Outsourcing of analytical services is essentially a “make-versus-buy” decision in pharmaceutical manufacturing, driven by the current operating strategies of the individual company. Under the pressures of the current economic environment, many firms are revising their corporate positions, leading to a new perspective on whether certain analytical capabilities remain “core competencies.” Others are experiencing the effects of downsizing, without a corresponding reduction in analytical needs. Throughout the industry, corporate decision makers are closely examining which components of the analytical development, testing and QA/QC protocols lead to a true competitive advantage and which do not.

Pros and Cons
The advantages of outsourcing analytical services in today’s business climate are many. Most apparent is tapping into a high level of resident expertise from the outsourcing supplier, without having to recreate and fund that expertise internally. An external supplier can also help mitigate risk by avoiding a large investment in analytical equipment and manpower when development efforts are in early stages and still have a fairly high potential for failure.

In financial terms, outsourcing permits a greater degree of freedom in early-stage projects by allowing analytical costs to be expensed, versus the likely need to capitalize the purchase of equipment if analysis were done in-house. Further, outsourcing ensures a higher level of resource flexibility in developmental projects, which can be particularly important before the final technology, synthesis or manufacturing methods have been determined.

A good contract lab can also promote optimization of resources in times of falling budgets, helping to avoid having an excess of in-house analytical capability. Even in large companies with “good” utilization of their internal resources, the analytical departments (other than QA/QC) typically operate on just one shift, as opposed to production operations, which often continue on a second or even third shift to maximize the use of equipment and overhead. In the current business environment, it can be difficult to justify the total cost of ownership when considering the capital investment and specialized personnel required to operate analytical equipment that’s only in use approximately 33% of the time.

Outsourcing can often be demonstrated as the lower cost approach, particularly for analyses that have low usage, demand a high degree of specialization, or require expensive equipment. Using contract analytical resources helps a manufacturer avoid the need to continually upgrade equipment and provide ongoing training in the latest analytical techniques. A multi-million dollar investment can become outdated in just a few years as the state of analytical science advances, forcing a progressive investment which may not offer a good return over time.

In contrast, by pre-negotiating rates or contracting for a set amount of testing, manufacturers can have a clear estimate of the portion of their development costs which will be spent on analytical services, while taking advantage of the most current laboratory technology.

Some manufacturers find themselves with decreasing internal needs due to a change in focus, such as when it comes time to “sunset” a project. One of the best ways to ensure that cost-effective, reliable testing continues in spite of decreased loads is to close the existing laboratory, decrease headcount, sell the test equipment and outsource the testing. The overhead of analysis is then borne by the contract laboratory, not the requesting company.

Conversely, during a business upswing, as development efforts and products pass through the explosive growth part of the product lifecycle, the need for analysis, testing and quality control often increases faster than the company’s ability to bring on additional resources. Using contract services can help avoid a potential bottleneck which slows development and obstructs increased sales, while improving time-to-market.

The obstacles to contracting analytical services are similar to those in any outsourcing situation. Foremost among them is the need to sift through a large number of potential suppliers to find those few which have the specific capabilities needed. It’s estimated that there are 50,000 entities providing some form of analytical services in the U.S., and it may seem a daunting task to identify the firms which can do a quality job, at a reasonable cost, in a timely manner.

Technician Kristin Prokopenko prepares samples for analysis on a Liquid Chromatograph Mass Spectrometer (LCMS)

Simplicity is another issue; when using in-house resources, the process may be as effortless as dropping off samples at an internal location. No matter how good the communication between lab and customer, the outsourcing process is more complex.

Internal pressures are also likely to surface. There is often resistance from internal analytical personnel, who view outsourcing as a direct threat to their jobs and livelihood. By their nature, analytical scientists will invariably prefer to add new laboratory capabilities rather than contracting anything on the outside. There is also a perceived loss of control, wherein the scientists intimately involved with product development fear they will be out of touch with the key analytical people and techniques needed for their project’s success. As respected internal experts, they can sway company opinion about the “correctness” of seeking to outsource.

Selecting a Contract Lab
Consider first what portion(s) of analytical needs are the most likely to benefit from outsourcing. For example, it could be argued that, for some pharmaceutical firms, quick-turnaround analysis used to monitor production in real time cannot be efficiently outsourced, whereas batch analyses and long-term research projects would be good candidates.

Scientist John Roy reviews liquid chromatography – mass spectral (LC-MS) data with analytical associate Dawn Zuengler.

Word of mouth from trusted industry colleagues is probably the best way to find a good analytical lab. Make sure the work done for colleagues is similar to that which you would like to have completed, as some laboratories can be outstanding in specific areas and weak in others. When discussing potential projects with the candidate lab, ask if any work will be subcontracted; even if the parent lab is great, its workmanship and standards may not translate to the subcontractor.

Keep in mind that most analytical labs focus on a particular area of expertise. Make sure your partner laboratory is strong in your specific area of need, with qualified scientists, experienced managers, current equipment and a track record of success. Verify also that the company’s experience and technical capabilities in product development, manufacturing and R&D match your needs. Look for reasonable experience using those capabilities on projects similar to yours; ask for case studies and references. Look for proven success in related applications, and don’t be reluctant to ask for references indicating that the lab has successfully satisfied customers in the recent past with both its technical expertise and customer service.

