Leveraging Partners for Successful Biotech Growth: Strategic Use of External Resources

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The drug development process is a cross-functional activity, requiring the contribution of subject matter experts and support from generalists as it progresses from discovery and development through preclinical, clinical and commercialization. It’s a bit like a very long relay race - a team effort and a lot of support is needed to reach the finish line. Given the extensive expertise and resources required, only large pharmaceutical companies possess all the necessary internal capabilities. Biotechnology companies typically hire consultants, contract employees, and service providers to fill many requirements, and with the rise in virtual biotech, companies’ reliance on external partners has increased. It’s important to create a process for hiring and contracting external resources to ensure appropriate communication between the departments involved (Legal, HR, Finance, IT, Facilities, Admin, Purchasing) so those teams are prepared to efficiently and appropriately welcome and onboard newly engaged consultants or service providers and provide the resources they need so they can quickly provide value.

Budget & Strategy

Your strategy for hiring external resources should take into consideration how critical a resource is, whether you have a short-term or long-term need and whether you need full-time resources. While service providers can be a ready source of labor, turnover can be a source of frustration. Your internal expertise and bandwidth to supervise inexperienced employees or service providers may help point you in a particular direction. Budget is always a consideration. Headcount strategy is always challenging, and small companies especially won’t want to dedicate too much of their human resources to support roles. Recruiting is time consuming and retained searches are expensive. In turbulent times, the decision to hire a new full-time employee (FTE) marks a significant commitment, while external resources are easier to scale up and down and usually come from a different bucket in the financial plan.

When you are making the decision to hire an FTE or utilize external resources there are pros and cons to both and there’s no one-size-fits-all. Contractors and consultants can be a quick fix if a critical team member gives their notice, and you need to fill an immediate gap until you hire a new FTE. Employment agencies can be a great source of talent, although you may not identify someone with all of the skills and experience you want. Consultants bring significant expertise but are often contracted for their knowledge and strategic advice than to conduct daily activities, while service providers generally have staff ready to deploy in support roles, but they may be relatively inexperienced.

Consultants, contractors, and service providers are typically overseen by a function or department head. This individual is responsible for managing internal and external resources, relationships, and budgetary considerations. The expenses associated with external resources differ from those related to full-time employee headcount and can be adjusted more flexibly, for example if there are changes in goals and different resources are needed. In situations where budget constraints arise or a reduction in workforce is necessary, their hours can be increased or decreased, or contracts can be terminated efficiently.

Limiting full-time headcount resources to the essential scientific experts needed for product development, can make companies more appealing to investors. The costs of consultants, contractors and service providers in research and development departments are generally covered under the R&D budget. In contrast, the overhead costs for full-time employees, such as space and benefits, are often allocated to general and administrative (G&A) expenses, which can increase the percentage of costs attributed to G&A in the overall budget.

Legal Considerations

In all cases you’ll want to ensure appropriate contracts are in place to protect your intellectual property, and be sure your HR team is involved, to make sure you correctly classify the type of employment involved. IRS guidelines are available to help[i].

Keep in mind how long it may take to execute contracts with external providers and include this in your project timeline. Depending on the nature of the contract, it can take anywhere from a few minutes for a simple Statement of Work (SOW), to months, to finalize a complicated clinical or manufacturing contract.

If you regularly use the same Contract Research Organizations (CROs), it’s useful to have a Master Service Agreement (MSA) in place and use brief Statement of Work (SOW) documents to describe new activities. Even better, a company should have their own MSA template and use it whenever possible to make the contracting process more efficient and reduce the need to negotiate terms. Larger organizations may insist on using their own MSAs but it’s always worth trying to use your own first. For the contracting process, you should take a team approach -the user and the contract manager or attorney should ensure the legal terms match the terms negotiated. For specialized agreements, such as real estate, clinical or manufacturing contracts, it is worth the additional expense to engage an expert in a specific area - frequently a consultant, even if you have internal legal resources.

