Can you take advantage of “Maximized Outsourcing” to stretch resources in a tight financing environment?
Since the 2011 publication of Eric Ries’ bestseller, The Lean Startup, the term “lean” in association with a startup has taken on a meaning that goes well beyond a reference to “capital efficiency”. For more discussion on lean startup methodology, go to Are You Ready?
The “valley of death” is a description applied to various diagrams (such as this one) that depict the gap in time and funding that is associated with the end of basic research funding — and the availability of proof-of-concept funding, or venture-oriented “seed” funding.
This gap has widened in the era of risk-averse financing of high technology startups.
In response to this issue of delayed or diminishing funding opportunities, especially for startup companies involved in regulated medical technologies, “near-virtual” organizational models have emerged that strategically delay or reduce company infrastructure investment. This “lean” operational model is accomplished by out-sourcing as many organizational functions and development activities as is practical and cost-effective.
For medical devices, outsourcing such activities as design engineering, prototyping, and even manufacturing are commonplace, and have been for some time. Today, payroll and accounting functions, IT services, and even elements of personnel management (HR) are outsourced at the early stages.
Under certain circumstances, you may even consider “offshore” outsourcing of the above-mentioned engineering and manufacturing services. Many nations have now adopted laws that are harmonized with U.S. FDA regulatory requirements, and engineers and scientists have been trained and certified to perform development services and contract manufacturing on behalf of foreign companies.
NOTE: Regardless of whom you may consider for contract design, prototyping or manufacturing, keep in mind that it will remain your responsibility that compliance is maintained with U.S. FDA Quality System Regulations (QSR) that apply to each of those phases along the path of medical device design, development and commercialization.
For more details on this subject go to Design Controls.
More recently, pharmaceutical-based startups are forming around a new business model sometimes referred to as “distributed development”, where, in the leanest versions, startups are even out-sourcing drug “discovery” and drug “candidate” chemistry-oriented characterization work. And, it has become commonplace to outsource the earliest-stage preclinical (animal) safety and efficacy studies.
The preponderance of outside firms that are organized to conduct these basic, research-oriented drug development activities, are those who have evolved and grown dramatically from their origin as Contract Research Organizations (“CRO”), and whose early business model was primarily confined to the performance of clinical (human) trial support for established pharmaceutical companies.
This lower-risk startup pharmaceutical and biotech business model is often associated with a strategic plan to partner with an established pharmaceutical company (licensee) at an earlier stage in drug development in order to raise money earlier, and to share earlier-stage risks, but also reflects an acceptance of lower future returns compared with successful startup companies who can attract earlier and larger investments, and who may go on to achieve additional development milestones prior to licensing.