An Overview of Outsourcing in the Life Sciences, Part 2: Why Outsource?

In Part 1 of this series, we examined the evolution of outsourcing in drug discovery. In part II we will examine with deeper focus the specific reasons why it is beneficial to outsource scientific experiments. Research organizations and even individual researchers outsource for a variety of reasons, but here are just a few:

• Access to innovation. As examined in part 1, the industry has evolved. In-house resources have in many cases shifted, meaning certain departments or services are no longer being offered. Many times, it is also a case of technological advancement. In early stages, novel technologies can be so cutting-edge that the tech isn’t readily available in a variety of places. This means that researchers often have no choice but to outsource parts of a project. If a new technology is developed that only exists with one innovative CRO or supplier, the choice is simple: either outsource through them or don’t use the technology. No one company has a monopoly on good ideas; therefore, as ideas and technology are developed globally, anyone who wants to access this expertise must outsource (or potentially license the use of the technology).

• Strategic focus. Often referred to as focusing on core competencies, this basically means that a research team will work on what is likely to provide a competitive advantage or differentiator. The team can then invest its time and effort in making that as good as it can be while outsourcing the standard processes and experimentation to companies who have made that competence a core focus. This has the added benefit that time management within a research organization is not focused on marginal improvements or issue resolution in an area that is not strategically important.

• Expense efficiencies. Accessing the global marketplace to take advantage of lower costs is often the first thought when organizations consider outsourcing. Regional wage rate differences, effective capacity, process optimization and economies of scale all play a part in outsourced services often being much less externally than conducting the research internally. Can we source? Even if we can use ourselves as a source, I think that would be good. But a 3rd party source would also lend credibility.

• Speed. Accessing the pool of resources available in the marketplace will invariably mean that organizations will be able to shorten the lead-time for their overall research plans. Internal resource constraints, project prioritizations and bottlenecks can slow research down considerably. By utilizing CROs, companies can often select from a pool of options rather than relying on a single department to service the needs of their research projects. With peak-year sales potentially reaching in the billions of dollars and with a fixed and finite patent life, saving a few months in the product research lifecycle could equate to millions of dollars in additional revenues. From the perspective of CROs, since they often specialize in a particular technology or research area, pivots and shifts come much easier than with a large, less nimble research organization.

• Flexibility. The ability to change focus as new opportunities arise (either through technology evolution or market changes) is greatly improved by utilizing a well implemented outsourcing strategy. As the research is conducted outside of the organization, companies can turn the taps of demand on or off quickly to re-prioritize without the time, effort and money needed to change course within the organization. Changing scientific focus in an internal team may take months as you hire or re-train staff, invest in capital expense, as well as manage the internal politics that often surround such changes.

In terms of which one of the above mentioned reasons to outsource is most important, this is often dictated by the current context for the company concerned and their strategic aims during that period. In a particular company the reasons to outsource may change over time, and the amount of volume spent externally will also flex based on the individual views of the leaders.

Regardless of the reasons for outsourcing there is no denying that it promotes innovation. Case in point, the relentless search for medicines to help improve patients’ lives is leading to innovations of all types occurring at an unprecedented rate. As we learn more about the various therapeutic areas and harness the power of data collection and processing, imaging, cell physiology, proteomics, just to name a few, it is impossible for pharma and biotech companies to retain this knowledge. Innovation is happening everywhere and accessing innovative services has become standard practice across the industry. The challenge today is not the decision to outsource – this is a given, rather it is the speed and manner in which companies can find the best innovation and access it that is becoming a competitive advantage in its own right.

So, what does the future hold for outsourcing? Looking at the new companies that are emerging within the life sciences, fewer and fewer are making the decision to invest in significant in-house lab space, preferring to follow a more virtual research model. Based on a recent report, there is reason to believe this will continue into the future, and as we watch these companies grow there will be some truly significant ‘virtual biotech’ companies. The continued advancement of IT capabilities will further serve to make this transition to ‘super virtual biotech’ smoother over time.

The Big Pharma companies have over the years may have reduced the amount of internal research, but the goals remain the same: focusing on innovation and discovering drugs to bring to market that cure illnesses. Continued change will be dependent on both the challenges faced by the individual pharma companies and the research leadership’s bravery to change, or disrupt, the status quo.