Innovation is flourishing in the biopharmaceutical industry. Over the past decade, the volume of Phase I candidates in the drug development pipeline has grown by 60 percent,1 promising potential breakthroughs in treating a wide range of diseases. At the same time, there has been a noticeable shift across the industry toward outsourcing R&D activities. Driven by the need for flexibility, specialized expertise, and wider global reach, pharmaceutical organizations have engaged contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), and other suppliers to cover nearly every aspect of drug development, from target identification to clinical-trial execution. Outsourcing also allows R&D organizations to adapt to fluctuating trial activity; tap into cutting-edge technology, such as CAR T-cell therapy; and reach diverse patient populations, leading to increased efficiency and compliance in their operations.
In 2022, the average cost to develop a new drug was $2.3 billion.2 An increasing share of that spending has gone to CROs and CDMOs; from 2014 to 2022, CRO and CDMO spending grew 12 to 13 percent annually, compared with the 7 to 8 percent annual increase in overall R&D spending (Exhibit 1). This outsourcing trend is expected to accelerate, with more than 80 percent of respondents to a recent McKinsey survey of leaders from leading pharma R&D and supplier organizations projecting that supplier spending could rise by 10 to 30 percent over the next two to five years.3 And by 2029, we expect overall CRO/CDMO spending to double the 2014 total.
Given the growing importance of the pharma R&D–supplier relationship, the timing may be right for pharmaceutical companies and suppliers to seek opportunities to streamline their relationships and foster more effective collaborations. This article—which details the eighth (and final) ingredient for sustained R&D outperformance introduced in our flagship article, “Making more medicines that matter”—highlights opportunities for “maturing” pharma–supplier relationships, describes strategic-partnership archetypes, and proposes concrete next steps that biopharma companies can take to unlock value from their vendor relationships.
Strengthening pharma–supplier relationships
While beneficial to pharma R&D organizations, some pharma–supplier relationships lack the maturity—a shared vision, joint accountability, and transparent governance—needed to fully realize the potential gains in R&D efficiency and flexibility. Our survey results reveal five areas in which both partners see opportunities to unlock greater value from their collaboration (Exhibit 2).
- Increased transparency. Both pharma R&D and supplier respondents cite increased transparency as a critical area for improvement. Fostering an environment of openness involves developing service-level agreements that clearly define expectations and deliverables, implementing straightforward and transparent pricing models, and sharing pipeline development plans and future business needs with critical suppliers—which helps those organizations with their forecasting and planning.
- Aligned incentives. To reduce cost inefficiencies inherent in traditional outsourcing models, CROs and CDMOs can leverage technology-driven solutions and financial models focused on efficiency and effectiveness. For example, transitioning from traditional time- or volume-based pricing to outcome-based models can align supplier incentives with pharma priorities for accelerated timelines and tighter cost management. Although implementing the robust performance metrics and monitoring systems required for this shift would require an up-front investment of time and resources, the resulting alignment of goals could benefit both parties in the long term.
- Joint data governance and integration. As the volume and complexity of R&D data continue to grow, effective data processing becomes even more crucial. To unlock the full potential of their shared data, pharma companies and their key suppliers should establish joint data governance protocols and invest in integrated data platforms that can store and extract insights from multiple data types, such as clinical, genomic, and real-world data.
- Aligned operational expectations. Misaligned expectations often lead to friction in supplier relationships. To enable smoother operations, companies should clearly define resource requirements and responsibilities for both parties. Establishing standardized processes for routine activities and regularly reviewing and adjusting capacity planning can help prevent misunderstandings and ensure that both parties are equipped to meet project demands.
- Improved communication on change orders. To mitigate the impact of change orders on project timelines and costs, pharma companies should establish transparent budgeting processes that are aligned with their overall strategic objectives and include real-time cost and performance monitoring. These actions could facilitate data-driven decisions, reduce waste, and improve cost efficiency. Early supplier involvement in study design can also minimize the need for change orders, while clear communication and approval processes ensure timely resolution when necessary.
