To Outsource or Not Outsource – Is it really a question?
Overcoming Challenges and Meeting Demand
In this article, we discuss outsourced lateral flow test manufacturing and why businesses work with CMOs (Contract Manufacturing Organisation) to assure optimum output in order to achieve strategic goals and business continuity.
Deloitte’s 2021 Global Shared Services and Outsourcing Survey Report noted “Standardization and efficiency of processes” and “cost reduction” as main reasons why businesses outsource. With 78% successfully achieving the former and 88% identifying cost reductions.
Outsourcing is well established solution in many industries and “when executed well, it can deliver competitive advantage by transforming the way organizations operate, and making them more agile, efficient, and effective.”1
In all business verticals, the COVID-19 pandemic (the pandemic) has brought a level of uncertainty, unseen in modern times. Layered with increasing uncertain geopolitical events. More so than ever, business is finding it difficult to predict where the next threat to their model will appear. Faced with this increasingly uncertain world businesses are increasingly likely to protect their value through securing supply chains and rationalising expenditure while trying to achieve important strategic growth goals.
Specifically, these business demands are becoming increasingly prevalent in the In Vitro Diagnostic (IVD) space where lateral flow test (LFT) technology has been thrust into the mainstream consciousness. There is greater awareness and understanding of this ‘easy to use’, portable and rapid diagnostic technology. Many commentators feel ‘self-testing-and-fast-results’, in the hands of patients, has created a new normal and patient led diagnostics will provide a valuable information stream to primary care clinicians as they face increasing demand on their time.2
Overcoming Challenges and Meeting Demand
By 2026 the lateral flow market is projected to be worth USD $12.6 billion with drivers being: “high prevalence of infectious diseases worldwide, rapid growth in the geriatric population, growing demand for point-of-care testing, and rising use of home-based lateral flow assay devices”.3 This growth is not restricted to human health with food safety and veterinary lateral flow testing set to feel the ripple effect of lateral flow fame.
So, while there is an increasing expectation on the growth in lateral flow testing, this brings both opportunities and challenges for COVID-19 and non-COVID-19 lateral flow test owners within and outside human health. Businesses know market entry with a lateral flow test will likely be an attractive and viable proposition because the test will offer affordability, convenience, ease of use, and quick results turnaround. However, while simple to use LFT’s rely on complex science and established global supply chains, there is a critical need to scale up rapidly with specialist manufacturing requirement.
Setting up and operating large-scale LFT manufacturing facilities takes time to make a positive contribution to a business’ bottom line owing to significant fixed and variable operational costs. Meaning if new test owners decide to manufacture in-house, end-user pricing, profitability, and speed of gaining market share is negatively impacted. Especially, in growing and competitive markets such as the lateral flow industry.
Which creates a conundrum, how does a test innovator or manufacturers ensure they realise the attractive opportunity, meet demand in the right volume at the right quality and price, in a growing marketplace if in-house capabilities, experience, and resources are undeveloped or simply not in place?
Further larger, established lateral flow businesses must decide how they meet the manufacturing demand of new or smaller product lines while balancing the growing demand of larger volume LFT manufacturing requirements?
Faced with the above questions, establishing an outsourcing solution could be seen as the natural solution. Contract manufacturing organisations in diagnostics is not a new practice and several the established CMOs who have been operating since long before and during the pandemic have embarked identified this growing need for support in the LFT space. With experience gained over many years, they have expanded their expertise and their output with state-of-the-art automation and strengthening of existing supply chain relationships, layered with quality control and contingencies.
Importantly established CMOs have built their own models with multiple product requirements in mind and can in the best cases offer a managed fixed price contract solution. This can be achieved by leveraging raw material supplier bulk buying capabilities, unavailable to a new market entrant and access to sourcing the key materials through mature supply chains. Building a trusted, quality supply chain takes years to establish. Some test owners just don’t have the time or resources to match these capabilities.
This pricing stability provides a reasonably strong economic base, allowing for more favourable end-user pricing and potential for test owners to realise the business opportunity initially identified.
The financial, human resource, and regulatory obligations and commitment to manufacture LFTs are also not insignificant. For instance: machinery must be maintained and periodically upgraded, large inventory must be managed in line with demand, human capital through specialist training, development and recruitment must be managed, and regulatory compliance can be resource-heavy, diverting business time and energy away from commercial business activities. Many of these commitments will need to be in place before even a single test can be sold.
In Vitro Diagnostics including LFTs are highly regulated and in many territories there is an extra layer of complexity requiring niche expertise. CMOs with manufacturing, regulatory and compliance specialists in-house have a greater appeal to young companies, ambitious test innovators and growth-seeking companies. Having access to skilled and experienced compliance specialists as part of an outsourced solution – which may otherwise need to be hired or contracted separately offers peace of mind and a de-risked and streamlined route to market.
Outsourcing manufacturing therefore can remove a major restraining bolt on early growth, leaving test owners to focus on increasing revenue and developing markets for their products. CMOs are in the business of manufacturing, they are focused on this aspect of the total product supply chain and enthusiastic in grasping the opportunity to use their expertise, knowledge and infrastructure to help clients achieve their business goals. A good CMO will be sympathetic and supportive of test owners’ goals as their success, is closely linked with that of their partner.
The rise in prominence of lateral flow testing through the pandemic has created an opportunity for a greater adoption of home testing across a variety of potential diseases, infections and conditions. At a time of increased pressure on time and resources for primary care givers this offers a valuable way of collecting patent data in a quick and affordable way. This in turn is creating a demand that innovators are seeking to meet.
Innovation in testing and the growth in the range of lateral flow tests will require the capacity to produce tests at scale. However, in many cases the early investment required could be prohibitive or unnecessary until market adoption is proven.
Further ongoing running costs of in-house manufacturing solutions can detract resource from innovation and lengthen the Return on Investment in a fast-moving market.
In both instances partnering with a CMO may prove to be the prudent option. Selection of the right CMO with the right experience and capability could be a strategic long term imperative helping test owners move faster, contain risks and embrace opportunities.
Whether you are an established player or emerging innovator, a good lateral flow test contract manufacturer will guide you through the outsourcing process, while being an extra pair of eyes for scoping opportunities and a safety net in supporting success. Contact Abingdon Health to see how help you on your journey.