Outsourcing: It's A Practice, Has Requirements, And Needs Governance
By Louis Garguilo, Chief Editor, Outsourced Pharma
We recently divided and conquered the 10 modules of the Outsourcing Master Class created and taught by Darren Dasburg some years ago.
Subsequently, I asked Dasburg what the ensuing years (and his further experiences at Big Pharma, biopharma start-ups, and as a consultant) would have him change, or further emphasize, if he were teaching the class to Outsourced Pharma readers today.
He says he’d advise biopharma executives to integrate outsourcing more deeply into their organization’s overall strategy – and refocus specifically on three of the key modules/strategies.
Here’s a list of all ten, with the three we’ll return to in bold:
- Outsourcing As A Practice
- Develop An End-To-End Process
- Strategy Integration
- Create Leadership Teams
- Develop Business Requirements
- Provider Selection
- Develop A Financial Analysis
- Negotiate Contracts
- Manage The Transition
- Governance
Positive Developments?
Dasburg starts on some “positive” developments he’s seen over the years:
- Providers have grown in maturity to address the behaviors of poor customers
- Relationships that shouldn’t be created due to “bad chemistry” between potential partners, aren’t; providers understand the cost of these customers – financially and reputationally
- Enterprise resource management systems (and others) allow better control of “point impact costs,” and even integration across company lines – identifying specifically where the pain/gap is “rather than throwing the baby out with the bath water”
- Sponsors better understand they cannot manage the employees of the CDMO, and the provider is the expert in the needed service or space
- Partners enter relationships with creative asset-sharing strategies as part of contract terms
- Sponsors invest in the partners' capabilities, understanding ‘a good bird in hand is worth two in the bush’
- Deal terms with CDMOs include “option agreements” to reserve capacity if needed, allowing providers to better hedge the future
- Build/Operate/Transfer (BOT) strategies can put the provider in the position to start up a facility, and then sell the whole package to the client at a later date
I’m sure readers will agree some of these are rather fascinating observations – particularly on the side of the service providers.
I’d like to know a bit more about his thoughts on whether the sponsors he’d teach his master class to today would be fundamentally different in approach. Certainly, there’d be a new cadre of organizations serving novel scientific and therapeutic spaces.
“What I find foremost today in the CGT companies I'm working with as a consultant is a tremendously lean model,” is Dasburg’s reply using the cell-and-gene therapy industry as an example.
He references a recent editorial with Kent Pryor, CEO, ZZ Biotech: “He’s a remarkable example. He does everything himself as basically the only employee, and who heavily depends on his provider network.”
Would professionals like Pryor and these lean companies make his class different?
Dasburg suggestions a different question.
“Do those 10 virtues change much with different circumstances?”
“Some of them might,” he answers. “Today, you can play down the amount of risk you face initially when outsourcing. You can sort your way into a relationship with smaller steps since you only need small volumes of material and services.”
Today, CGT players can trust all their viral vector production to outsourcing, which Dasburg estimates happens some 80% of the time. Overall, the maturation of the outsourcing industry presents a different risk profile.
“Nonetheless,” he adds, “while I might emphasize certain things if teaching today, I've been enacting these 10 modules since 2006. They work for me in every dialogue I've ever been in.”
Even, he says, when he’s consulting for executives starting down the path to M&A. Dasburg gets these organizations to slow down, and think both fundamentally and holistic:
Why exactly do you want to merge?
What exactly do you think you will benefit from it?
What is the specific relationship you want to have?
How might the two companies change over time?
What if economies or competition changes?
For our purposes, substitute “outsource” for “merge” in the first question, and these are the same questions readers should ask before going to work with a CDMO.
One, Five, And Ten
If teaching the Outsourcing Master Class today, Dasburg would focus first on module one: deeply defining and then communicating outsourcing as an applied practice.
Despite the ubiquity of outsourcing, start-ups and established companies still need to think more thoroughly about the activity itself. How do you ensure internal and external resources understand all short- and long-term objectives?
Next, thinking about the emerging models of today’s start-ups, Dasburg says module five is key – the developing and creating of outsourcing business requirements.”
He believes outsourcing is still too shallowly considered when it comes to “exacting outcomes.” Often, price becomes a key determinant when quality should be far higher on scale.
“And remember,” he concludes, “module 10 – the governance of the outsourcing activities and relationship – represents the longest period of all this activity, right?”
“If you think about it, the first nine modules typically occur in nine to eighteen months. I've got a contractual relation thereafter in which I must make all those first nine work, and live up to our expectations for years.”
Making matters more difficult, often those who initiated the relationship have handed it off to another group of professionals over time. There are changes to personnel – even strategy – during the remaining timeframe.
“Governance, then, is the most difficult; that’s where so many issues arise over time,” he says. “Or as we say, when the honeymoon is over.”
Thus, all considered, continuously improving vendor-sponsor relationships should remain a major objective within an outsourcing strategy.
“There was a drug sponsor that came to my class with categoric information – their bids were 130% over normal,” recalls Dasburg. “Turns out it was because they were just so difficult to work with. They were given the ‘Company X’ factor.”
“All the providers knew it. They said, ‘If we're going to consider working with ‘Company X,’ we better stack some risk money on the service offering.’
“This biopharma organization wanted to get better at relationships so they could get the advantage of better pricing … unfortunately, though, not everybody wants to hear the advice the counselor gives.”
I hope Outsourced Pharma readers do.
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Coming up: An amazing, real-life example of some of these modules in practice, featuring Merck, Medimmune, and Keytruda
Here are our two earlier editorials: