducting
clinical trials
Designing and
implementing
Pediatric
Investigational
Plans
Managing the
extensive set
of business
processes
supporting
upkeep of
marketing
applications
Extending our
client’s footprint
by managing all
regulatory
activities
associated with
registering
products in new
markets
Managing all
activities
involved in the
transfer of
product
ownership, both
for buyers and
sellers
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Outsourcing in the pharmaceutical industry: 2011 and beyond | 7
As depicted in Figure 3, regulatory service delivery models are highly flexible,
and sliceable by region, product or function, depending on what strategy best
suits the organization.
Regulatory outsourcing issues and hurdles
Just as with outsourcing any process or set of processes, potential regulatory process
outsourcing buyers have a wide range of concerns. In the regulatory environment,
these issues include data security, system access, third party performance, internal
change management, increased compliance risk, loss of control, resolving shared internal
responsibility, unsustainable savings, internal process codification, and trust. According to the
results of a leading service provider’s query to its client advisory board members, the top three
concerns are, not surprisingly: data security, system access and third party performance.
Figure 3: Global presence and capability can support strategic regulatory outsourcing
Bene?t Dimension
Objective
By Region By Product
Register in New
Regions
Maintain a
Speci?c Class of Product
Improve and/
or Transfer a Function
By Function
3 2 1
Lifecycle Management of Products Pre-IND IND/CTA Ph. I Ph. IIa Ph. IIb Ph. III NDA/MAA
Timeline
Key Partnering
Offerings
Clinical Trial
Applications
Pediatric
Investigational
Plans
NDAs/MAA
“Maintenance”
Activities
New “Regional
Entry”
NDA/MAAs
MAH Transfers
Managing
regulatory
requirements
involved in
initiating and
conducting
clinical trials
Designing and
implementing
Pediatric
Investigational
Plans
Managing the
extensive set
of business
processes
supporting
upkeep of
marketing
applications
Extending our
client’s footprint
by managing all
regulatory
activities
associated with
registering
products in new
markets
Managing all
activities
involved in the
transfer of
product
ownership, both
for buyers and
sellers
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8 | Outsourcing in the pharmaceutical industry: 2011 and beyond
Pharmacovigilance work requires highly
skilled individuals, from registered
nurses to specialist doctors, who
perform relatively clerical functions
such as sifting through data and probing
case reports. Despite the clerical
nature of the work, it requires such a
high level of expertise that it carries a
very high price tag. Additionally, the
requirements and the stakes of this kind
of work continue to rise. Exacerbated
by negative news coverage, each new
drug is heavily scrutinized, and the
volume of events to be reviewed and
addressed is increasing at an incredible
rate, driving costs even higher. As a
result, pharmacovigilance – not only
for cost savings but also for process
efficiency – is growing in popularity
as an outsourced function, especially
to offshore locations. Further, while
pharma companies were traditionally
somewhat reluctant to partner with a
third-party for pharmacovigilance as the
data managed and interpretations made
requires such deep medical knowledge,
they are becoming more comfortable
with outsourcing as many of the service
providers have extremely experienced
MDs and PhDs working on their teams.
Pharmacovigilance service providers
There are essentially two classes of
providers moving strategically, and
quickly, into the pharmacovigilance
space. The first is traditional CROs,
those companies focused on drug
development and managing trials
through their various steps and
processes. These companies, such as
Quintiles, Covance and MDS Pharma
Services, are well suited to step up
and address pharmacovigilance. From a
staffing perspective, they have the right
ingredients, with doctors on staff who
are focused on the relevant processes.
The second is traditional BPO
organizations, particularly those based
in India or with large Indian operations,
such as Capgemini, Tata Consultancy
Services (TCS), Infosys and Keane. India
is the most obvious choice for offshore
pharmacovigilance outsourcing for a
number of reasons.
India-based operations have employees
with excellent language skills and a
large number of doctors and other
medical professionals who are looking
for higher-dollar work in a related field.
And although India’s labor arbitrage
appeal is decreasing, performing
pharmacovigilance work in India is still
quite inexpensive by US standards.
Pharmacovigilance outsourcing
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Outsourcing in the pharmaceutical industry: 2011 and beyond | 9
The pharmaceutical industry is looking at
emerging market expansion and growth
potential of 12 percent year on year,
and the biologics market is expected to
grow to $41 billion by 2014. There will be
continued and accelerated consolidation
through M&A activity, including spin-offs
to allow increased focus on corporate
strategy and core competencies. And
because of the volatility of the market,
cost reduction programs will become
more rigorous and closer to the bone.
As a result, we will see:
• Creative alliances and significant
outsourcing relationships evolving
in areas including real estate and
facilities, regulatory, R&D, legal and
government pricing
• Providers proving greater experience
in dealing with multiple regulatory
regimes, but recognizing that
regulations will continue to evolve
• Increased emphasis on the role of
governance for new and modified
existing contracts
• Outreach for expert assistance on
an operational level regarding ways
of bringing together or tearing apart
existing outsourcing contracts due to
anticipated mergers and spin-offs
• Expanded use of third-party service
providers in both operational and
strategic process areas such as R&D,
sales and marketing
• Continued review of what is
considered core and non-core as
these definitions continue to morph
• Deeper penetration into existing
outsourcing areas
• Greater focus on more immediate
cost savings; while desire for
transformation and innovation have
not disappeared, up-front emphasis
will be placed on labor arbitrage to
drive nearer-term savings with less
risk of achieving benefits
• Fewer full-bundled deals, more
targeted aggregation and
multisourcing
• Smaller deals with, over time, a
progressive rollout of increased
scope
• Selling of captives or more hybrid
models to manage sustainability risk
• Greater attention to volume volatility
• More outsourcing contract
renegotiations to reduce pricing
• Increased due diligence, governance
focus and flight to quality
• Emergence of enterprise-wide
sourcing governance and global
business services
• An increasing move toward a
diversified global business model to
access alternative sources of growth
and reduce risk
• Delivery of more, and more valuable,
products to guard against blockbuster
dependence and to mitigate pricing
pressures, underpinned by cost
controls to generate sustainable
sales/earnings growth and improve
returns to shareholders
There’s no question that today’s pharmaceutical companies are facing a multitude of unyielding challenges. But substantial,
strategic alterations to their business models will help them tackle the issues and lessen their detriment.
Conclusion
Outsourcing in the pharmaceutical industry: 2011 and beyond | 9
Looking ahead: The next 18 months
© 2012 KPMG LLP, a Canadian limited liability partnership and a member ?rm of the KPMG network of independent member ?rms
af?liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Contact us
National
Bob Jolicoeur
National Sector Lead,
Biotechnology and Pharmaceuticals
T: +1 416 777 3733
E: [email protected]
Paola Cipolla
Partner,
Sector Lead, Biotechnology
T: +1 416 777 8346
E: [email protected]
Montréal
Gino Cordi
Partner, Audit
T: +1 514 840 2315
E: [email protected]
Carl Deslongchamps
Partner, Tax
T: +1 514 840 2135
E: [email protected]
Mark Tétreault
Partner, Audit
T: +1 514 840 2334
E: [email protected]
Toronto
David W Regan
Partner,
Tax, SR&ED
T: +1 416 549 7809
E: [email protected]
Doug Varty
Partner, Audit
T: +1 416 777 8520
E: [email protected]
Vancouver
Paul Wilkinson
Partner, Audit
T: +1 604 646 6391
E: [email protected]
kpmg.ca/biotechandpharma
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or
entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as
of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.
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