The life sciences sector is an industry in which competition is constantly evolving, due in particular to rapid developments in technology and heavy investment in the sector. The stages involved in taking a product from initial research to market are wide-ranging, many requiring specialist equipment, materials and highly-trained individuals. The inevitable consequence of being involved with such complex product cycles for life sciences companies is significant overhead costs.
What is outsourcing?
As a result of increasing costs, it is common for life sciences companies to source and engage third party organisations to provide certain services, otherwise known as outsourcing.
One particular distinction between outsourcing arrangements and more traditional “supply of services” arrangements is that outsourcing is generally carried out for functions or services that would otherwise have been controlled and performed in-house by the customer itself. As such, it is common for a customer in an outsourcing arrangement to retain an element of strategic responsibility and control over the outsourced function or service.
The benefits of outsourcing in the life sciences sector
Outsourcing certain functions and services is particularly common for smaller pharmaceutical or biotech companies that are not able to commit resources to every stage of product development. Indeed, regardless of an organisation’s capacity or available resources, outsourcing can allow a company to streamline its research and development work, become more efficient and reduce a product’s “time to market”.
Aside from enabling life sciences companies to operate in a more cost effective manner, outsourcing also allows businesses to benefit from the use of third party specialist equipment and to share the risks associated with offering such services, whilst retaining ultimate control of the research and development process.
Risks and considerations of outsourcing in the life sciences sector
As is the case when entering into any agreement, there are a number of important factors that companies should consider when entering into outsourcing arrangements. Such agreements should clearly cover the description of the services or function being provided, set out remedies for poor performance, indicate the fees payable for the outsourcing arrangements, specify the length of the arrangement and provide for any rights to terminate the arrangement early.
It is also important that the distribution of risk is considered in an outsourcing agreement. The customer should identify the risks and issues that could arise during the lifetime of the arrangement, and ensure that appropriate provisions are included in the agreement to mitigate these risks. A particular risk for life sciences companies is the potential that an unsuccessful outsourcing arrangement could cause significant delays in getting a product to market and the associated cost implications, liabilities and reputational damage relating to such delays.
Separately, it is important that companies consider any employment liabilities relating to an outsourcing arrangement, particularly where there are staff transfers or TUPE arrangements as part of the arrangement.
Finally, confidentiality is another area of key importance for life sciences companies. In outsourcing certain functions, a customer may be required to share highly confidential information regarding its work and intellectual property. It is important that the confidentiality provisions contained in outsourcing agreements reflect the nature of the work and the risks relating to the transfer of such confidential information. Further, the agreement should have clear parameters around exactly where the customer’s confidential materials can be held, who can access them and what must happen to them at the end of the outsourcing arrangement.
This article provides a brief overview of some of the factors to consider when entering into outsourcing arrangements. Our multi-disciplinary life sciences team regularly advise on such agreements and would be delighted to assist with any queries relating to the issues raised in this article.