Paul Overton, Chief Commercial Officer, Sygnature Discovery05.03.23
In recent years, there has been a growing reliance on outsourcing as a key pillar in the research and development of new pharmaceuticals. Indeed, outsourcing strategies have matured, taking learnings from other industrial sectors to maximize the value that these service provider relationships provide. Professional procurement experts, working in synergy with the scientists, now routinely focus on the value of the supply chain, supplier segmentation, and the three core building blocks of supplier management: price, quality, and delivery.1
Outsourcing maturity and industry consolidation around simplifying the value chain to increase customer value and reduce cost have driven huge changes in the CMC, clinical, regulatory preclinical, and discovery space. One critical piece of outsourcing strategy is the “unitization” and “standardization” of services to allow direct comparison of providers services.
Within the discovery, CMC and analytical space, the term FTE (Full Time Equivalent) has become almost a universal to support R&D service-related activities. Either directly or as a price build up, the FTE has become the standard unit of measurement.
Questions that often arise early on in commercial discussions are around how much an FTE costs; how many hours per week they actively deliver; how many activities each can carry out per week; how many years of experience they have, etc.—seemingly standardizing or commoditizing the expertise of the scientists involved.
It conjures up images of rows of identical scientific robots in a warehouse (aka the movie I-Robot) just waiting to be utilized in each contract.
But fortunately, most scientists are not faceless robots; they vary greatly in their experience, expertise, team interactivity and communication skills—and therefore, also in the value they can bring to a drug discovery project. To make the most of outsourcing, the focus should be less on the top line cost per FTE, and more on the value those FTEs create on the project for you.
If you follow the logic of that equation, then value creation must focus on the benefits rather than the basic costs.
However, many commercial conversations around FTE rates inevitably focus on the delivery from the given scientist or team of scientists. Classic procurement scorecards and metrics typically focus on aspects such as the number and speed of DMT (Design, Make, Test) cycles; number of reactions performed and compounds created; the number of samples screened; batches performed; failure rates, etc. These are all useful ways to assess the performance of given activities and to discuss when things do not go to plan, but there is another way.
1. Fully directed FTE
In this type of agreement, a dedicated team of FTE scientists who are typically discipline focussed (in vitro, DMPK, pharmacology, etc.) are given clear, regular instructions on methods or protocols to follow.
With this approach, effectively all the intellectual value remains with the pharma or biotech company. The FTE team adds little to no scientific value or innovation to the project other than offering capable “pairs of hands” to perform the allocated task, for instance, making some specified molecules or screening compounds, as requested.
This approach requires strong customer project management, strong data interpretation, and good communication to ensure the instructions are followed correctly. Effectively, it doesn’t matter where those pairs of hands are located, whether it’s Europe, the U.S. or Asia.
This FTE model, however, fails to utilize the potential expertise of the team, and can often cost more than initially budgeted. The FTE “cost” may initially be attractively low, but the TCS (Total Cost of Service) may be significantly higher when active management time and support costs such as re-chargeables, travel and shipping are all wrapped in.
2. FTEs as part of your research team
With this approach, the FTEs are not just pairs of hands performing activities; they also act as a key part of your research team, directly inputting their expertise and knowledge. They provide intellectual input and innovation into the delivery of the project.
While the scorecards and metrics are still key to managing the housekeeping of the project, there would typically be a scientific team leader providing updates and data interpretation of the recent work performed.
Using this model, the FTE robots are effectively becoming humanized.
3. Multi-disciplinary FTE teams
In this agreement, the FTE team is a multi-disciplinary group with an internal project lead, and typically clear joint governance, that acts and performs as part of your own team. They impart ideas into the wider team, and their proximity to each other sparks innovation and new ways of thinking.
This “group ideas” thinking is sometimes called serendipity knowledge exchange, but in practice, it creates value beyond just the individual. The focus on a team approach with real intellectual input moves us away from the classic metrics and scorecards, and towards a model based upon joint aims and milestones. And ultimately, hopefully, towards molecules that show efficacy, good safety, and appropriate DMPK profiles.
