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Dec 1, 2009 (Vol. 29, No. 21)

Finding the Right Outsourcing Balance

Guidelines on Deciding which Chemistry Development Programs to Off-Shore

  • Intellectual Property

    The retention and protection of IP is one of the most important considerations for companies outsourcing confidential projects. Controlling IP is critical when CRO scientists are participating in discovery projects or are developing new chemical processes, Dr. Meltzer said. “Therefore, there must be cultural as well as corporate acceptance of the sensitivity of IP, and a legal mechanism for assuring confidentiality of IP in the CROs.” Most importantly, the national legal system should have a history of supporting patent rights. Be aware that the understanding of IP varies in nations where the concept is relatively new.

    IP considerations affect not only what materials or processes a company is willing or able to move into certain nations, but also the filing of any eventual patents. The latter tends to be overlooked, Dr. Lee observed, but “the relative protection afforded by various nations’ patent strategies must be considered.”

    Additionally, employees change jobs, Dr. Lee said. “In the U.S., IP is protected under nondisclosure agreements, but that may be different abroad.” In cultures in which loyalty is given to individuals rather than to companies, maintaining confidentiality could be problematic.

    Anacor addresses the issue by taking only the first several steps of a process abroad. “We don’t give all the information to Asia, because IP is our biggest concern,” Dr. Hayat explains.

    “One has to be careful to consider the regulatory environment. Import/export processes plus regulatory hurdles may make off-shoring not economically viable. That’s something not everyone is aware of,” Dr. Lee pointed out. Neurocrine Biosciences resolves that by working with knowledgeable brokers willing to locate and audit potential sources to help maintain quality. Ensuring quality is becoming the most significant challenge throughout the industry, supplanting even speed and cost of development, Zook said.

  • Trade-Offs

    Overseas development comes with trade-offs. Although personnel costs may be less in Asia, logistical issues such as shipping times and clearing customs may significantly slow development and alter the timing of downstream activities. As an example, one executive is awaiting a chemical shipment that already is one month late. Dr. Hayat mitigates the consequences of such delays by coordinating the second stage to begin only once the initial stage is well along or actually in hand.

    Depending upon where the CRO is situated, importing needed reagents or materials may cause delays. As Dr. Venepalli said, in the U.S., reagents and starting materials can be obtained within a few days, but “outside the U.S., the reagent availability isn’t there.” The lack of particular materials, then, may require an express shipment, further escalating costs and possibly delaying projects.

    Speed is not only a factor of transit time, but also of customs clearance. Often, Dr. Lee said, regulations governing the import of small amounts of chemicals pose hurdles. “One compound, made in India, could not be allowed in a certain country. It had to be brought into the U.S., made compliant with U.S. regulations, and then shipped out,” further delaying commercialization. 

    Time differences may also affect the off-shoring decision. For example, a company in San Francisco would have to phone at 5 pm to reach China at 8 am the next day. The same company phoning India would have to phone after 8 pm to reach an Indian company at 8:30 am the next day. 

    The computer industry has found that. while such differences allowed projects to proceed around the clock, questions resulted in a lost day waiting for the other team to return to the office. And, as many have pointed out, the best and brightest rarely choose to work nights. Additionally, travel time and language issues add other burdens.

    To minimize such challenges, Dr. Venepalli, who has offices in the U.S. and India, recommends outsourcing to an organization in the home country that also has offices abroad to manage that work.

    “Many virtual companies work with one or two outsourcing firms. For them, timing may be more of an issue than cost. In that case, it may be better to keep the project in their home country.”

    There are times, however, when off-shoring makes sense. For example, when seeking to enter a new geographic market, to access expertise not readily available in the home country, and to access new sources of international financing, off-shoring can be vital.

    Regardless of where the CRO is based, exceptional communication between the CRO and the client is one of the most important issues to ensure a project’s success, Dr. Meltzer said. He wasn’t talking about language, but about the reporting mechanisms that already are part of the CRO’s culture. “You want open lines of communications that allow the client company to have full knowledge of the ongoing status of the project, the emergence of any problems, potential solutions or alternate pathways, and the possible effects on timelines and deliveries.”

    The ability for client scientists to talk or meet with CRO scientists is particularly important in integrated projects conducted simultaneously by the CRO and the client. “Communication is the sine qua non (essential ingredient) of a good relationship.”


    How to Succeed in Outsourcing Chemical Development

    • Research potential partners thoroughly, long before they are needed.
    • Understand what you’re outsourcing and why.
    • Allow ample time; rushing is the greatest contributor to errors.
    • Be proactive in dealing with potential concerns.
    • Audit suppliers and manufacturers for quality periodically.

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