Economical Outsourcing: Should I Stay Or Should I Go?

By Louis Garguilo, Chief Editor, Outsourced Pharma

Should I stay or should I go now?
If I go, there will be trouble
And if I stay it will be double
So come on and let me know

I doubt The Clash contemplated drug development and manufacturing when they penned their classic song, “Should I Stay of Should I Go.”

But they could have.

The question of staying internal with your programs or going to service providers can be difficult to answer.

Perhaps it's more difficult today if you consider:

• the novelty of new development programs
• evolving economic calculations
• escalating geopolitical concerns; and
• even a tinge of morality regarding location decisions.

Let’s devote a few minutes to the latter three points as influencers of decisions surrounding internal development and facilities, versus outsourcing.

The Economics

For decades we’ve shouted from rooftops that outsourcing is a cost-effective strategy for the biopharma industry.

You start-up by outsourcing.  It’s your business-enabling modus operandi. And often, there’s no reason to ever alter that approach.

This has proven to work well over the years. You avoid early capital investments required to build (or purchase and maintain) labs and facilities. You remain lean by leveraging expertise and experience of specialized contract development and manufacturing organizations (CDMOs).

Outsourcing not only extirpates fixed costs, it also allows for a pay-for-service mentality, a methodical step-by-step process. It’s careful as you go. Conserve funds. De-risk.

Better to break down the development-to-patient continuum into unit costs, arrayed as nicely on financial statements as your biologic assays in labs. Your investors love nicely displayed spreadsheets. With assays, it’s hit rates; with spreadsheets, burn rates.

And, as unfortunate as it sounds, it makes it easier to cut bait and move to new endeavors.

However (you knew it was coming, didn’t you?), recent in-depth conversations with C-suite executives at various biotechs indicate a far less mechanical inclination to today's all-out outsourcing strategies, and point out a more strategic thought process.

Of course, much depends on the nature of your program and what stage you are in; if you have a single program or a pipeline; the proclivities of your investors; your ultimate goal as an organization, etc.

All things (re)considered, outsourcing may not always provide a competitive advantage.

For one thing, it opens you up to immediate and direct competition, as other biotechs (perhaps with analogous programs) vie with you for attention from the same CDMOs. Prices can and do rise.

Sometimes, help is not readily available when needed. For novel programs, sometimes not really available at all.

We may think it unfortunate (and perhaps not the best for serving the total amount of patients in the long run), but success goes to those with the swiftest advances through pre-clinical and clinical phases, regulatory approvals, and ultimately the market. An early plan to build out as you go along may most effectively facilitate your progress.

And as we’ve documented this year, there are other options.

For example, you may be able to lease outfitted space for your professionals to work within. A bridge, shall we say, that allows you to stay and go.

So what’s our destination with this homily?

To serve as quick reminder to think again. Should you in fact stay or should you go?

Think expansively. Sharpen those spreadsheets; project outward. De-risk, but plan for long-term success. Further furrow your brow over your “all-outsourcing” business model.

At the least, you’ll by more confident that what you are doing remains the best strategy. 

The Geography

Next up, the world. A wide subject to tackle, so we’ll start narrowly, on what might be the most uneasy of location decisions today, outsourcing with China.

De-risk and China are two words that go together less today than in days past. 

China is a major player in our industry, with a litany of Western multinational drug companies outsourcing development and manufacturing to Chinese CDMOs, as well as building their own facilities there.

It’s a pursuit of lower costs and abundant labor, expertise, and potentially huge consumer and patient markets.

But China and the U.S. (also most of Europe) don’t see eye-to-eye on those markets, or how free enterprise (and personal freedoms) operate, and how much governments should be involved.

Geopolitically, the Chinese Communist Party has intensified its aim on Taiwan. Any military action would effectively curtail your activities in China. That is a real risk.

If COVID was a supply-chain stopper, consider what a geopolitical rather than a viral disruption could mean. And how long it might last.

So for drug development and manufacturing outsourcing, should you stay or should you go to China specifically?

Your decision may feel forced at times. Folks targeting cancer with necessarily toxic or steroidal compounds, may have no choice. That’s where the CDMOs, with track records and willing to help, are mostly located.

Which moves us to our final inquiry – questions less of industry, and more of a certain applied ethic. 

Ethics And Economics

Should (or can) you decide to locate your outsourcing partners based on a moral imperative, or a cause?

A cause, for example, that takes shape in the reshoring movement in the U.S. (and Western Europe).

The decision to work towards “bringing back” drug development and manufacturing supply chains (to a realistic degree) from locations abroad is complex.

Technically speaking, there are obvious advantages to partnerships located nearby.

There’s the potential for tighter and shorter supply chains. Also greater potential for oversight, e.g., more people-in -plant and face-to-face meetings; fewer cultural miscues or misfits; less travel expense, fewer time zones, and potentially diminished downtime; and much of the discussion directed at China specifically above. 

You can paint the reshoring "cause" most positively: economic benefits to your home country – more jobs, investments, stronger communities; the feeling of not benefiting a current or potential adversary.

But should there be some "mora"l calculus at all?

It’s said the younger employees now widespread in our industry aspire to broading societal and cultural considerations through their employment.

Is decoupling (again, to the extent possible) from a region we are currently over-beholden to for development and supply of all sorts of drugs, and serving one's own community, a business strategy effectively maximizing patient outcomes?

It's hard to say ...

We started with some entertaining lyrics from an iconoclastic band. That we could use that refrain to enter into deeper considerations of our outsourcing decisions should be music to our ears.

We need to keep listening.