Members of the multi-disciplinary team can also potentially be independent advisors that can highlight and advise on project termination if the science does not support the overall project aims.
In this case, the FTE robots have become partners in the project—they are invested.
As MacDevitt and Wilkinson3 highlight, value can be thought of as a triad:
• Revenue gains (asset success)
• Cost reductions (total cost of ownership)
• Emotional contribution (feel good factor)
All these factors are important to consider when choosing to outsource to an external partner.
There is a real difference between a unitized, commoditized service and an innovative partner-type arrangement. What value will it add beyond simply the discipline services you buy? Will the FTE become, essentially, part of the team, working to push the project forward in a more substantial way than simply making molecules?
Extending the partnership into a multi-disciplinary arrangement can add even more value, with biologists and analytical scientists all working together to create it. The total cost–value proposition of such a partnership will be more difficult to quantify, of course. It goes beyond simple KPIs and metrics, which typically omit the value created by the outsourced team’s expertise.
References
1. Category Management in Purchasing Jonathan O’ Brian Kogan-Page 2012
2. Lynette Ryals Managing Customers Profitably Wiley Publications 2008
3. Harry MacDivitt & Mike Wilkinson: Value Based Pricing 2012 McGaw Hill ISBN 978 0 07 176168 0
Dr. Paul Overton is Chief Commercial Officer at Sygnature Discovery and has over 20 years of commercial experience in the pharmaceutical and biotechnology sectors, delivering integrated discovery and development solutions. After initially working in the research developing diagnostics and cell biology services, he transitioned into a commercial career in the non-clinical development space.
Outsourcing maturity and industry consolidation around simplifying the value chain to increase customer value and reduce cost have driven huge changes in the CMC, clinical, regulatory preclinical, and discovery space. One critical piece of outsourcing strategy is the “unitization” and “standardization” of services to allow direct comparison of providers services.
Within the discovery, CMC and analytical space, the term FTE (Full Time Equivalent) has become almost a universal to support R&D service-related activities. Either directly or as a price build up, the FTE has become the standard unit of measurement.
Questions that often arise early on in commercial discussions are around how much an FTE costs; how many hours per week they actively deliver; how many activities each can carry out per week; how many years of experience they have, etc.—seemingly standardizing or commoditizing the expertise of the scientists involved.
It conjures up images of rows of identical scientific robots in a warehouse (aka the movie I-Robot) just waiting to be utilized in each contract.
But fortunately, most scientists are not faceless robots; they vary greatly in their experience, expertise, team interactivity and communication skills—and therefore, also in the value they can bring to a drug discovery project. To make the most of outsourcing, the focus should be less on the top line cost per FTE, and more on the value those FTEs create on the project for you.
Defining FTE value
Just focusing on cost-per-FTE tips the cost-value equation in the wrong direction and underplays the potential value creation opportunity for the pharma or biotech company. According to value experts Neil Rackham, Malcolm MacDonald, Philip Kotler2 and others, there is a simple definition of value: Value equals benefits minus cost—V=B-C.If you follow the logic of that equation, then value creation must focus on the benefits rather than the basic costs.
However, many commercial conversations around FTE rates inevitably focus on the delivery from the given scientist or team of scientists. Classic procurement scorecards and metrics typically focus on aspects such as the number and speed of DMT (Design, Make, Test) cycles; number of reactions performed and compounds created; the number of samples screened; batches performed; failure rates, etc. These are all useful ways to assess the performance of given activities and to discuss when things do not go to plan, but there is another way.
Models utilizing FTEs
Taking a step back and looking at the different ways an FTE team can be utilized can help you to make the most appropriate decision. There are potentially several options, depending largely on IP considerations and your internal resourcing needs:1. Fully directed FTE
In this type of agreement, a dedicated team of FTE scientists who are typically discipline focussed (in vitro, DMPK, pharmacology, etc.) are given clear, regular instructions on methods or protocols to follow.
With this approach, effectively all the intellectual value remains with the pharma or biotech company. The FTE team adds little to no scientific value or innovation to the project other than offering capable “pairs of hands” to perform the allocated task, for instance, making some specified molecules or screening compounds, as requested.
This approach requires strong customer project management, strong data interpretation, and good communication to ensure the instructions are followed correctly. Effectively, it doesn’t matter where those pairs of hands are located, whether it’s Europe, the U.S. or Asia.
This FTE model, however, fails to utilize the potential expertise of the team, and can often cost more than initially budgeted. The FTE “cost” may initially be attractively low, but the TCS (Total Cost of Service) may be significantly higher when active management time and support costs such as re-chargeables, travel and shipping are all wrapped in.
2. FTEs as part of your research team
With this approach, the FTEs are not just pairs of hands performing activities; they also act as a key part of your research team, directly inputting their expertise and knowledge. They provide intellectual input and innovation into the delivery of the project.
While the scorecards and metrics are still key to managing the housekeeping of the project, there would typically be a scientific team leader providing updates and data interpretation of the recent work performed.
Using this model, the FTE robots are effectively becoming humanized.
3. Multi-disciplinary FTE teams
In this agreement, the FTE team is a multi-disciplinary group with an internal project lead, and typically clear joint governance, that acts and performs as part of your own team. They impart ideas into the wider team, and their proximity to each other sparks innovation and new ways of thinking.
This “group ideas” thinking is sometimes called serendipity knowledge exchange, but in practice, it creates value beyond just the individual. The focus on a team approach with real intellectual input moves us away from the classic metrics and scorecards, and towards a model based upon joint aims and milestones. And ultimately, hopefully, towards molecules that show efficacy, good safety, and appropriate DMPK profiles.
Members of the multi-disciplinary team can also potentially be independent advisors that can highlight and advise on project termination if the science does not support the overall project aims.
In this case, the FTE robots have become partners in the project—they are invested.
Creating genuine value
Having spent time on both sides of this equation, I am a firm believer that all FTEs are not created equal. As with any relationship, you need to look at value creation—not just cost.As MacDevitt and Wilkinson3 highlight, value can be thought of as a triad:
• Revenue gains (asset success)
• Cost reductions (total cost of ownership)
• Emotional contribution (feel good factor)
All these factors are important to consider when choosing to outsource to an external partner.
There is a real difference between a unitized, commoditized service and an innovative partner-type arrangement. What value will it add beyond simply the discipline services you buy? Will the FTE become, essentially, part of the team, working to push the project forward in a more substantial way than simply making molecules?
Extending the partnership into a multi-disciplinary arrangement can add even more value, with biologists and analytical scientists all working together to create it. The total cost–value proposition of such a partnership will be more difficult to quantify, of course. It goes beyond simple KPIs and metrics, which typically omit the value created by the outsourced team’s expertise.
Final thoughts
A hundred chemicals delivered may tick a lot of KPI boxes for an outsourcing contract, but if they are all poor quality, they simply represent a lot of wasted effort. You would be far better off if the project only delivered a handful of molecules with drug-like properties. And engaging FTEs who are experienced drug-hunters—not just good synthetic chemists—will make this far more likely.References
1. Category Management in Purchasing Jonathan O’ Brian Kogan-Page 2012
2. Lynette Ryals Managing Customers Profitably Wiley Publications 2008
3. Harry MacDivitt & Mike Wilkinson: Value Based Pricing 2012 McGaw Hill ISBN 978 0 07 176168 0
Dr. Paul Overton is Chief Commercial Officer at Sygnature Discovery and has over 20 years of commercial experience in the pharmaceutical and biotechnology sectors, delivering integrated discovery and development solutions. After initially working in the research developing diagnostics and cell biology services, he transitioned into a commercial career in the non-clinical development space.