Consultants

Biotechnology companies increasingly rely on consultants for subject matter expertise, advice, and fractional leadership. Consultants are generally independent contractors who are responsible for paying their own income taxes, Social Security, and Medicare taxes, and insurance. Your finance team will need to provide IRS Form 1099-NEC after the end of the calendar year. When a company is not ready to hire a full-time employee, or simply needs short-term advice on a specific topic, this is an excellent way to gain access to expertise not available in-house. It’s also an excellent way for companies and consultants to test each other out and decide if the relationship is a good fit for a full-time role once a position opens. Early to mid-stage companies regularly use HR, financial and legal consultants and add new consulting resources as they move to the clinic, for example regulatory consulting, medical writing and documentation, and clinical research services. Businesses may need part-time consultants with expertise in business development, marketing or communication - a consultant can be used in any area where you need a subject matter expert

Since many consultants have multiple clients, they have access to information that isn’t publicly available and can be an excellent source of strategic advice and recommend approaches that have proven to be successful for other clients (without sharing any proprietary information).

Contract models vary and can cover ad hoc expert advice on an hourly basis, a fixed number of ongoing contract/consulting hours at a fixed hourly or daily rate or a monthly retainer covering the first few hours and an hourly rate thereafter. Generally, expenses will be added to the hourly rate; however, you may establish agreed-upon expense limits within the contract. You may have a direct contract with an independent consultant, or a contract with a professional services network that provides access to multiple subject matter experts. Consultant hourly rates might appear high compared to the calculated hourly rate for an employee, but consultants must cover their own health insurance, aren’t eligible for equity or unemployment, need to spend time managing their business and may have other employees they need to pay.

Service Providers

Biotech and Pharma companies frequently outsource resources that were historically conducted by employees, particularly business, lab and technology functions, where skills are transferable across the industry and not modality specific. Examples can include IT, procurement, lab operations, vivarium management and Environmental Health & Safety (EHS).

Cloud infrastructure means servers and software can be accessed with a laptop and a decent internet connection. It’s critical to ensure the company's IT infrastructure is secure, mitigating risks of data breaches and ensuring compliance with relevant regulations. IT service providers can manage licensing, updates and cybersecurity and provide remote helpdesk service.

Since they serve multiple clients, it makes sense for service providers to invest in infrastructure that a single entity could not justify, and charge clients a fee that is often based on headcount or number of licenses. Procurement companies have invested in punch-out technology to enable integration between their procurement application and multiple supplier sites, streamlining the procurement process by reducing manual data entry and tracking all transactions in a single application.

Specialists in lab operations, facilities, and EHS work for service providers and bring their expertise to multiple companies, often on a part time basis -they may serve multiple companies in the same day. For small to mid-sized companies, outsourcing services makes a lot of sense -someone else can worry about hiring, training and vacation coverage, while FTEs focus on value creation. This model also provides flexibility to scale up and down quickly.

Asset management

Companies often overlook effective asset management for their capital investments like lab instruments and computer equipment. An early startup with just a few pieces of equipment can easily track their assets using a spreadsheet or may have access to a module in their financial software, but once a company has sufficient critical mass of assets to justify the use of an asset management company, long-term savings from reduced equipment downtime and optimized asset use can make these services cost-effective.

Life science asset management companies provide services such as equipment management, inventory control, maintenance scheduling, and advanced software applications for tracking and optimizing asset use. This software may include functionalities for real-time asset tracking, automated maintenance notifications, and comprehensive usage reports—tools that smaller companies would not develop or procure independently due to high costs and resource limitations. By leveraging these services, companies can ensure the efficient and effective utilization of their assets, thereby minimizing downtime and enhancing overall productivity.

Pricing models for asset management services vary, often based on service level and client needs. Subscription-based pricing involves a recurring fee for access to software and services, while pay-per-use charges depend on the number of assets managed or services used. Some providers offer tiered pricing with different service levels at various price points.

Contract Research Organizations (CROs)

Recent focus on indirect costs of research at academic institutions is a reminder that the cost of an experiment involves more than the cost of reagents and the hours invested by a scientist. Using CROs to conduct scientific experiments means someone else will invest in expensive equipment, lab space, overhead and costly GxP[ii] compliance. You’ll still need an experienced Quality Assurance professional to oversee GxP activities. Using a CRO, although it might appear expensive at first, can make a lot of sense. It means you can access somebody else’s infrastructure, equipment and expertise for something you will only do infrequently, or for a short time.

Analytical CROs specialize in method development, validation, and sample analysis. Their pricing models can be project-based or per sample. Outsourcing analytical work allows companies to access high-end analytical equipment without the capital expenditure, but if your samples are unstable or you need an immediate read-out, this will not be the correct solution. For GxP studies and Good Manufacturing Practices (GMP) manufacturing you’ll almost certainly want to use an Analytical CRO, unless the analytical services are vertically integrated at the CRO conducting the study.

