Biotech on a Shoestring? There’s a Better Way

7/26/10

A recent Xconomy article “Biotech on a Shoestring” reflects an industry landscape change where, “the era of free-spending is supposedly out, and austerity is the watchword.” An emphasis on a heightened form of frugality can certainly save dollars but can also create uncertainty and anxiety amongst the rank and file. The inevitable next question arises about whether layoffs are on the horizon.

A fascinating and powerful tenet of the industry has always been the enthusiasm, creativity, innovation and dedication of the workforce as they recognize the altruistic nature of “working for the greater good” (and consequently immerse themselves wholly as good people do). This has been a critical fuel for the biotech engine. Care is required to avoid its dilution.

Spend control? You betcha! Reducing perks and becoming overly stingy? Easy there, big fella, especially when the real gold mine is finding and eliminating the waste that, when quantified, makes first class airfare costs to Europe look like chump change. Waste in an organization is exemplified by a nefarious albeit fictional character in your organization known as Tim Wood. Each character in the acronym represents a waste category: Transport, Inventory, Motion, Waiting, Overproduction, Over-processing and Defects. Reduce the cost waste found in these areas and suddenly the recently defunct Friday afternoon happy hours that factor into a company’s “fun quotient” are back in full swing.

Historically, companies produce a good or service at a cost, slap a market driven margin on them and hope to realize profits. In this model: Price = Cost + Profit. Biotech companies, enamored with their science and all things technical, have been slow to fully appreciate that costs are comprised of absolute costs (those required to produce goods and services) and costs caused by waste.

priceprofitflow





Other industries and companies (Toyota, General Electric and Motorola to name a few) were early adopters of waste reduction concepts and tools and look at the equation differently. In their model: Profit = Price – Cost. Clearly, savings realized by waste reduction go directly to the bottom line.

Waste identification can be difficult, especially for companies that have evolved into routine processes and practices. A challenge for start-ups is avoiding building waste in as they grow. Waste reduction can also be challenging as management commitment and investments are generally required. Even so, it is not uncommon to realize massive returns on investment over time, certainly way more than enough to justify a company picnic or holiday party.

Companies interested in waste reduction must map their processes as a means of identifying waste and be prepared to measure the parameters that serve to validate the savings once corrective action is applied. For example, consider the time scientists spend away from the lab bench that results in fewer experiments being performed. This translates to decreased productivity, slower product development and “to market” cycles and lost sales opportunities. If the scientists’ process is understood and “performance killer” data are tracked and measured, the root causes could be attributed to poor lab layout where scientists must leave their benches to access remote equipment, materials and supplies, unorganized freezers and storage areas that force scientists to search for materials, and time spent performing less critical administrative tasks. Understanding the root causes as determined by actual data allows for corrective action. Subsequent measurements validate that the scientist is at their bench for longer periods with higher experiment output. Ultimately, this translates to greater productivity and less cost.

Whereas austerity and frugality have their place in a company’s culture, they should be balanced with the knowledge that there are much more lucrative and constructive ways of controlling costs. Furthermore, cost containment that features waste reduction as a core component reflects best business practices. Well intentioned yet unbalanced approaches can be shortsighted, misguided and have a negative impact on the biotech work environment that draws on the strength of the people creating value for the company.

Steve Speer is a Carlsbad, CA-based biotechnology professional with 20-plus years in the industry. Steve can be contacted via LinkedIn or steve.speer@cox.net. Follow @

By posting a comment, you agree to our terms and conditions.

  • http://www.pharmaplasia.com Miie Wokasch

    Steve,
    You are exactly right. The challenge for many companies is separating the waste from what is seen as essential.

    In my book Pharmaplasia(TM,)I point out that reduction in operating infrastructure and expenses is critical for Big Pharma to survive in the evolving new healthcare market(p. 156). Unfortunately, legacy systems, processes, and “it is how we have always done it” (think SOPs) create an environment that make excess (waste) appear to be necessary.

    If Biotech companies recognize this phenomena as they grow they can avoid cumulative waste build up by being critical and disciplined in their expense management before waste gets established as a perceived operational necessity.
    Mike Wokasch

  • Mark Fortner

    I wonder what “Lean Manufacturing” principles would look like when applied to drug discovery and development? There was an interesting article today in the UT about the typical costs in a genomics lab. I don’t think there’s much elasticity in those costs.

    The primary cost borne by most pharmas, is the cost of drugs that don’t make it onto the market. How many businesses can sustain a model where 99% of their R&D is wasted on products that never see the light of day?

  • Jerry Jeff

    A lot of productive time could be freed up by cutting time spent in meetings. Most meetings are a waste of time for most participants, in my experience. Also, the idea of annual or semi-annual performance reviews should probably be scrapped. Reviews provide little for the company but anxiety and conflict, and the scientists and managers spend *many* hours trying to be fair and thorough in this mostly meaningless exercise. I could go on and on.

  • http://www.leanforeveryoneblog.com Jon Wetzel

    Mark-
    You’d be surprised how much money is really wasted in a genomics lab. Having run one for many years, the key is minimizing your sample set for statistical analysis and validating your samples prior to processing.

    I’ve also seen monies spent on unnecessary experiments because people didn’t use solid Lean thinking to trim the waste off their hypothesis.

    Jon