The trend of outsourcing continues to grow in the life science industry. In particular, global regulatory affairs outsourcing market was valued at US $5.7 billion in 2018, and is expected to witness a compound annual growth rate of 11.9% over the period to 2026 (1). Regulatory affairs outsourcing may vary in extent (from stand-alone service to full-scope solution), length (project based or long-term partnership with selected vendor), model (insourcing a dedicated expert for specific project or functional service provision), etc. Regardless of the approach, pharmaceutical companies tend to look for outsourcing solutions in order to decrease the number of in-house staff or prioritize strategic projects for the internal resources, optimize workload of the existing team, centralize particular functions and increase their oversight. In other words, they want to reach the highest effectiveness and efficiency with no compromise to the quality. In this article I will try to review why companies start to outsource or change their service providers with the specific focus on Regulatory Affairs, how the extent of outsourcing differs depending on the company size, their growth strategy, business model and product portfolio, what are the main drivers influencing outsourcing decisions.
Factors Affecting Outsourcing Decisions
There can be a lot of different factors and internal reasons for companies to start outsourcing. Proceeding with a vendor for the first time may be a hard decision to make, similarly as the one to change current service provider. Both decisions clearly depend on the following:
- Company size, growth and strategy (small to mid-size vs. large companies);
- Product portfolio and it’s changes (innovative medicines vs. generics, consumer healthcare products, food supplements, etc.);
- Company mergers and acquisitions;
- The need to optimize vendor network and management;
- Lack of internal resources and their expertise;
- Lack of local presence and know-how in specific markets or regions;
- Quality and compliance related matters.
All outsourcing decisions are highly related to the possible cost-savings, even though the primary goal of such changes in the company might be completely different. Hereinafter, I will review all of these factors mentioned above, how they affect vendor selection or change process and give some examples from my own professional experience.
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Different Outsourcing Strategies Among SME’s
Let’s start with small to mid-size enterprises, as there is a large number of those on the pharmaceutical market. From the establishment of the company one of the two scenarios are chosen:
- Company decides to remain a virtual company and outsource their full-scope regulatory work to a vendor, having only one or two people internally to coordinate product life-cycle management and a vendor itself.
- Company chooses to build Regulatory Affairs department internally as they grow and perform all necessary activities in-house, outsourcing only small things such as for example translation services.
The first scenario might work perfectly fine for a long period of time as long as the qualified vendor delivers high quality services, remains efficient in terms of costs and in parallel builds a trusted relationship with the client. As for the second scenario, it might be a good option for quite some time to do everything in-house, and it may even be less costly at the very beginning. However, as the company and its’ product portfolio grow, internal regulatory affairs department expands simultaneously. This leads to the growing costs for the staff maintenance, especially when seniority of the team increases. At some point, this triggers the thoughts about outsourcing in the heads of management team.
It might also happen that regulatory team itself initiate the idea of outsourcing, in order to get rid of some unwanted activities that burn their time, which could be used for more strategically important tasks or projects. To name a few it can be as small as translations/proofreading of patient information and labeling, filling of application forms, etc. The current trend clearly shows an increasing outsourcing of regulatory/medical review of advertising and promotional material. Again, this task can be a real headache to the local regulatory teams. Moreover, the need to outsource might be triggered by the increasing number of incompliances and related costs.
Outsourcing Decisions in Large Pharma Companies
As for the large corporations, outsourcing is a strategic decision, which in most cases affects a large number of regional hubs or affiliates. Large pharma companies tend to choose partners, which can cover broad geographies as well as different types of services. This means that big players will most likely deal with the service provider of a similar size rather than look for local or regional solutions, which could obviously be cheaper. This situation might differ based on the structure and internal organization of the company, depending on the level of autonomy of local affiliates and the given freedom to make outsourcing decisions independently.
Important to mention, that large pharma companies are usually looking for a long-term partnership and the extension of their teams, rather than a simple client-vendor relation. When I started to work at my current company, I was leading Regulatory Affairs Department for more than a year, before switching to Business Development. At that time, I have established quite good relationship with one of our key accounts’ Regulatory Head for EMEA region, who was responsible for our, as their regulatory affairs partner, oversight. He once said to me, during a discussion on one challenging project: “Egle, how can I require 100% or even more from your team, when my internal regulatory folks sometimes deliver much less?”. I was amazed by his approach and this made me realize, how integrated we are in their organization, being considered and treated similarly as the staff from their internal regulatory department. Such “no double standards” attitude is a very good example of how top pharma companies succeed to extend their teams by deploying external service providers.
Differences Between Innovative and Generic Companies
There is a clear difference in vendor selection process when comparing companies which are highly investing in R&D, developing innovative medicinal products and companies having generics, consumer healthcare products or food supplements in their portfolios. While it may seem that all of them evaluate the quality of service and costs during their vendor selection process, clearly, their decision is driven by very different factors.
Innovative companies have very high standards in terms of the quality of service. I have seen a number of cases, when top pharma companies not only want to be in a 100% compliance with regulatory requirements, but also tries to ensure even higher standards than the minimum required by the regulatory bodies. Therefore, when choosing a vendor, they will pay a major attention to project management and governance, regulatory intelligence process, quality and compliance, vendor’s internal structure and procedures, assigned team experience and engagement, etc. Such things as company culture and values of a service provider will also be of high importance, while the project related costs will definitely play a much less significant role in decision making.