Engaging distinct partnership archetypes
Given that pharma R&D leaders often manage numerous suppliers, pharma companies should be intentional about the desired relationship structure and selective about deciding which relationships to prioritize and foster. This approach allows for more effective resource allocation and better goal alignment. In the current R&D environment, a uniform strategy is insufficient.
Our research identifies four distinct partnership archetypes, each requiring a specific engagement strategy to maximize value and drive innovation. The archetype characteristics that pharma companies should prioritize will depend on which one they are engaging with—for example, strategic relationships require a strong shared vision, while joint accountability is critical across all partnerships.
Strategic partnerships
This archetype represents the most comprehensive, long-term collaborations. These partnerships involve a shared long-term vision, complementary capability development, and occasional risk sharing. The collaboration between ICON and LEO Pharma is an example of a strategic partnership that aims to improve clinical-trial execution in medical dermatology.4 To manage these relationships effectively, pharma companies can establish joint governance structures, implement collaborative innovation programs, and, at times, consider equity investments or exclusivity agreements in critical areas.
Innovation partnerships
Collaborations with innovation archetypes focus on specific innovation themes or projects that utilize the supplier’s unique capabilities that the pharma may lack internally. Eli Lilly’s collaboration with Evotec on metabolic diseases demonstrates this approach. Eli Lilly benefits from Evotec’s expertise, while Evotec gains access to Lilly’s resources.5 Successful engagement in these partnerships often involves creating joint innovation teams, establishing clear intellectual property agreements, and using agile project management methods.
Productivity partnerships
While less prominent than strategic or innovation partnerships, this archetype’s focus is on improving operational efficiency and reducing costs through joint planning and execution. Companies that engage in productivity partnerships typically implement joint continuous improvement programs, share best practices, and develop shared key performance indicators focused on efficiency.
Performance-based partnerships
Representing the most basic supplier relationship, performance-based partnerships are more tactical and transactional. This approach allows companies to focus on their core strengths while benefiting from external expertise and efficiency for noncore tasks. For example, core competencies such as protocol development and site selection are kept in-house to maintain control and competitive advantage, while repeatable or standard activities such as tables, listings, and figures programming and data analysis are outsourced for faster execution.
Enablers of successful partnership
From our analysis of mature pharma–supplier relationships, four key enablers emerge as critical for a successful partnership:
- A best-in-class procurement and contracting function. Efficient supplier management depends on a top-tier internal procurement and contracting function equipped with skilled negotiators, systems for monitoring supplier performance, regulatory compliance, and risk management (Exhibit 3). The potential benefits include cost savings from favorable terms, minimized disruption risks, and improved supplier performance, which enhances overall supply chain efficiency.
- A closely aligned business–procurement relationship. Seamless collaboration between procurement and business units ensures supplier strategies are informed by business goals. Cross-functional teams, regular communication, and joint planning sessions lead to quicker issue resolution and enhanced procurement–business alignment.
- An involved, efficiency-driven leadership. Pharma R&D leaders should optimize supplier spending and identify which supplier relationships matter for critical internal functions. They should regularly undertake a spending analysis and oversee supplier management. They could also use technology to extract deeper insights and facilitate clearer communication with suppliers. For instance, tools such as generative AI can be used to accelerate these activities—by up to 80 percent based on our previous work with clients—including scrutinizing contracts and assessing the value at stake for various scenarios. Leadership involvement in procurement could also yield better cost control, stronger relationships with critical suppliers, and more informed decision-making at the executive level.
- A robust technology integration capability. Technology can be used to enhance supplier partnerships and accelerate the pace of R&D across various workstreams, including data management, project tracking, and communication. Secure and compliant data sharing between pharma companies and suppliers on an integrated platform can provide valuable insights and accelerate research progress.
The relationship between pharmaceutical R&D organizations and their suppliers is shifting from transactional, performance-based interactions to strategic, innovation-driven partnerships. By focusing on a shared vision, joint accountability, governance, and transparency, pharma companies can reduce costs, enhance R&D productivity, and accelerate drug development to address unmet patient needs.
