How Companies Are Reducing R&D Costs


In an analysis of the top 10 pharma R&D (GAAP) budgets, FierceBiotech declared pharma “suffered a number of R&D setbacks, cut research staff, rejigged their operations and refocused their pipelines.” The analysis also found that, while on average the group spent 17% of its top line on research, the total recent spend of $70.5 billion was similar to their 2011 and 2012 total R&D investment, indicating stagnation.

Innovative Options for Reducing R&D Costs

It may not feel like it in your lab, where headcount and resources need constant justification, but pharmaceutical spending on R&D is trending up.

According to EvaluatePharma, 9th Edition:

  • Global pharma R&D spending increased 4.7% YOY
  • The U.S. pharma industry spends more than any other industry on research processes compared to sales revenue – increasing from three to sixfold in the past 25 years
  • Overall pharma R&D spending is expected to increase 2.8% annually, reaching $182 billion by 2022

Compounding this R&D investing decrease, EvaluatePharma acknowledged that, despite increases over 25 years in U.S. pharmaceutical research spending, “a very small change or innovation has been observed in the drugs approved each year.” Clearly, something needs to change.

Trim Costs and Drive Efficiencies

Whether companies are strategically increasing R&D, holding the line, or making judicious cuts, pharmaceutical executives are looking to trim costs where they can, drive efficiency into the heart of their organizations, and support innovations that lead to new drugs. R&D is the economic engine fueling the organization: any cuts must be strategic and factor in long-range implications.

There are proven methods pharmaceutical organizations are using to cut R&D dollars, or to spend them more efficiently. These include:
  • Using different staffing models
  • Revisiting comprehensive total cost of ownership
  • Embracing single-vendor service models
  • Increasing analytics
  • Increasing automation

Reevaluating Your Staffing Models Can Cut Costs

Labs are using different staffing models to help reduce laboratory costs.

Traditional staffing agencies ease the HR and administrative burden of identifying, recruiting, and vetting talent, and handling H-1B visa applications for U.S. companies hiring foreigners. Workers can be hired on a contingency or permanent basis, as contract, contract-to-hire, or direct-hire staff, giving pharmaceutical companies the flexibility to scale up or down, and to find specific skills from the talent pool. However, post-hiring, the ongoing management of these employees is the responsibility of the pharmaceutical company and of the lab manager.

Another widely adopted staffing model involves a managed services provider (MSP) that will source the talent and maintain the end-to-end responsibility for the scientists and technicians placed into your lab. This alleviates your lab manager of direct oversight, while the service level agreement outlines the scope of work expectations, increasing confidence in achieving desired outcomes. Some MSPs greatly expand their value by taking take full accountability of the operational efficiency of all your laboratory instrumentation.

Lab as a Service (LaaS)

A new, high-efficacy trend within the lab staffing discussion is insourcing the entire scientific workflow to a Lab as a Service (LaaS) provider. You can now can rely on LaaS to provide not just individual personnel but a comprehensive results-based solution – scientists, technical staff as well as their instrumentation, consumables, and processes – to achieve your predefined outcomes. Lab as a Service engagements are unique to each pharmaceutical company’s needs and can cover a wide range of services, including IT, compliance, instrument care and maintenance, scientific, even lab relocation.

Entering a LaaS partnership removes a significant burden of a lab manager’s shoulders while ensuring documented agreed-upon outcomes. Not only do you gain the day-to-day efficiency of insourced services, you can attain a holistic perspective into your organization that can be benchmarked against the LaaS provider’s industry experience and depth of knowledge from their previous assignments.

LaaS Deployment Can:

  • Optimize the occupancy and use of your laboratory space
  • Maintain onsite expertise and capacity without increasing your headcount
  • Foster a competitive advantage by enforcing data confidentiality – as all data remains in house

Another attractive feature of LaaS engagements is it can shift lab costs from a capital expense (CapEx) model to an operational expenses (OpEx) one, while potentially helping to reduce R&D lab budgets as well. For example, including instrumentation as part of the LaaS agreement can move instrument costs into OpEx, a generally more “favorable” financial column than CapEx.

Recalculating Instruments’ Total Cost of Ownership

Many pharmaceutical companies are revisiting how the total cost of ownership (TCO) of their instruments and equipment is calculated to uncover inefficiencies and discover opportunities for saving.

To have a clear and comprehensive understanding of all your assets – a key step to accurately determining TCO – asset management services should be deployed. Asset management accurately assesses your equipment and instrument portfolio for rightsizing, utilization, service history, and more.

In addition, to lower your TCO and help you achieve smarter economies of scale, labs should implement a predictive asset management model, rather than reactive or calendar-driven asset management.

Single Vendor Consolidation

Although some R&D labs are trying to consolidated vendors without using a lab-as-a-service partner, LaaS is the embodiment of a single-vendor contract. Lab managers are realizing that simplifying many disjointed contracts down to a single vendor delivers significant efficiencies, not to mention streamlining the task of management oversight, instrument care and consumables.

A Case Study: Single-Vendor Lab Services

An early drug discovery lab in one large pharmaceutical company consolidated its lab services under a single vendor, shedding the volumes of contracts for instrument care and maintenance, and other services.

This unification of services helped lab management meet procurement’s challenge to find efficiencies and ways to reduce spending.

  1. The lab was able to leverage its massive inventory of instruments to reduce service costs by awarding a three-year contract to a single vendor. This longer contract term recognized the investment a service provider would need to make for a service level agreement of its size.
  2. To ensure current costs were fairly compared against future costs, the lab accurately analyzed its current spend against pricing for similar services from a single vendor. After it was determined the consolidated method delivered savings, it was important to evaluate if they could match or exceed the service levels of multiple vendors. Vendors were evaluated for onsite support, QC, training capabilities, metrics tracking, multivendor capabilities, and references to draw an overall impression and score.
  3. Their results showed that scientists slashed time spent on noncore activities by 50 hours per week – the equivalent of 1.3 full-time employees per week. Furthermore, the response time for instrument care dropped from a laagering one to two days down four hours with – more than 80% of instrument operative issues addressed within a few hours for significantly increased uptime. Overall lab administrative oversight burden was greatly reduced.

Reducing R&D laboratory costs can be achieved without sacrificing the scientific mission. There are management models, from staffing to TCO calculation, and service providers such as managed services and LaaS that can help. Relying on these strategies and partners can create lab-wide efficiencies that drive down costs while keeping your scientists and technicians focused on moving the science forward.