The trend of outsourcing continues to grow in the life science industry. In particular, the 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). This article reviews why companies start to outsource or change their service providers, focusing on Regulatory Affairs. How does the extent of outsourcing differ depending on the company size, growth strategy, business model and product portfolio? And what are the main drivers influencing outsourcing decisions?
Differing Scopes For Regulatory Affairs Outsourcing
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 a specific project or functional service provision), etc. Regardless of the approach, pharmaceutical companies tend to look for outsourcing solutions to decrease the number of in-house staff or prioritize strategic projects for the internal resources, optimize the workload of the existing team, centralize particular functions and increase their oversight. In other words, they want to reach the highest effect. Factors Affecting Outsourcing Decisions
Reasons To Outsource Your Regulatory Affairs
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 hard to make, similar to changing the current service provider. However, both decisions depend on the following:
- Company size, growth and strategy (small to mid-size vs large companies);
- Product portfolio and its 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. After this, we 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.
Different Outsourcing Strategies Among SME’s
Let’s start with small to mid-size enterprises, as there are many those on the pharmaceutical market. From the establishment of the company, one of the two scenarios are possible:
- A 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.
- The company chooses to build a Regulatory Affairs department internally as they grow and perform all necessary activities in-house, outsourcing only small things such as translation services.
The first scenario might work perfectly fine for an extended period 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 beginning.
However, as the company and its’ product portfolio grow, the internal regulatory affairs department expands simultaneously. This leads to the growing costs for staff maintenance, especially when the seniority of the team increases. At some point, this triggers the thoughts about outsourcing in the heads of the management team.
It might also happen that the regulatory team initiates the idea of outsourcing to eliminate 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 labelling, filling of application forms, etc. The current trend clearly shows 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 uncompliances and related costs.
Outsourcing Decisions in Large Pharma Companies
As for 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 and different types of services. Meaning that big players will most likely deal with a service provider of similar size rather than look for local or regional solutions, which could 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 is 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. For example, 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 established quite a good relationship with one of our key accounts’ Regulatory Head for the EMEA region, who was responsible for our oversight as their regulatory affairs partner. 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, which made me realize how integrated we are in their organization, being considered and treated similarly to their internal regulatory department staff. Such a “no double standards” attitude is an excellent example of how top pharma companies succeed in extending their teams by deploying external service providers.
Differences Between Innovative & Generic Companies
There is a clear difference in the vendor selection process when comparing companies that invest in R&D, developing innovative medicinal products and companies with 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, very different factors drive their decision.
Innovative companies have very high standards in terms of the quality of service. For example, I have seen several cases when top pharma companies want to be in a 100% compliance situation with regulatory requirements and try to ensure even higher standards than the minimum required by the regulatory bodies. Therefore, when choosing a vendor, they will pay significant attention to project management and governance, regulatory intelligence process, quality and compliance, vendor’s internal structure and procedures, assigned team experience and engagement, etc. In addition, aspects like the company culture and values of a service provider will also be fundamental. At the same time, the project-related costs will play a much less significant role in decision making.
On the contrary, generic producers are all about cost savings, which is understandable, having in mind the nature of such companies and their businesses. However, this does not mean that the level of regulatory support they need is different. The approach itself changes the situation entirely for the partnership between a generics company and a service provider.
Merger and Acquisition Driven Outsourcing Decisions
In recent years, the pharmaceutical industry has seen many mergers and acquisitions (M & M&A), with oncology being a particular area of interest. From 2014 to the first half of 2019, 2,882 deals fell within the gene therapy, immuno-oncology, microbiome and orphan drug space. These deals were worth more than $1 trillion, according to the GlobalData report (2).
Mergers and acquisitions are usually the game changers for service providers of the two companies involved. You can discontinue a vendor contract after a deal is signed and if one of the parties has sufficient resources to overtake vendor responsibilities immediately. A 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, sometimes even longer. Another possible situation during the M&As can be an inclusion of regulatory vendors to support internal teams with the increased workload. A good example of such workload increase could be marketing Authorization Holder changes, variations related to product information and labelling changes, gap analysis of existing dossiers, and dealing with findings afterwards.
Optimization of Vendor Network & Management
Optimization of vendor networks 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 to ensure a more consistent and, in many cases, higher quality service and reduce vendor qualification, management, and auditing costs. In other words, companies tend to apply a centralized approach, decrease resources required for vendor oversight, and reach higher effectiveness and efficiency through such optimizations.
Another growing trend among large pharma is outsourcing vendor management activities to a third party, which can again lead to a significant cost reduction. Outsourcing vendor management is also more likely to drive process standardization and consistency, increasing transparency and effective governance. Even though this trend is currently much more visible in clinical operations, it is rapidly chasing such services as regulatory affairs and pharmacovigilance.
Lack of Internal Resources or Expertise In RA
An apparent 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 that even the largest pharmaceutical company may not have sufficient experience in all aspects of regulatory affairs. The expansion of a product portfolio, new therapeutic areas or new product types (e.g. ATMPs, Orphan Drugs, etc.), which fall under different regulations, may require specific knowledge in compiling the dossier or managing marketing authorization applications.
Lack of Local Presence & Know-How
Entering new markets or regions for pharmaceutical companies can be challenging, especially for an SME. This is because 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. For example, I had clients, who needed help with converting dossiers from FDA to EMA, or from EMA to Russian MoH requirements and managing related marketing authorizations. At the same time, all other activities and functions remained within their internal regulatory teams.
There is also a clear trend towards outsourcing 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 a particular country does not require a full FTE, making it even harder to find an in-house employee working part-time and ensure a good backup process.
My team has faced a considerable demand for local regulatory support in the CIS region for five years. In addition, after establishing the Eurasian Economic Union and implementing regulations, which allows entering many markets across the region via a single marketing authorization application (somewhat similar to Decentralized Procedure in EU), this interest from pharmaceutical companies will continue grow. Another booming region currently is the 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 the market share (1).
Quality-Related Triggers For Regulatory Outsourcing
Quality-related matters are not among the most frequent reasons, which triggers outsourcing for the first time, but it is definitely among the top 3 for a vendor change. The client can identify it during a new vendor selection process with a clear focus on the quality at the bid defence meeting, or it can occur later on when transferring the responsibilities from the client’s current service provider. And here comes the time to unpack “the gift” left for the newcomer.
The biggest surprise in my practice so far has been a service provider overtaking regulatory affairs and pharmacovigilance responsibilities, 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 about an immediate transition of activities. They learned that their current vendor has Google-translated in-country Product Information in several markets, without any additional corrections, and submitted those to the local competent authorities. Of course, this is an entire case, but a portion of regulatory affairs vendors apply such a “creative” approach to the service quality.
To summarize, many factors affect outsourcing decisions, but the ultimate goal of trusting some services to a vendor is almost always the same – increased effectiveness and cost savings. Moreover, with regulatory requirements becoming more and more complex, it seems evident 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
- Regulatory Affairs Outsourcing Market Size, Share & Trends Analysis Report By Service (Legal Representation, Regulatory Consulting, Regulatory Writing and Publishing), By Region, And Segment Forecasts, 2019 – 2026, Grand View Research.
- Deal-Making Trends in Pharma – Thematic Research. GlobalData.