Strategies in Outsourcing: Insourcing Emerges as an Alternative Model

The practice of outsourcing development and manufacturing services is not new in the pharmaceutical industry. The traditional outsourcing model involves a sponsor company outsourcing particular projects to a contract services provider, which performs the agreed-upon services at the CDMO's or CMO's facilities. Other variants of this model can be adapted, however, as in the case of an adaption of an insourcing model. Although the term "insourcing" typically refers to taking functions back in-house to perform internally with in-house staffing and resources, a hybrid of insourcing and outsourcing can also be employed. Such is the case with an insourcing relationship between Eli Lilly and the contract research and manufacturing organization AMRI for chemistry services. Christopher Conway, vice-president of business development with AMRI, discusses the partnership with Patricia Van Arnum, executive editor of Pharmaceutical Technology.

Basis of the relationship

PharmTech: In late 2011, AMRI formed an insourced partnership with Eli Lilly for chemistry services to support Eli Lilly's drug-discovery programs. Can you describe the nature of the partnership in terms of the resources (staffing, expertise, services) that AMRI is providing and the related infrastructure and support that Eli Lilly is providing as part of the partnership?

Conway (AMRI): In November 2011, AMRI entered into a six-year collaboration with Eli Lilly based on an AMRI insourcing model. As a result of the experience gained in establishing operating infrastructure at several remote locations in India, Singapore, and Europe, AMRI's knowledge of the logistics, legal ramifications, human resources needs, information technology and infrastructure demands, and finances associated with the insourcing model has enabled a smooth establishment and ramp-up.

AMRI announced in November 2011 that it would employ more than 40 synthetic chemists in Indianapolis in 2012 to support Eli Lilly's drug-discovery programs. This team is anchored by a core of experienced AMRI employees, who had been based in Albany, New York, and who have relocated to Indianapolis to assume various leadership roles. The remaining employees are new hires, the majority of which are being recruited from Indiana and surrounding states.

Comparison with traditional outsourcing models

PharmTech: How does an "insourced" relationship differ from a traditional "outsourced" relationship? What are the advantages of such a relationship compared with a traditional outsourcing relationship?

Conway (AMRI): An insourcing relationship has the potential to accelerate a customer's drug-discovery, drug-product development, or manufacturing efforts by maximizing the real-time exchange of scientific information and the resulting ability to rapidly adjust research priorities in response to breaking results. Working closely together, AMRI's scientists can rapidly adapt to changing project needs, leading to faster turnaround response times and yielding reduced cycle times in lead-optimization programs. Co-location brings such benefits in sharp contrast to having synthesis support at a remote location in Asia, for example.

An insourcing relationship is an ideal option when the sponsor may have significant unoccupied laboratory facilities and equipment available because of prior downsizing initiatives. These are already paid for or are being depreciated anyway, and utilization of an insourcing opportunity derives the most value from these assets.

Customers/sponsors can take advantage of AMRI's intellectual capital because the insourced scientists still have access when needed to AMRI's global network of knowledge and experienced problem-solving in drug discovery and development. In addition, working with hundreds of companies across the industry exposes AMRI to best practices that the company can bring to the table. From a human resources (HR) perspective, the insourced scientists are AMRI employees, and this increases the flexibility of these resources while also relieving the burden of HR support, recruiting, and providing employee benefits, which remain the responsibility of AMRI and are already baked into the research agreement.

Pharmaceutical companies are looking for CROs and CMOs that can use their expertise in more strategic ways. Insourcing sets the stage for true collaboration. In a traditional vendor–client relationship, the vendor's scientists work at their own site, often far removed from the client. With insourcing, a core team of scientists is located at the customer facility. This close proximity allows for constant communication, idea sharing, and joint problem-solving, ultimately creating a real-time collaboration with increased project productivity.

From the provider's perspective, an insourcing relationship is a prime opportunity to demonstrate the value that the provider can bring to the relationship, In Darwinian fashion, providers that can demonstrate real contributions and value create opportunities to cement and grow a relationship. Those that do not will see these relationships ending or being transferred to someone else. In this fashion, both the sponsor and the provider evolve for the better of both.

Personnel and project management

PharmTech: For an insourced relationship, the employees of the contract service provider work at the facility of the sponsor company. How is that arrangement managed in terms of the project itself and the employees? In having both sponsor company and contract service employees together at one site, how does project management in an insourced relationship differ from project management in a traditional outsourcing relationship?

