Insourcing: A new outsourcing approach? 
Posted by Carlos on Nov 09, 2011

Pharmaceutical outsourcing to CROs is certainly nothing new. However, this week we learned that pharmaceutical giant Lilly and AMRI signed an interesting insourcing / outsourcing agreement. In this deal, AMRI will hire 40 chemists to work on Lilly projects. However, these chemists will not work in Albany or in any of the other AMRI facilities around the world. Instead, they will work at their pharmaceutical client’s labs at Lilly in Indianapolis:

The chemists will work onsite at Lilly’s headquarters in Indianapolis, Indiana, where they will support the medicinal chemistry department. This collaboration will further accelerate Lilly’s drug discovery efforts by maximizing real-time exchange of scientific information. AMRI expects to recruit the majority of the synthetic chemists who will be affiliated with this collaboration from Indiana and surrounding states.

The term of the collaboration is six years, extendable by mutual agreement of both parties.

For a pharmaceutical company like Lilly, the benefits are fairly clear, and are consistent with outsourcing in general. For example, these chemists will not be Lilly employees, thereby saving Lilly some personnel costs. An additional and unique benefit is that AMRI chemists will be tightly integrated with Lilly’s processes and teams. Also, laboratories and other facilities which might otherwise be dormant will now be used.

For AMRI, having a pharmaceutical company like Lilly as an outsourcing client is an obvious coup, and further strengthens AMRI’s position in the outsourcing market. Critically, AMRI is able to secure this 6-year contract with Lilly without having to expand their facilities, nor hire new chemists in Albany or any of their other facilities. In fact, this model could conceivably be used by nearly any CRO with:

  • Excellent recruitment, training, and oversight procedures
  • Deep domain expertise
  • A reputation built on skill and trust

A number of pundits have championed “near-sourcing” as a way for pharmaceutical companies to access CRO capabilities and lower development costs, without having to deal with he challenges of working with companies across multiple international time zones. With an agreement like this, Lilly has the ultimate benefit of having the CRO literally within their own labs, working side-by-side with their own chemists.

Other disciplines, such as Human Resources, IT/IS, and Sales have utilized very similar approaches to this. So in a sense, this is not new. However, in the age of CRO out-sourcing that we are in, having the CRO scientists working side by side at the client facility is a novel way for CROs to grow their business without having to expand their own facilities. We are aware of other CROs that are pursuing this type of arrangement, especially in disciplines like chemistry where clients already have the facilities in place, and we fully expect to see more of these deals in the years to come.

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