Which Of These 6 Outsourcing Models Best Suits Your Program?

By Williams Olughu, Ph.D., Ipsen

Introduction

Over the past two decades, there has been a seismic shift in how drug development is conducted, compared to pre-2000s. This evolution from internal to external team outsourcing in the research and development of pharmaceuticals can be traced back to the 1950s when contract organizations offered routine analytical services.¹ However, by the turn of the 21st century, contract service providers have become a mainstay in the pharmaceutical industry rather than an afterthought. It is estimated that a third of every U.S. dollar spent on pharmaceutical R&D goes to external service providers, a trend expected to increase in the next decade.²

The mid-20th century saw the inception of third-party service providers for the emerging pharmaceutical sector, with companies such as Charles River Laboratories and Huntingdon Life Sciences providing basic, preclinical, biological services. By the 1980s, more stringent regulatory requirements for clinical trials and new drug approval resulted in more contract organizations, such as Parexel and Quintiles providing clinical services.¹ As of 2024, the global number of operational CROs and CMOs is approximated at over 1,400.^1,3,4 Although the accuracy of these numbers might be debated (M&A activities and insolvencies contribute to the degree of error in the estimate), the rapid increase from the 2000s in companies offering contract services cannot be. Also, the thriving contract service sector underlines the strong demand from pharmaceutical companies.

This historical change from vertically integrated R&D teams to the currently favored outsourcing partnership model speaks to the eternally changing landscape of drug development. Broadly, the main drivers for this evolution are cost consideration, specialist competency, and strategic needs.^1,2,5 These unrelenting factors will continue to drive the growth of contract organizations in the foreseeable future. For example, the global contract service provider market is expected to reach $465 billion by 2032, a CAGR of 8.5% from 2024.⁶ As the outsourcing partnership model predominates, it poses complex challenges and opportunities, and only the most adaptable companies will thrive in this fast-changing environment.

This review details the key outsourcing drivers, model types, challenges, and opportunities in drug development.

Factors Influencing Outsourcing

The interplay of how the major outsourcing drivers – cost, competency, and strategy – impact the decision to seek service providers for drug development is crucial in understanding this strength in demand.

Cost reduction

The influx of generics and biosimilars has increased competition, with the second-order negative impact on an incumbent company’s profits.¹ Hence, more companies seek outsourcing to lower operating costs and improve efficiency and competitiveness. The objective is to transfer the need to build infrastructure and maintain facilities and staff to a contract organization, thereby reducing fixed costs. Also, the shift from internal fixed expenditures to variable costs linked to project deliverables adds flexibility in managing resources and spending.⁵

Access to specialized expertise and capacity 

As manufacturing complexity and novel drug modalities (from ATMP to niche, targeted therapies) become more significant in global development pipelines, no single R&D house encompasses the complete skillset to deliver these medicines to the clinic and beyond.^2,5 This incentivizes biotech and pharmaceutical companies to seek external partnerships that complement their core competencies. Outsourcing leverages the deeper transnational talent pool to deliver scientific, regulatory, and technical expertise.⁵ Also, companies wishing to rapidly increase their global reach and capacity to meet product demand and research needs in any region of interest may consider outsourcing to achieve this aim.⁷ In addition, service providers grant sponsors access to state-of-the-art facilities and technologies more easily, potentially improving product quality.¹

Strategic drivers

Focusing on core competencies and outsourcing other non-core R&D activities might confer efficiency and increase the company’s competitiveness, thus making third-party relationships attractive.^7,8 The need for agility and flexibility in adjusting resources and scaling up or down operations as a project requirement changes or product demand fluctuates necessitates externalization.⁵ Outsourcing can be used to accelerate development timelines, as contract organizations often have staff trained and ready to perform the scheduled tasks.¹ Companies may also enter into these relationships to manage drug development risks and increase innovation by externalizing speculative areas of their project to contract service providers to mitigate risk and capture knowledge spillover.⁷ The merger-and-acquisition process often results in more streamlined companies, which may encourage the need for service providers to execute projects.      

As these factors steer the pharmaceutical industry towards outsourcing as the favored path for bringing new medicines to the market, it becomes essential to understand the nuance of available partnership models.

Outsourcing Models

The evolution from tactical cost-cutting measures to a more strategic tool for leveraging expertise and efficiencies has resulted in varied outsourcing models.

Transactional/fee-for-service model

This is the oldest form of outsourcing, where a company hires a contract service provider to deliver a predetermined task.⁸ It is typically short-term and tactical, focused on providing a specific service.⁵ This model is often used when deliverables can be measured, thus enabling a simple fee structure.  

Full-service model

In this now, most common form of outsourcing, a sponsor company engages a service provider to manage all or most activities related to a specific research project or clinical activity.⁹ The vendor provides the necessary personnel and expertise across all the required functions to execute the project. One variation of this model is the “Preferred supplier model,” where companies curate a small list of contract organizations given first-refusal rights on emerging projects due to favorable terms already negotiated by both parties.

