Economic pressures on the biopharmaceutical industry are more intense than ever: global recession, restrictive price controls, $125 billion in revenues at risk from the patent cliff, and the continuing struggle to reduce drug development costs, now approaching $1.8 billion per approved product. In what Tufts Center for the Study of Drug Development (CSDD) research analysts Kenneth Getz and Rachael Zuckerman dub “a crisis on all fronts,” biopharma companies are seeking new outsourcing models to help them develop expanding portfolios of targeted therapies while they simultaneously reduce head count. In this volatile landscape, they tell us, “the outsourcing market appears on track to become an even more integrated and collaborative environment in the long term.”¹

To meet R&D demands in the face of shrinking budgets and declining head count, biopharma companies need outsourcing models that can deliver higher quality and better efficiencies than traditional fee-for-service approaches. In business-critical laboratory research functions, integrated outsourcing models are evolving in which the client company gains greater operational control and retains accruing knowledge in-house while leveraging the expertise and functional capabilities of a full-service CRO.
These integrated models support long-term client-provider relationships. Ideally, they serve as a platform on which to build and share knowledge in a closer partnership aimed at better problem-solving and strategic allocation of staff and laboratory resources.

Tighter Budgets, Lower Headcounts
Tighter budgets and lower head counts pose two challenges for biopharma’s in-house laboratories: loss of vital technological expertise and underutilization of facilities and equipment. The Tufts CSDD analysis cited the elimination of 100,000 pharma and biotechnology industry jobs between early 2009 and mid-2010, with 9,000 cut from R&D functions. The resulting loss of expert knowledge and operational experience can be particularly troublesome as the industry attempts to accelerate the drug development process to reduce time to market. To compound the problem, the unpredictable ebb and flow of projects in the pipeline often lead to challenges in incurring fixed personnel costs and constant prioritization of development programs.

To meet expanding development needs with declining dollars, companies have been allocating more resources to their outsourcing budgets. In 2011, the nonclinical research space — including analytical, bioanalytical, preclinical and toxicology services — accounted for an estimated 21% of the overall contract R&D services market in the U.S., which is estimated at $33 billion to $39 billion.² Bigger outsourcing budgets present opportunities to customize contract lab services in configurations that better match biopharma’s urgent needs for advancing technological expertise and cost efficiency.

Customized, Collaborative Models: Greater Flexibility, Efficiency and Control
Traditional laboratory outsourcing includes outsourcing studies to a contract lab under fixed fee-for-service agreements on a project-by-project basis or entire programs. Other traditional models include full-time employee (FTE) agreements that provide staff who are dedicated to the client’s projects and work at the provider’s facility. Alternatively, client companies have tapped into their staffing budgets to hire temporary contract staff through staffing agencies and CROs.

In order to create even greater value for biotech and pharma companies and better integrate scientific expertise and operational capabilities, CROs continue to evolve and expand on these traditional models with customized contract staffing and new laboratory outsourcing agreements. Customized on-site staffing approaches give clients the benefit of greater oversight of research programs; streamlining of sample transfers, data management and communication; and greater utilization of in-house laboratory space and equipment. In new lab outsourcing models, CROs can build and operate dedicated labs to meet the specific research needs of client companies that benefit from providers’ additional technical expertise and capabilities as well as expert managerial experience.

Customized Staffing Models: Benefits for Budgeting and Retention
Customized on-site staffing models allow client companies to tap into their expanding outsourcing budgets rather than apply more constrained in-house staffing budgets to address laboratory staffing needs. Laboratory staff outsourcing has been provided by CROs and staffing agencies for more than a decade. Recently, CROs and their clients have been developing more collaborative models tailored to further increase efficiencies and expand access to expertise.

In these models, the CRO recruits and trains highly skilled lab scientists, support staff and technicians to meet the sponsor’s specified staffing needs. Contract personnel work on site, either in individual positions or as teams, and operate according to the client’s in-house operating procedures and systems. The contract provider takes responsibility for all human resource functions, including compensation, benefits and career development. Client company managers oversee the work assignments of contract staff, or the provider may field managers to coordinate the work schedules of contract teams. In addition, CROs can customize agreements to conduct overflow work at their labs and provide technical and personnel management, capabilities not available through staffing agencies.