Preclinical CROs provide toxicology studies, pharmacokinetics, and other preclinical testing. These services are often priced per study or per test. You’ll still need to include contingencies in your budget, but these studies should be conducted within the planned timeline, provided you enter contracts early to reserve your slot at the desired time. Depending on the scope of the study, reporting can take several months and may be contingent upon receiving data from analytical CROs. Outsourcing animal studies reduces the need for in-house vivarium facilities and specialized staff and are excellent for studies involving routine procedures. However, significant training at the CRO may be required if there is a specialized procedure involved, which would require additional budget outside of the study conduct. Using (Good Laboratory Practice) GLP-compliant CROs for Investigational New Drug (IND) enabling studies makes a lot of sense unless you are conducting multiple GLP studies each year.

Clinical CROs offer services such as clinical trial management, patient recruitment, and data analysis. Cost is generally based on the number of participants and the complexity of the study. Outsourcing clinical trials can save small to mid-sized companies the expense of building extensive clinical infrastructure, though it may limit direct oversight of the trial. The contracting process can take many months and may only be finalized when the clinical documents for the IND are finalized, so you’ll need good drafts early. It’s important that an experienced clinical contract manager is involved as these are complicated and you will want to avoid unanticipated costs and make sure to include a generous contingency allowance in your budget.

Since clinical studies involve human data, you’ll need to ensure compliance with the General Data Protection Regulation (GDPR) if targeting or collecting data related to people in the European Union, the US Health Insurance Portability and Accountability Act (HIPAA) and other privacy regulations -you’ll likely need to hire one or more consultants for this in addition to conducting your studies using a CRO.

Regulatory CROs assist with regulatory submissions, compliance audits, and risk assessments and often have employees with expertise in multiple countries, which will be necessary if you are planning global clinical trials. They will also be familiar with the regulators and be able to make recommendations about what questions you should ask based on their knowledge of what is fixed and what may be negotiable, helping you make the most of the short time allocated for interaction with regulators.  They typically charge per project or on a retainer basis. For small to mid-sized companies, outsourcing regulatory affairs can ensure compliance with evolving regulations without maintaining a large in-house team.

Data Management CROs handle data collection, entry, cleaning, validation, transfers and reconciliation. They also provide database design and management, statistical analysis, medical coding, quality control and regulatory compliance support. Their services are often priced per study or based on data volume. Outsourcing data management can lead to more robust data processing and adherence to standards. Given the criticality of data security and integrity, you’ll need to have clear communication channels and performance monitoring procedures in place. You’ll likely want an internal expert to oversee these activities.

Contract Development and Manufacturing Organizations (CDMOs)

CDMOs provide process development and drug manufacturing services to biotech and pharmaceutical companies. In general, it does not make sense for companies without robust pipelines and access to large amounts of capital to build their own manufacturing infrastructure. The process of researching, identifying, auditing and contracting the correct CDMO is time-consuming and will require significant resources but it’s important to carefully consider your needs and understand if the company can deliver. Some CDMOs offer platforms that can shave time off development requirements and deliver a product suitable for phase 1 clinical trials but may not have the infrastructure available for later stage trials. Your GMP budget should include the cost of raw materials and analytical testing, so make sure you are very clear about what is included in a proposal. Even if the CDMO includes CMC program management in their proposal, you’ll want your own representative, either an FTE or a consultant to ensure attention to detail. Be aware that you’ll likely need a different provider for packaging, labeling and distribution services.

Conclusion

Outsourcing is vital for biotech companies aiming to augment their capabilities without significant overhead. By effectively utilizing a variety of consultants, contractors, and service providers, companies can access specialized expertise, manage costs, and maintain flexibility. A well-structured approach to managing external resources ensures that biotech companies can focus on their core mission of developing innovative solutions while staying agile and competitive in the market.

References

[i] https://www.irs.gov/newsroom/worker-classification-101-employee-or-independent-contractor?form=MG0AV3

[ii] GxP stands for “Good x Practices”. In life sciences, food production, medical devices and cosmetics industries, “x” can be replaced by Laboratory (GLP (ensures the quality and integrity of non-clinical laboratory studies)), Manufacturing (GMP (ensures products are consistently produced and controlled according to quality standards)) and Clinical (GCP (ensures the protection of human rights in clinical trials and the quality of the data generated)). cGMP refers to current GMP and ensures manufacturers stay current with evolving industry standards and regulatory requirements.