Briefly examine the lab’s business history: How long has it been in operation? Is it financially healthy and likely to be capable of a long-term business relationship? Good signs include repeat customers, a growing business and sound financial base, all indicators of long-term survival. With small labs going out of business regularly, it can be an enormous waste of resources to select and educate a contract lab, only to see it close its doors a couple of years later.

Determine whether the lab has the staff and equipment to handle a variety of analytical needs. Does it offer broad analytical capability, or one primary area of expertise? A broadly skilled laboratory allows a wide range of projects to be run in one location, which helps simplify communication and data transfer. Also look into the lab’s limitations in capacity. Will it be able to meet important deadlines? Does it have contingency plans in case one technician becomes sick or in the event that an instrument goes down?

Depending on a manufacturer’s needs, ISO, GLP or other internal certification programs may be important. Don’t be afraid to ask about auditing the quality program to make sure you understand the details of the lab’s quality plan. An audit may also be considered if any concerns about quality arise. Obviously, testing that meets ASTM, ISO and/or GLP standards is another way of ensuring that the contract lab is capable of doing what’s needed. Registration by an external auditing firm means that an outside agent has reviewed the lab’s processes in general and found that it is operating within the listed guidelines. Although these designations can improve your comfort with a laboratory, you may also want to independently check out the procedures which are specific to the development or testing required for a particular application.

Once vendor selection has taken place, get to know the lab you will be using. Know the qualifications of the analysts, and find out who will be the actual person analyzing your samples or developing your methods. Confirm that any junior analysts will be supervised, that all QC checks are in place, and that you will have access to the scientists actually working on the project, not just a sales representative. Identify a project or two which will allow the candidate lab to demonstrate its expertise and service, before committing large resources to a new vendor. Consider limited round-robin testing, in which identical samples are sent to multiple labs to compare their results, turnaround, and overall effectiveness.

Issues and Perceptions
There is often a belief that outsourcing analytical activity will cost more than performing the same activity internally, despite the number of indirect costs associated with maintaining that internal capability. Evaluating the true costs of research and testing requires factoring in the expense of a company’s facilities, equipment, supplies, salary / benefits, utilities, accounting and management. When comparing that cost with an outsourcing option, one must consider the actual cost of the contract services, as well as shipping and coordinating external activities.

Some manufacturers may fear that turnaround time will suffer when samples must be shipped across the country instead of taking them to the building next door, but a physical separation between customer and laboratory should not significantly increase turnaround time. In fact, because a successful contract lab is staffed to be very responsive to customer needs, external turnaround can actually be faster than internal. Materials can be shipped anywhere in the U.S. to arrive in less than 24 hours, using established commercial carriers. International borders can cause delays, however, and shippers need to determine the carriers and tactics which best serve to expedite their progress. Test results and data can be returned via fax, e-mail or FTP almost instantaneously.

Thorough, written documentation is important to minimize potential confusion, especially at the beginning of a new relationship, and the specific individuals requesting and performing the analysis should communicate directly. Be sure to indicate any specific research, development and/or testing requirements, as well as timing. If you are concerned about a particularly complex analysis, there’s no substitute for talking directly with the analyst once the samples and project description have been transmitted to the laboratory and before testing begins. Look for a lab that values communication as much as you do.

Once the initial contact has been made, an experienced and professional laboratory should be able to provide a boilerplate agreement for the project. If customers prefer that their legal department drive the process, a standard agreement for research services and testing will streamline the process when arranging specific project details. Make certain that terms are clearly specified for confidentiality, safety, intellectual property, additional analysis, conflict of interest and disposal.

As with any outsourced function, if no single vendor can provide the breadth of capabilities to meet all of a company’s analytical needs, look for a few labs that are good at what they do, rather than having several vendors for any given test regimen. There is a cost associated with managing multiple vendors, so finding labs that have a broad scope can help decrease total expenses.

Involving a broker can help simplify the lab selection process, but often raises fears of increased costs and a reduced quality of communication. If a broker is considered, discuss the firm’s business model and make sure it’s understood what services will be delivered for the fee (as well as any that are not covered). A knowledgeable broker will offer measurable value for the cost of his services, improving the customer’s processes and decreasing other costs. Visit the broker and also the network laboratories to review their techniques for quality. Always know exactly where any specific analysis is being done, in order to retain the chain of custody and be prepared for any quality issues.

Costs and Timing
Fees and turnaround times vary widely between labs, but most charge between $125-$300/hour and offer lead times from one day to a month, depending on the complexity of the analysis. As with any purchase decision, know what you’re getting for your money.

Some analytical labs deliver only test data, while others have the experience and personnel to provide interpretation, method development, material identification, reverse engineering and other services. If all that’s needed is repeat “commodity” testing that hasn’t changed in years, there’s no need to pay for unneeded additional services. On the other hand, be certain that if outside technical, interpretation or development assistance is needed, the contractor is capable and prepared to provide it. Finally, budget appropriately.

Finding a contract analytical lab that can meet company needs within established cost constraints should not be a nightmare. There’s bound to be some period of transition as the contractor’s personnel get up to speed on your specific needs and internal staff members learn how to best take advantage of the lab’s strengths and optimize communication. But the “make-versus-buy” decision shouldn’t be all that difficult, as long as you take a little time to consider the details up front.