On the contrary, generic producers are all about the cost savings, and this is totally understandable having in mind the nature of such companies and their businesses. This does not mean that the level of regulatory support they need is different, it is the approach itself which changes the situation completely for the partnership between generics company and a service provider.
Merger and Acquisition Driven Outsourcing Decisions
The pharmaceutical industry has seen a large amount of mergers and acquisitions (M&A) in the recent years, with oncology being a particular area of interest. From 2014 to the first half of 2019, there were 2,882 deals that fell within the gene therapy, immuno-oncology, microbiome and orphan drug space. These deals were worth more than $1 trillion, according to GlobalData report (2).
Mergers and acquisitions are usually the game changers for service providers of the two companies involved. The contract with a vendor can be discontinued shortly after the deal is signed, in case one of the parties has sufficient resources to overtake vendor responsibilities immediately. A more frequent situation is that vendor change or vendor network optimization is performed after all integration actions are completed. For large companies a usual term of merger related structural changes would be around 1-2 years, sometime even longer. Another possible situation during the M&As can be an inclusion of regulatory vendor in order to support internal teams with the increased workload. A good example of such workload increase could be activities related to Marketing Authorization Holder change, variations related to product information and labeling changes, gap analysis of existing dossiers and dealing with findings afterwards.
Optimization of Vendor Network and Management
Optimization of vendor network among mid to large pharma companies has been trendy for the past decade. This is highly understandable as companies try to reduce the number of vendors in order to ensure a more consistent and, in many cases, higher quality service, as well as to reduce vendor qualification, management and auditing costs. In other words, companies tend to apply a centralized approach, decrease resources required for vendor oversight, and through such optimizations reach higher effectiveness and efficiency.
Another growing trend among large pharma is to outsource vendor management activities to a third party, which again can lead to a significant cost reduction. Outsourcing vendor management is also more likely to drive the process standardization and consistency, therefore increasing transparency and effective governance. Even though this trend is currently much more visible in the field of clinical operations, it is rapidly chasing such services as regulatory affairs and pharmacovigilance.
Lack of Internal Resources or Expertise
A clear reason for outsourcing is the lack of internal resources or required know-how/expertise in-house. This may happen in companies of any size, from virtual start-ups to large corporations. This is very much dependent on the ever-changing regulatory environment and on the fact that even the largest pharmaceutical company may not have sufficient experience in all aspects of regulatory affairs. The expansion of product portfolio, addition of new therapeutic areas or new product types (e.g. advanced therapy medicinal products, orphan designation medicines, etc.), which fall under different regulations, may require specific knowledge in compiling the dossier or managing marketing authorization applications.
Lack of Local Presence and Know-How
Entering new markets or regions for pharmaceutical companies can be a challenging process, especially for the SME’s. This is due to the fact that the specifics of local regulations might be completely different from what they have faced before and that the company might not have sufficient local resources internally. In situations like this, there is always a clear need for an experienced vendor. I had a number of clients, who needed help with conversion of dossiers from FDA to EMA, or from EMA to Russian MoH requirements and managing related marketing authorizations, while all other activities and functions remained within their internal regulatory teams.
There is also a clear trend to outsource local regulatory support in smaller or less attractive/financially beneficial markets, while keeping all the activities related to high-importance countries in-house. Such outsourcing decision is also driven by the fact that not all smaller markets of pharmaceutical companies have in-country affiliates. Moreover, it might also happen that local regulatory affairs workload in particular country does not require a full FTE, which makes even harder to find an in-house employee working part-time and ensure sufficient back-up process.
My team has faced a huge demand for local regulatory support in the CIS region for the past 5 years. In addition, after the establishment of the Eurasian Economic Union and implementation of regulations, which allows to enter a number of markets across the region via single marketing authorization application (somewhat similar to Decentalized Procedure in EU), this interest from pharmaceutical companies will continue to grow. Another booming region currently is Asia Pacific, which is anticipated to be the fastest growing region in the forthcoming years. By 2026, the APAC is projected to account for more than 45.0% of market share (1).
Quality Related Triggers
I should say that quality related matters are not within the most frequent reasons, which triggers outsourcing for the first time, but it is definitely among the top 3 for a vendor change. It can be identified by the client during a new vendor selection process with a clear focus on the quality at the bid defense meeting, or it can occur later on, when transferring the responsibilities from client’s current service provider. And here comes the time to unpack “the gift” left for the newcomer.
The biggest surprises in my practice so far came when regulatory affairs as well as pharmacovigilance responsibilities were overtaken from providers, to whom these services were not their core business, e.g. distributors. One of the most shocking cases I remember was when the client inquired an immediate transition of activities, as they got to know that their current vendor has Google-translated in-country Product Information in several markets, without no additional corrections, and submitted those to the local competent authorities. Of course, this is an exclusive case, but there are definitely a portion of regulatory affairs vendors, which apply such “creative” approach to the service quality.
To summarize, there is a number of factors affecting outsourcing decisions, but the ultimate goal of trusting some services to a vendor is almost always the same – increased effectiveness and cost savings. With regulatory requirements becoming more and more complex, it seems very obvious that the volumes of regulatory outsourcing will continue to grow stably in the upcoming years.
If you want to get more information about regulatory affairs and outsourcing solutions, contact us!
Egle Pavyde, MPharm
Director Business Development and Marketing