Customized staffing models are evolving into more long-term, collaborative relationships between client and provider. They feature more services, such as fielding contract managers to take responsibility for day-to-day supervision. Tapping the extensive drug development experience of large full-service CROs in such collaborative approaches can generate major efficiencies.

Staff Retention: While staffing agencies tend to employ temporary staff with high turnover rates, CROs provide permanent staffing resources. This supports long-term employment and a high rate of retention, capabilities necessary for closer client-provider integration, more efficient project execution and strategic operations.

Flexibility: Laboratory workload rises and falls with the start up and completion (or halt) of clinical trials. Lack of predictability makes it difficult to utilize lab staff and facilities at consistent levels. Downtime results in inefficiencies — underused laboratory space and, in some cases, staff layoffs. Contract staff provides a flexible workforce — the right number of people with the appropriate training and skillsets when they are needed.

Budget Management: For companies struggling to manage reduced internal staffing budgets, the fixed costs of staffing can be shifted to larger outsourcing budgets, which can be utilized for this type of agreement. The provider assumes the personnel costs and risks surrounding employee hiring, training and on-boarding.

Efficient Facility Utilization and Operation: As biopharmas outsource more lab services or downsize their workforce, in-house lab facilities and equipment become available. On-site contract staff operates in the company’s labs to increase efficient use of in-house capacity. In-house lab operations eliminate the need to ship samples and transfer documents and data across multiple external service providers. Project management and communication between the provider and contractor are streamlined, which results in more efficient and effective execution of project tasks. The same processes, SOPs and systems are utilized by the provider, which eliminate auditing of the provider’s quality systems, re-entry of data and other redundant tasks that reduce overall project turnaround time.

More Control: Biopharmas maintain closer monitoring and control to ensure quality and consistency. Contract staff works to company standards, operating under corporate SOPs and using company processes and equipment. Lab information management systems (LIMS), documentation, laboratory investigations and trending results all are managed on the client’s systems, improving data quality and reducing time spent with these tasks performed in-house compared to off site. Operations and techniques can be customized for a given project according to the contractor’s specific requirements, as opposed to fitting them within the provider’s systems and processes. Evolving information, decisions and instructions can be relayed quickly, and often face-to-face, to conduct troubleshooting on site.

Access to Experience and Expertise: Contract staffing models give clients access to management experience and technological expertise that they may not have in-house. Providers that can offer highly trained staff and efficient management deliver benefits in both quality and efficiency. As increased speed and productivity take on a more critical role in drug development, closer collaboration between client and CRO experts facilitated by on-site staffing services improve insight and execution.

Tactical and Strategic Staffing Models
Two innovative models for providing dedicated staff to client companies are proving highly successful at the moment. These customized models range from less integrated tactical approaches to much more integrated strategic programs. Each model can be tailored to suit the client’s requirements.

Tactical FTE Agreements: In this model, the provider recruits and trains dedicated full-time employees to be assigned as the client identifies specific laboratory positions. Personnel may be dedicated to one full-time position or rotated depending on work load. Training may be simple or complex. Staff may be cross-trained on several methods for routine drug analysis, or they may be trained for a specific method or task to meet the client’s exact requirements. Clients that require highly technical skillsets, such as those needed for NMR and mass spectroscopy, benefit from a provider’s ability to recruit and train staff with hard-to-find expertise. The provider fills positions based on the needs and demands of the client’s workload.

In this scenario, contract staff tends to be scattered across various lab groups and functions and is assigned to client company managers for work direction. The client company is relieved of the human resource and administrative tasks necessary to support internal staffing. This approach gives customers the highest level of operational control, but the lowest level of strategic advantage in terms of managing high and low levels of demand.

Strategic Dedicated Team Agreements: Dedicated contract teams function in a more fully integrated model that supports strategic management of lab workload and on-site facilities. In these agreements, the provider recruits, trains and manages a dedicated team to support the development of drug entities. Compared to outsourcing a project to a contract provider, on-site teams give clients greater oversight control and resource flexibility, which can be an important advantage in multi-faceted analytical programs that comprise a full spectrum of analytical support from method development and validation, product characterization, QC and stability testing.

