Pharma firms leveraging hybrid sourcing models, deepening global sourcing adoption across the value chain to include drug development and research, supply chain, data management and analytics functions
DALLAS, October 6, 2011 ─ Pharmaceutical firms are expected to continue increasing their spend on global sourcing after signing a record number of contracts in 2010, according to Everest Group, an advisory and research firm on global services.
Outsourcing deal signings in the pharmaceutical vertical grew at a faster pace than in other verticals in 2010, surging to a 10-year high that represented 81percent growth over 2009 as compared to the overall industry average of 13 percent, according to Everest Group’s research report, Outsourcing and Offshoring Trends in Pharmaceuticals. Everest Group estimates outsourcing levels in the pharmaceutical vertical, currently about 3-5 percent of the pharmaceutical industry’s total annual spend of US$490-670 billion, has the potential to reach 10-15 percent levels that translates to an untapped opportunity of US$33-65 billion.
“The pharma industry is a nascent adopter of outsourcing as compared to some other industries, but multiple factors have emerged that are driving adoption, and we saw strong evidence of these dynamics coming into play last year when the market peaked,” said Amneet Singh, vice president – Global Sourcing. “The spike we saw in 2010 was largely the result of pent up demand from the recessionary economy; however, the business drivers for outsourcing adoption remain and continue to evolve. Cost pressures, a changing pharma ecosystem, emerging markets and other market forces are continuing to drive the market. Moving forward, we expect to see an increase in sourcing of drug development and research, supply chain, data management and analytics functions.”
Other insights in the report include:
- Historically, United States-based pharmaceutical companies drove demand for outsourced services; however, European companies, excluding those based in the United Kingdom, have dominated contract signings over the past three years.
- Most buyers are leveraging hybrid sourcing models with clearly defined focus areas for captives and third parties. Captives mostly focus on research and development whereas IT, F&A (finance and accounting), procurement and clinical research are typically outsourced.
- IT Outsourcing (ITO) has dominated the landscape since 2007; however Business Process Outsourcing (BPO) adoption has steadily risen as firms have increasingly outsourced drug development process work as well as F&A, human resources and procurement.
- Pharmaceutical companies trying to enter emerging markets are strategically setting up captives in these markets to gain a foothold. Asia and Central and Eastern Europe are leading captive locations.
The report includes insights into the service provider landscape that delivers services in the pharmaceuticals vertical: generalist providers offering traditional services; other smaller/regional service providers; and specialists offering domain-specific services.
Global IT-BPO providers cited in the report include Accenture, ACS-Xerox, Capgemini, HP and IBM. Indian-heritage services providers cited include Cognizant, Genpact, HCL, Infosys, Mahindra-Satyam, TCS and Wipro. Pharmaceutical-specific service providers in the report include Advinus, inVentive Health, PDI, Publicis Touchpoint Solutions and ZS Associates. Other regional service providers cited are Dimension Data and Sigma.
“We’re seeing rapid changes in the service provider landscape driven by evolutions in the pharma industry,” said H. Karthik, vice president – Global Sourcing. “Service providers are seizing opportunities by broadening their capabilities, including leveraging M&A and by developing strategic alliances. Historically, most providers focused on traditional services, but emerging areas of growth include pharmaceutical-specific processes such as clinical trial data management, pharmacovigilance, scientific writing, and case handling services. Additionally, service providers are expected to focus on further enhancing capabilities to support drug development and supply chain and logistics.”
The scope of the report analysis includes all publically announced third-party BPO and ITO deals signed in the pharmaceutical vertical from January 2006 to June 2011; captives landscape; BPO, ITO, R&D, supply chain and sales and marketing services; global geographies; and key service providers that signed publically announced deals with companies in the pharmaceutical vertical.
For more information about the report, Outsourcing and Offshoring Trends in Pharmaceuticals, other Global Sourcing research reports or other research services, please visit research.everestgrp.com, email [email protected] or call +1-214-451-3110.