Prescription for Competitive Advantage
"When we first come out with a product, we've got a very short window to make it successful before our competitors come out with the exact same product," explains Dave Ambrose, president and CEO of MCR American Pharmaceuticals. The Brooksville, Florida-based company distributes its brand-name products to wholesalers who then market the drugs to pharmacies. To be competitive, his company needs to produce the highest-quality products at the best price.
Even if MCR could have built its own manufacturing facilities and hired people with the requisite expertise in the early 90's, Ambrose says they couldn't beat the quality of products manufactured by PharmaFab. "If you randomly ask doctors which pill is the better pill, PharmaFab wins every single time," he states. "Their quality is such that the product is easy to break and easy to dissolve, so it goes into a person's system faster -- exactly what doctors choose in product comparisons."
Although MCR strategically outsourced its manufacturing to PharmaFab in Grand Prairie, Texas to ensure quality products, Ambrose says the service provider "had the double whammy of working with us on pricing too." The two share a risk-reward pricing structure on some of MCR's "risky" new products. The provider cuts its price to "bare bones" for such projects; if a product becomes successful, their pricing arrangement allows PharmaFab to financially share in that success because of its willingness to mitigate the risk.
That's just the tip of the iceberg for MCR's benefits in outsourcing to PharmaFab.
Dispensing a Collaborative Approach
Both companies were small when they met each other nearly a decade ago. Both were also in a growing mode. According to Ambrose, their relationship is based on understanding each other's business and what it takes for each to be successful. "Success is a two-way street in every single aspect," he says.
MCR's CEO credits this outsourcing arrangement for MCR's "smooth journey to where it is today." Enjoying annual 40 percent growth in sales since 1997, he says the company could not have expanded so heavily into the cough-and-cold market or enter into pain management without the outsourcing alliance with PharmaFab.
Ambrose appreciates PharmaFab's value-add services in connection with FDA-required research and development. "We just call PharmaFab and say we need to know what the FDA thinks about a particular thing," he explains. "They line up a meeting with an FDA consultant and then hand us a package detailing what's involved." In another instance, PharmaFab turned MCR's product idea into a formal document and submitted it to the FDA. The provider's legwork resulted in no additional costs to MCR. "PharmaFab did that for us because, had it worked, it would have been a blockbuster product," he explains. "And the next idea might work; when that happens, PharmaFab knows it will make tons of money with us."
Citing another example of their collaborative approach, Ambrose says PharmaFab came to the rescue when the FDA had an issue in a particular market and stopped all companies from selling a particular drug. Although MCR's product was not at issue, the company still had to meet with the FDA in Washington, D.C. PharmaFab's owner provided its attorneys, at no additional cost, to make sure MCR's interests were represented in the proceedings.
The provider's flexibility and resources also come into play with always-timely deliveries, even when product demand increases cause unscheduled secondary orders.
As their relationship grew, MCR added research and development to the service provider's scope. Ambrose says PharmaFab recently saved his company as much as two-thirds of the R&D cost for a new product. In addition, the provider's best-practice expertise enabled it to slash competitors' two-year processes to a six-month time to market for MCR's new product.
Trust and loyalty is a linchpin in their relationship. Weighing in on how valuable their relationship is, Ambrose says PharmaFab refuses to manufacture the same products for other clients as it does for MCR, even though it is not contractually obligated to follow this practice.
He recalls an incident proving the provider's loyalty: "A competitor about four times our size wanted PharmaFab to manufacture a drug that happens to be our number one product. PharmaFab makes all of that company's products, except for this one. When it refused to manufacture that drug for our competitor, that company threatened to take its other business away from PharmaFab. But they still refused to manufacture the drug for our competitor. That went a long way in our relationship."
Their outsourcing alliance makes them two companies working together for the same goals for the future. Indeed, the CEO says MCR's current plans for the future would not even be considered if it were not for the relationship with PharmaFab. He believes the strategic relationship will help MCR's future growth happen even quicker.
"We're actually still considered a small company in the pharmaceutical industry," explains Ambrose. "But PharmaFab's help is enabling us to go up against some mid-sized companies and duke it out with them."
Lessons from the Outsourcing Journal:
- In a competitive industry, where time to market is crucial, outsourcing leverages a provider's expertise and resources to create competitive advantage for the buyer.
- Outsourcing success is a "two-way street," requiring both parties to understand each other's goals and what it takes for each to be successful.
- Risk-reward pricing structures in outsourcing arrangements is a highly effective means of aligning both parties' interests; it mitigates a buyer's risks and increases a provider's revenue.