Outsourcing in Latin America: What are the opportunities?

Overview of the outsourcing concept in Latin America

Tighter budgets, increasing competition, arising generic penetration, lack of promising pipelines and patent expiration: these are basically the major reasons why companies from the healthcare sector, more specifically from the pharmaceutical industry, are constantly seeking for new ways to drive down their costs.

l though outsourcing, also known as contract services, has not been the newest option to the pharmaceutical industry when it comes to cost reduction, it has, over the past few years, evolved from being a short-term solution into an important strategy with long-term benefits. In Latin America, contract services organizations are increasingly gaining importance, and the sector is perceived to have great potential.

However, doubts concerning the risks and opportunities that can come up with outsourcing are still the main draw back for the expansion of the segment.Contract services can substitute or improve several functions within a company, such as manufacturing processes, administrative tasks and research & development steps, for example. There are, in essence, two main types of contract services companies: CROs (Contract Research Organizations) and CMOs (Contract Manufacturing Organizations).

The contract research organizations usually offer their clients a wide range of pharmaceutical research services, which can include product development and formulation, clinical trial management, central laboratory services for processing trial samples, data management services for preparation of a new drug application, and many other complimentary services. In other words, CROs can be involved from the conception of a new drug until its market approval from a regulatory organization, while the drug sponsor will not need to maintain a staff or any other type of resource to accomplish these tasks.

Contract manufacturing organizations, seen in the past as a short term solution for production capacity constraints, can currently offer services ranging from dosage form design, process optimization, commercial stage manufacturing, packaging, logistics, and marketing support. In addition, large pharmaceutical companies can also provide manufacturing outsourcing services to other drug developers, mainly to utilize their excess production capacity or to take advantage of their know-how, for instance.

Latin American countries are proving to be one of the most promising markets for these two specialties, together with other emerging countries such as China and India. This can be explained, in great proportion, by the region's competitive costs when compared to the United States or European countries. Furthermore, in the case of CROs, it is also taken into consideration the superior patient recruitment rates and lower costs per patient on the region, in addition to the highly qualified and experienced scientific investigators, turning Latin America into a very attractive region for conducting clinical trials.The global pharmaceutical Boehringer Ingelheim is a great example of a company investing in providing CMO services to enlarge its business units.

The company has recently incremented its global outsourcing strategy, changing the focus of ten of its plants into a new business scope. This change includes the increase of the production capacity of the Brazilian plant, so it can prepare itself for the enlarged demand of upcoming projects that should be approved in the next years. The plant, situated in São Paulo, Brazil, has good manufacturing practices certification not only from the Brazilian Anvisa (Agência Nacional de Vigilância Sanitária ), but from other regulatory agencies as well, such as Anmat (Administración Nacional de Medicamentos, Alimentos y Tecnología Médica) from Argentina, Invima (Instituto Nacional de Vigilancia de Medicamentos e Alimentos) from Colombia, and MHRA (Medicines and Healthcare products Regulatory Agency) from the United Kingdom. For this reason, the plant from São Paulo can produce and sell drugs to several countries from Mercosul, Andean Pact, Mexico, among others.

In the CRO sector, Latin America also counts with the presence of multinational and well established companies in countries like Mexico, Argentina, Brazil, Chile, Colombia and Peru, validating the increasing importance of the region. Smaller local players are also benefiting from the favorable movement towards outsourcing.

Main drivers and restraints of the market

As previously mentioned, there are several reasons motivating pharmaceutical companies to drive down their costs. Budget constraints are certainly the main driver influencing the outsourcing segment growth. Since contract services can cover a diverse range of activities within a company, there are outsourcing options to all types of organizations willing to reduce operating expenses. Outsourcing enables the company to manufacture products, or conduct clinical trials, for example, without any added costs associated with equipments, fixed assets, or human resources.Additionally, the Latin American region offers more competitive prices and higher recruitment rates, in comparison to United States or other countries from Europe, shifting CROs' attention to countries like Argentina, Brazil, Colombia, Mexico, etc. Besides, the region probably offers one of the most diverse gene pools in the world, comprising citizens with Hispanic, European, Asian, Arabic and African origins. The enrollment of this wide variety of ethnic groups can help optimize and reduce the time of clinical trials development.

The third driver pushing the market, mainly for CROs, is the qualified personnel and clinical research centers existing in Latin America. The region counts with very skilled professionals and good excellence research centers mainly due to an elevated number of physicians and researchers that brought from abroad new ideas and techniques to implement in the region. The majority of these professionals had been training in United States and European countries.Outsourcing production activities, clinical trials, or any other role that directly involves the company reputation and information confidentiality, need to be dealt with.

The circumstances are indeed comprehensible, once it can be harder to have control over the manufacturing quality of the third party providers, and it is a delicate situation to share confidential information with them.To finalize with the main facts affecting the contract services market growth, the competition from Chinese and Indian CROs/CMOs is expected to cause impacts on the Latin American market. And this is basically due to the region characteristics of low costs, differently from the United States or European markets, where the rising companies from China and India represent a real challenge to overcome.

Main advantages and disadvantages of outsourcing

After analyzing the current market situation of contract services in Latin America and exploring the main drivers and restraints affecting its growth, it is time to evaluate if outsourcing can be considered a risky option for pharmaceutical and biotech companies, or if it would represent more competitive advantage for them.

One of the main advantages of contracting services from a third party is the reduction of costs with fixed assets and staff members. Moreover, outsourcing allows pharmaceutical and biotech companies to focus on their core competencies, while the CMOs or CROs are taking care of the manufacturing or clinical trials, for example. A further advantage of contract services is the access of great skilled personnel and specialized services, which can increase the efficiency of the production process and improve the clinical trials practice, for instance. These facts can certainly boost the competitive advantage of companies that decided for outsourcing as a strategy to leverage its business activities.Another main issue that worries companies willing to outsource consists of lack of proprietary knowledge security, and technology transfers.

This, nevertheless, is very unlikely to happen if pharmaceutical and biotech companies have a good communication with their outsourcer, which improves their relationship and, therefore, establishes a more reliable bond between both companies. Still, it is important to ensure that the core intellectual property is not used incorrectly, by carefully structuring a legal agreement.Outsourcing can become the answer to most cost-related problems that pharmaceutical and biotech companies have been facing. Being able to focus at core activities will bring pharmaceutical companies extra tools to handle market adversities.

The most benefited ones from these processes are certainly the patients, who will witness more drug launches, and better option to treat themselves.