Conway (AMRI): As employees of AMRI, all HR, benefits, safety, and other AMRI practices remain our responsibility. At the same time as we institute our corporate practices, our insourced employees also are obligated to layer over that the work obligations and corporate practices of our host sponsor. In establishing this insourcing relationship, AMRI has placed a senior leader on site to serve as the team leader and liaison with sponsor leadership. The team has been further partitioned into groups or sections under the direction of experienced leaders who function as project managers and group leaders. For significant challenges, these team leaders can tap into the broader AMRI leadership team as well as the sponsor's managers.

Performance metrics

PharmTech:What types of performance metrics are used in an insourced relationship and how do they differ from metrics used in a traditional outsourcing model? Are different or additional measurements put into play?

Conway (AMRI): Insourcing models enable a truly collaborative work environment. For example, in traditional vendor–client relationships, the vendor scientists work at one site and the client at another. With the insourcing model, a core group of AMRI scientists will work alongside the customer's scientists at the customer facility allowing for constant communication, idea-sharing, and problem-solving. This ultimately creates a real-time intellectual think tank with increased project productivity.

AMRI holds its scientists working at the customer site to the same stringent standards that are the hallmark of our reputation of quality. In addition, as part of the establishment of the insourcing collaboration, negotiators from both parties established performance metrics and set expectations, unique to this relationship, which are expected to be met.

Project work for insourcing

PharmTech: What type of projects lend themselves to an insourcing model? Is it appropriate across the continuum of drug-development and manufacturing services or is the model more suited to certain phases of development and related activities? What are the key factors in deciding whether an insourced model is appropriate?

Conway (AMRI): Availability of facilities and technologies that the insourcing scientists will need to access are key to the ability to establish such a relationship. The insourcing provider should have the ability to carve out work functions and conduct activities unique to existing functions, as well as provide supplemental capabilities to strengthen service areas that may already be in-house at some of these organizations. For example, a company may have synthetic chemists or biologists in-house, but AMRI may add more through the insourcing model. These groups would be separate, but not totally unique, in its core function to the customer.

AMRI's technical capabilities enable the company to custom build an insourcing model depending on the specific and ever-changing needs of any customer. The insourcing model affords our customers the ability to tap into experienced, highly trained discovery, drug-product development and manufacturing teams to help translate customer ideas to clinical candidates to large-scale APIs both on the customer's site and/or at any of AMRI's global locations.

Future of new outsourcing models

PharmTech: Traditional outsourcing models still dominate external development and manufacturing activities, but do you think insourcing models will become more common in the industry? Why factors may influence greater adoption of this model?

Conway (AMRI): Pharmaceutical companies are adapting new strategies and reorganizing their programs, facilities, and resources, with many companies beginning to contemplate a greater reliance on outsourcing. With substantial layoffs within Big Pharma in the United States and Europe, many experienced discovery and development scientists are taking positions in the CRO industry. As a result, over time, the balance of expertise is beginning to shift from customers to suppliers.

Public policy perspectives: the lexicon of insourcing versus outsourcing

The ability of providers to adapt and respond to industry changes is going to play a vital role in improving the success rate and outcomes at all stages of the drug-discovery and development pipeline. The ultimate factors in the adoption of this model are going to be driven by: the needs of customers within the industry, which includes the services being delivered on time and to budget; the need for collaborative advice; the need to ease the burdens of project management; and the need for more flexibility, adaptability, and quality. In addition, insourcing can offer significant cost savings compared with hiring permanent employees. As insourced scientists are AMRI employees, the administrative and benefit costs and obligations accrue to it. At the highest level, insourcing allows a customer to ramp up insourced full-time equivalents (FTEs) at a rate competitive with global external outsourced FTE costs and to use available laboratory space that would otherwise sit idle while demonstrating improved productivity that can be measured in pipeline candidates.

PharmTech:The company is involved in another outsourcing model through its SMARTSOURCING program. Can you explain the program and how it fits into an insourcing/outsourcing model?

Conway (AMRI): AMRI SMARTSOURCING is a new initiative to address the evolving needs of the industry, which includes insourcing and outsourcing. AMRI has examined the needs of pharmaceutical and biopharmaceutical companies and itself and has found that customers are looking for more supplier accountability and more trust as well as a better balance of risk and greater flexibility. AMRI's SMARTSOURCING approach is a versatile and strategic way of partnering that is a means of insourcing or outsourcing, or a hybrid model of both. It encompasses the broad range of technologies, capabilities, and global integration that AMRI can bring to a relationship, allowing our customers to customize an approach unique to its needs and budget. The company has used the rollout of its SMARTSOURCING initiative to showcase its improved performance and the customer experience that results from the close integration of global capabilities across the spectrum of drug discovery and development.