Outsourcing in biotech and pharma: the good, the bad, and the truly innovative

In 2000, Procter and Gamble (P&G), the world’s largest consumer goods company, launched its Connect + Develop program. With this initiative, P&G aimed to work with other companies and Universities to develop promising technologies, effectively outsourcing nearly half their R&D from external partners. By 2011, P&G’s innovation success rate had more than tripled.

Modern biotech and pharma is a whirlwind of innovation, stringent regulations, and relentless competition. To navigate this terrain, both larger companies and smaller startups are, like P&G,  increasingly looking to outsourcing. Commissioned R&D performed by Contract Research Organizations (CROs) and Contract Development and Manufacturing Organizations (CDMOs) is at an all time high. And in many cases, again like P&G, so too are the resulting advances.

Here, we unpack the motivations, benefits, challenges, and future of outsourcing, especially as it relates to biotech and pharma.

What makes external partnerships so appealing?

Imagine you develop an immunotherapy and want to measure how effective it is in mice. You have the option to either a) build a vivarium and hire personnel with the expertise to test it in-house, or b) send your drug to the animal facility down the hall.

In this scenario, it’s clear that working with the animal core will almost certainly be much faster and more cost-effective, even before running the numbers. These are just some of the benefits of outsourcing: it is not a shortcut, but a strategic tool in the R&D arsenal.

1. Reduced costs: By outsourcing, companies can access equipment and infrastructure without having to invest in it themselves. Those funds can be redirected to project deliverables, giving companies more flexibility to adjust and scale spending.
2. Expertise: With the biological and chemical aspects of drug discovery constantly evolving, it is increasingly difficult for a single organization to develop the expertise needed to consistently achieve breakthrough innovation. Partnering gives  companies access to expertise through collaborations with seasoned professionals, expediting project completion and improving technical outcomes.
3. Flexibility and scale: Different outsourcing models allow companies to scale their operations quickly to match their evolving goals. Functional service partnerships are well-suited for short-term engagements with clearly defined deliverables. Full-service outsourcing partners can support longer-term goals with ongoing collaboration.
4. Focus: By outsourcing non-core and/or repetitive tasks, companies can allocate internal resources towards activities that drive their competitive edge. Things like the logistics of a clinical trial, data management, routine non-proprietary lab processes, and even manufacturing can be delegated to specialized CROs and CDMOs. Freeing up personnel time fosters a culture of internal creativity, which can lead to a more competitive product pipeline and a stronger market position.
5. Increased efficiency: Finally, everything we have discussed up to this point also contributes to faster cycles of R&D. Finding the right expertise, infrastructure, and technology to get a project started is almost always easier than building it in house.

Of course, the benefits of outsourcing are always weighed by the company's goals. Based on their investment in internal assets, companies may outsource specific tasks or full end-to-end workflows. We talk a little more about the tasks that are typically outsourced below.

What work is being outsourced?

Though almost all scientific and logistical services can be outsourced, the types of R&D most frequently outsourced to Contract Research Organizations (CROs) are preclinical, research, clinical trials, and analytical services:

• Preclinical research: This includes drug discovery, lead optimization, and toxicology testing. Specialized expertise, advanced technologies, and diverse animal models can all be outsourced to accelerate these preclinical activities.
• Clinical trials: CROs offer established clinical sites and efficient, proven pipelines. Reputable CROs can speed up patient recruitment, manage regulatory requirements, and help with complex trial designs.
• Analytical services: Tasks such as creating data management systems and performing statistical analyses of toxicology studies fall in this category. CROs offer a variety of these services to ensure high-quality data processing, and good business decisions are driven by accurate interpretations.

Other examples of outsourced work include but are not limited to manufacturing, regulation, and procurement:

• Manufacturing: Scaled production infrastructure and manufacturing expertise are some of the key resources provided by CDMOs. They can also manage quality control and compliance, ensuring adherence to strict pharmaceutical standards.
• Regulation: Regulatory affairs specialists can ensure compliance with all relevant regulations, minimize approval delays, and guide companies through the entire registration process.
• Procurement: Partners specializing in procurement can secure reduced costs through bulk purchasing, access a wider supplier network, and give suggestions to improve inventory management. This can, in turn, optimize sourcing of materials and equipment used in in-house R&D and/or manufacturing.

The scope of outsourcing can sometimes feel limitless. But, it is important to note that it is not risk-free.

What are the risks of outsourcing?

While outsourcing certainly offers tantalizing benefits, there are some potential pitfalls that should be carefully considered during risk assessments:

• Loss of control: Over-reliance on external partners can dilute internal control over outsourced processes and create vulnerabilities. Clear communication and well-defined contractual terms are crucial for a longstanding partnership.
• Inconsistent quality: Ensuring consistent quality across outsourced activities requires stringent oversight and meticulous quality control processes. It is recommended to thoroughly vet potential partners and regularly monitor their performance.
• Miscommunication: Cultural differences and unclear communication can lead to delays and inconsistencies, especially if contracted CROs subcontract to their own partners. Companies should preemptively implement communications strategies to ensure fluid and effective collaboration with its partners.
• Intellectual property rights: Protecting proprietary information and intellectual property rights is a crucial part of every outsourcing contract. All parties must establish thorough legal agreements outlining ownership and confidentiality to safeguard their innovations.

Mitigating these risks can seem daunting, but this is exactly where Cromatic, an integrated life science outsourcing marketplace and management platform, lends a welcome hand.

Is outsourcing here to stay?

The outsourcing market is predicted to increase over the next five years as a crucial driver of both growth and efficiency in biotech and pharma. As technologies evolve and global markets change, so too will the culture of R&D outsourcing.

Here are a few thoughts on what that future might look like:

• The golden age of niche service providers: Extremely specialized service providers deliver extremely targeted solutions. Companies are increasingly turning to these experts, marking a shift away from one-size-fits-all CROs. This trend reflects the growing complexity of drug development and the need for niche knowledge to navigate unexpectedly novel challenges.
• Automation and AI, as a service: AI and automation are being integrated increasingly employed by outsourcing partners to enhance efficiency across both R&D and production. AI can be employed to analyze large-scale datasets to identify promising drug targets and optimize potential drugs, reducing the need for extensive manual experimentation. Automated lab equipment and robots can relieve scientists from  repetitive tasks, giving them time to engage in more creative and strategic work.
• Evolution via globalization: International collaborations are becoming more prevalent as companies expand their search radius for expertise. In a worldwide marketplace, contractors in emerging markets can help maximize cost efficiency by offering competitive pricing. Institutional strongholds can be contacted from anywhere to provide key opinions and insights. Researchers are now, more than ever, working together to tackle the most complex problems across the life sciences.

Outsourcing is a key strategy to innovate the modern way. By pairing with partners with complementary expertise and experience, it is possible to navigate the multi-faceted landscape of biotech and pharma with unmatched agility and focus. As R&D becomes more efficient and cost-effective, we pave the way for paradigm-shifting innovation, ultimately creating a world with better health outcomes.