Outsourcing - A Means Of Survival

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By Shawn Lawrence

Outsourcing, it's more than a trend in biotech, it is a means of survival.

Companies that provide specialized services have developed a niche in the industry as more biotech companies than ever before are alleviating the collective crunch of time, resource and money shortages that bog down business and are turning to these brains for hire.

The benefits are numerous.
Through outsourcing, biotech companies are able to address areas in which they are weak, allowing them to redeploy their own valuable in-house talent towards their core competencies. The end result allows biotech companies to focus their own experts in key areas, making them successful and able achieve their goals.
Among the more prevalent outsourcing options available to biotech companies are contract research organizations and contract manufacturing organizations.

Contract Research Organizations (CRO)
Contract Research Organization's or CRO's as they are commonly referred to, have developed over time into a useful resource addressing the bottleneck that plagues clinical research and drug development.
CRO service has improved dramatically over the past decade from its roots in traditional research and development services. Today's CRO's have branched out and are active in such areas as bioanalysis, sample creation, validation according to regulatory agency requirements and even developing methods of research development for its clients. It is generally biotech's think tank for hire.

Typically, a product will make it to the market faster with the aid of a good CRO. The reasons are simple. Because most CRO's operate globally, it has first hand experience in dealing with regional issues, something a biotech company might not be prepared for. Additionally, unlike most biotech companies that have to first recruit staff and build infrastructure when beginning a project, CRO's already have the necessary infrastructure up and running, with a qualified staff in place. This is a CRO's most appealing strength and perhaps even the primary reason companies come calling in the first place.

Other factors that make CRO's appealing are its ability to understand the strictest standards that apply to life sciences companies. These standards include good manufacturing practices (CGMP in Canada), good lab practice (CGLP in Canada) and good clinical practices (CGLP in Canada). These standards enforced by Health Canada translate into higher costs for biotech companies and CRO's know ways to navigate these costs.

A sponsor's final decision to use a CRO is directly linked to its own internal capabilities.

A sponsor or client will assess whether or not it's worth the time and money to invest in or build the infrastructure needed to undergo the research and development. If it isn't, then passing it onto a CRO is an option. More often than not, they find it is better to outsource the job because clinical development and research costs are rising.
As it stands, there are approximately 88 CRO's providing laboratory analysis services in North America. Frost and Sullivan estimate that by 2010 more than 40% of biotech R&D expenses are expected to be outsourced, up from the 28% recorded in 2006.
As more and more companies realize the full value of outsourcing, the use of CRO's will continue to become more prevalent.

Contract Manufacturing Organizations (CMO)
Like CRO's, Contract Manufacturing Organizations (CMO) offer numerous advantages over in-house manufacturing. Because CMO's already have infrastructure in place, whether for scale up, validation or clinical trials, biotech companies choosing to use CMO's incur lower costs, enjoy more flexibility and have greater access to external expertise.

Overall, a good CMO helps the sponsor reduce the time it takes to bring a product to market, and in certain instances at much cheaper cost and risk. This is especially so for smaller biotech companies.
Burdened with a lack of capital and exuberant startup costs, most small biotech companies can't even hope to dream of building a manufacturing plant of its own.
In general, companies that use in-house manufacturing have to essentially face three challenges in getting a product through process development before it's ready to be manufactured: time, money and experience. Add in the high costs of maintaining a plant, equipment and personnel, or the increasingly active government regulations intertwined with regulating a manufacturing plant, the burden becomes cumbersome.

A good CMO can deal with all these financial obstacles and thus make small biotech companies dreams a reality. Significant investment is usually still required for upfront fees, contract management and technology transfer but these expenses are far less than what they would be to set up a manufacturing plant.

The benefits of using CMO's are not limited to small biotech interests either. In fact, many larger biotech companies turn to CMO's for its manufacturing needs also. They do so because it frees them from having to invest its own money in capital assets prior to launching a new product. Similarly, the sponsor using a CMO can turn resources on and off as they need them and not have to have these resources sit idle in between times they don't.

Again, it's about not having to internalize capacities that a company won't use on a regular basis and getting a better bang from their buck.

Additionally, contracting with a CMO can help shield a biotech company from the risks of having to expand its manufacturing capabilities for an unproven product that may yet fail to reach market. In such an instance in which the product fails, the biotech company loses only its initial investment with the CMO, not an investment in an entire manufacturing plant.

Regulatory and Legal
This brand of outsourcing is a necessity for the majority of biotech companies simply because a legal consultant or regulatory consultant is a biotech company's guide from day one.

Sweeping changes in patent laws and rules have altered the requirements for obtaining and enforcing biotech patents. Add in regulatory hurdles such as GLP, GCP, GMP as well as the fact each region has its own set of regulations and regulatory agencies, biotech companies without a proper legal representation or someone that is able to understand all of the above, are destined to fail. In this area as opposed to others, outsourcing is more of necessity than an option.

Proof that the company is indeed the sole owner of the technology in question, that patent protection has been properly secure and that the invention hasn't been disclosed publicly in a way that could compromise its patent protection all fall under the scope of a legal consultant. They are an integral part of the whole process.

As such, experts are needed to deal with the impact of these changes and of impending legislation, patent offices rule changes and the state of the law as expressed by the courts.

Though they are necessary, to employ these experts on a full-time basis internally can prove costly. Those that can't afford to do so, turn to outside sources for help.
A newer trend is for contract manufacturing firms and contract research firms to offer regulatory services as part of a turnkey package. The advantage to this option is easy access to all the manufacturing and quality system information, since the contract manufacturer handles all of which.
In the end, the right match varies based on the biotech company's in-house capabilities, the type of products it makes and the type of regulatory and legal paths most appropriate for those products.