Teams usually work together in laboratory space designated by the client for the given project. The CRO provides a team leader and other supervisors to manage its staff and takes responsibility for lab operations, including direct supervision, resource allocation, work schedules, technical direction, data review and management of KPIs, which are typically outlined in the contract. The client can leverage the contract to drive efficiency and productivity within their own laboratories. The provider also is responsible for all HR and administrative functions. Blended teams that combine contract and client company staff also can be created. In this scenario, the provider takes responsibility for cross-training and balancing skillsets. Teams can remain on site through successive projects, building and retaining in-house expertise.

Dedicated Laboratory Outsourcing Models
At the highest level of laboratory outsourcing, the contract organization provides a dedicated laboratory, as well as the staff. This model is driven by special research requirements and is the newest and rarest type of outsourcing for lab services to date.

Mirror Laboratory: In one scenario, the CRO creates the lab to match the client’s technical capabilities and processes, recruits and trains dedicated teams to staff it, and manages facility and staff to meet the client’s requirements. All resources and materials are provided by the client, which also is responsible for providing adequate project assignments to maintain efficient use of available resources. Typically, the client may increase or reduce staff levels, but adequate notice must be given to allow the provider enough time to hire or reassign staff. This approach is well suited to support large, long-term research programs that require thousands of samples over a period of years. It is difficult for developers to outsource lab services when research requirements are highly specific and complex, as they are in vaccine development, for example. A dedicated contract laboratory built to mirror lab technologies and procedures can be managed efficiently using outsourcing budgets and operated to the most exacting specifications.

Extended Capabilities Laboratory: In an alternative scenario, clients may contract not for a facility that mirrors their own, but for a facility and staff that provide higher levels of management, capacity and/or technological expertise than are available in-house. In the most efficient version of this offering, cross-functional dedicated teams can be created to support both large- and small-molecule development. Cross-functional teams increase efficiency, since they can support a mix of large- and small-molecule projects, giving clients the opportunity to fill schedules with a wide range of assignments while using dedicated staff and lab to full capacity.

Providers may acquire or dedicate existing labs for this purpose, or facilities underutilized as a result of downsizing or mergers and acquisition may be reallocated to contract service providers that assume their operation. Value for the client depends on efficient scheduling. Dedicated lab services are less expensive than fee-for-service outsourcing when the facility is used to full capacity, but downtime results in higher costs.

Value-Added: Alliance Platform Serves Client and Provider
Customized laboratory outsourcing has important benefits for service providers beyond the revenue these agreements generate. One value is the creation and support of a technologically sophisticated workforce, which is essential to the drug development process. For employees of the provider organizations, customized on-site staffing models offer long-term employment. To ensure good organizational and cultural fit, recruiting is a parallel process, with client companies providing feedback on employee selection. Employees fielded and trained by the provider have the benefit of multiple opportunities for assignment — a greater level of job security in a job market heavy with temporary positions and plagued by high turnover. In addition, the staff gains an enhanced understanding of the drug development process and a work environment that only on-site operations can provide.

For both biopharma companies and CROs, these highly collaborative models create a platform for alliance building based on better communications and shared expertise. Client companies benefit from access to additional knowledge that has the potential to improve decision-making and operational approaches. Providers have an opportunity to learn more about their customers’ challenges and design solutions.

Both partners enhance their ability to communicate objectives and improve execution. One provider notes that all of its current on-site staffing customers also have traditional contracts for outsourcing to their labs for drug development services. This approach provides clients with the flexibility to keep certain types of work that are more suitable to be performed internally and others that would be appropriate to outsource externally through the same partner provider. Its most successful staffing program has evolved over eight years and now fields a team of more than 40 scientists, deeply imbedded in the client organization.

When these customized contracting agreements work well, they enhance the progression of outsourcing’s traditional fee-for-service model toward more strategic client-provider relationships. The new, collaborative models build solid, long-term relationships that transform traditional outsourcing into true partnership. 

References

1. Getz K and Zuckerman R, October 2010. Anticipating Structural Changes in the CRO Market: Sponsor Crises Lead to an Unstable Landscape. Contract Pharma, October 8, 2010. Available at: http://www.contractpharma.com/issues/2010-10/view_features/anticipating-structural-change-in-the-cro-market
2. Getz K, Lamberti M, Mathias A, Stergiopoulos, Tufts CSDD, June 2012. Resizing the Global Contract R&D Services Market. A New Study Revises Estimates of the Market. Contract Pharma, May 30, 2012. Available at: http://www.contractpharma.com/issues/2012-06/view_features/resizing-the-global-contract-rd-services-market