Functional service model

In this scenario, a sponsor company works with one or more service providers to manage a functional area(s) across multiple projects — the core difference from the full-service model. These responsibilities could range from medical writing and analytical testing to site monitoring.⁵ Staff at the contract organization are dedicated to the sponsor to fulfill the agreed activities.

Compound or program-based model

This outsourcing model is more comprehensive, encompassing multiple projects and functional activities delivered by a contract service provider. The focus is on managing all research or clinical activities related to a specific drug compound or program.⁹ The objectives between the sponsor and the vendor are better integrated, and the relationship is longer-term, covering the entire life cycle of a compound or program. 

Strategic partnership-based model

This long-term collaborative model between a sponsor company and a vendor operates more equally, prioritizing value-added contributions beyond short-term project tasks. The cost of services is typically based on full-time equivalent requirements, and aligned objectives and milestones characterize these relationships.⁵ This model is frequently used when a partner offers unique expertise which complements the sponsor’s internal competencies.¹⁰

Leased competence model

This emerging model integrates external experts from the service provider into the sponsor’s team to support a project within a defined period.¹⁰ The hired experts can use their in-house infrastructure or the sponsor’s facilities to deliver on the agreed milestones. In parallel, the sponsor handles project management, which gives better control over scheduling and prioritization.⁸

These models reflect a spectrum of approaches pharmaceutical companies might choose to leverage external resources, ranging from short-term tactical transactions to long-term strategic relationships. The choice of model typically depends on factors such as the company’s size, internal capabilities, project needs, and risk tolerance. In practice, these outsourcing models are not mutually exclusive; hence, most companies use them in combination to deliver projects.² 

This unstructured approach to outsourcing makes comparing its conceptual versus practical advantages challenging to evaluate. Thus, questions such as, What is the optimal combination of outsourcing models? When does the law of diminishing returns set in? Do outsourcing short-term gains jeopardize long-term viability? These and more are unresolved questions the industry at large and individual companies grapple with.

The following part of this review discusses the core challenges and opportunities of these common and emerging outsourcing models and addresses the nuanced nature of external partnerships in drug development.

References:

1. Wasan Himika, Singh Devendra, Reeta K. H., Gupta Pooja, and Gupta Yogendra Kumar, “Drug development process and COVID 19 pandemic: Flourishing era of outsourcing,” Indian J Pharmacol, vol. 49, no. 5, pp. 344–347, 2018, doi: 10.4103/ijp.ijp_318_22.
2. K. A. Getz, M. J. Lamberti, and K. I. Kaitin, “Taking the pulse of strategic outsourcing relationships,” Clin Ther, vol. 36, no. 10, pp. 1349–1355, 2014, doi: 10.1016/j.clinthera.2014.09.008.
3. Nick Lucas, “Contract Research Organizations: Key Partners In The Drug Development Journey,” Forbes. Accessed: Jan. 01, 2025. [Online]. Available: https://www.forbes.com/councils/forbestechcouncil/2021/04/09/contract-research-organizations-key-partners-in-the-drug-development-journey/
4. Erica Friedman, “Here’s Why Outsourcing To CDMOs Doubled In 13 Years,” Outsourced Pharma.
5. B. L. Decorte, “Evolving Outsourcing Landscape in Pharma R&D: Different Collaborative Models and Factors to Consider When Choosing a Contract Research Organization,” J Med Chem, vol. 63, no. 20, pp. 11362–11367, 2020, doi: 10.1021/acs.jmedchem.0c00176.
6. Bhushan Pawar, “Contract Development and Manufacturing Organization (CDMO) Market Size, Share & Industry Analysis,” Fortune Business Insights. Accessed: Dec. 31, 2024. [Online]. Available: https://www.fortunebusinessinsights.com/contract-development-and-manufacturing-organization-cdmo-outsourcing-market-102502
7.  “What is a CDMO & How Can CDMO Services Streamline Your Pharma Development?,” UPM Pharmaceuticals. Accessed: Jan. 02, 2025. [Online]. Available: https://www.upm-inc.com/what-is-a-cdmo
8. G. W. Festel, “The nature of outsourced preclinical research-the example of chemical synthesis,” Expert Opin Drug Discov, vol. 8, no. 9, pp. 1049–1055, 2013, doi: 10.1517/17460441.2013.806909.
9. M. Wilkinson, B. Harper, J. Peacock, R. Morrison, and K. Getz, “Assessing Outsourcing Oversight Practices and Performance,” Ther Innov Regul Sci, vol. 54, no. 1, pp. 158–166, Jan. 2020, doi: 10.1007/s43441-019-00040-2.
10. G. Festel, “Outsourcing chemical synthesis in the drug discovery process,” Drug Discov Today, vol. 16, no. 5–6, pp. 237–243, 2011, doi: 10.1016/j.drudis.2011.01.002.

About The Author:

Williams Olughu, Ph.D., is a senior principal scientist at Ipsen Biopharmaceuticals Ltd. in the United Kingdom, where he serves as the CMC technical lead for one of the company’s antibody-drug conjugate programs. He is a Royal Academy of Engineering visiting professor at Loughborough University and an editorial board member for the World Journal of Microbiology and Biotechnology and the Journal of Chemical Technology and Biotechnology.