Outsourcing Strategies: from David to Goliath

Outsourcing by pharma and biotech is growing at a rate of 14-15 per cent per year. Representing around 25 per cent of R&D spend, and an even larger proportion of development costs, outsourcing was estimated at US$14 billion in 2005 and is estimated to reach $20 billion by 2010 (1). These increases are being driven by a number of factors, including the growth of the global economy, increasing demands of regulatory guidelines, changing business models (for example, the growth of small/virtual biotechs with little or no in-house development capability), and reduction of in-house costs by larger pharma companies (see Figure 1).

Why do companies outsource? They do it because it’s cost effective and successful. A recent study by Tufts found that projects are completed more quickly by sponsors who outsource a large amount of work to CROs and maintain levels of quality compared with submissions made without extensive use of CROs (1). They found projects involving a substantial amount of outsourcing reach regulatory submissions more than 30 days earlier. The benefit of bringing a product to market faster is the overwhelming driver, but for leaner pharma and biotech R&D organisations, outsourcing decreases fixed overhead costs.

OUTSOURCING MODELS

The key to outsourcing effectively is to understand that different organisations require different things. Deciding on your company’s outsourcing strategy will depend on a number of key points.

Commercial Strategy
Drug development is an extremely complex, costly and timeconsuming process. Very few companies are large enough or want to perform all of the tasks required and companies therefore need to make strategic decisions on what tasks to outsource. The strategy may simply be a drive to keep fixed costs low; it may represent a desire to focus internal resources on a key project, whilst ensuring that other projects progress with less demand on key staff; or it may be that certain tasks can be performed more cheaply by service providers. The commercial strategy should be the starting point for all further considerations regarding outsourcing.

Type of Work Required
Quite simply, if the work has to be conducted by GLP or GCP, and your facility and staff are not covered by a GxP compliance scheme, you have two choices: either outsource or develop SOPs and train staff to obtain GxP compliance. Specialist techniques are better left to the specialists. In some cases, this may be your staff, in some cases specialist providers, and in some cases academia. Each need to be managed differently, and expectations of output and timescales should be adjusted according to where the work is being done.

Physical Resources
What is the capacity of your organisation to do the work itself? Can you do the work in-house in the timescales required? Are the physical resources, including equipment and space, available when the work is required to be conducted? Are they best used to conduct the work in question, or would they be better utilised to support other projects? Would the best commercial strategy be to wait until internal resources are available to conduct the project?