By Daniel Chapple 

 

December 5, 2013 | Guest Commentary | As budgets become tighter and tighter, many pharmaceutical, biotechnology and device companies are having to continually re-assess the way that they are supporting research and development activities to ensure a cost effective approach while maintaining quality. 

 

Competitive Bidding Outsourcing 

 

For many years, the competitive bidding process using preferred vendors was the primary approach utilized to contract work to a CRO. A preferred list of vendors would be used or a qualified list would be available. While many companies managed the process via outsourcing teams, the actual selection was often decided primarily within the operational teams. Managing and overseeing the quality of these vendors could be a massive task and the competitive nature would mean that strategic approaches and initiatives to improve partnerships could be difficult to instill. However, the competitive nature did mean that if managed very closely and negotiated intelligently, then individual study costs could be reduced, which would lead to savings.

 

Under this approach companies need to determine what the benefits (and negatives) are of moving towards the outsourcing of work compared to in-house or contractor approaches. Benefits include enhanced flexibility, ability to utilize efficiencies often seen within a CRO due to their cross-company support, ability to use lower cost locations, and often a high focus on productivity, metrics and cost optimization. A CRO is well-placed to invest in new tools and technologies, since it is focused only in specific areas and any investment can benefit multiple customers.

 

However, there are also perceived negatives when determining whether to outsource to a CRO, in particular the sense of a loss of control, the loss of in-house expertise and the perception that costs are higher compared to FTE costs. Processes also need to be put into place to oversee the CROs to ensure quality, optimize communication, track key performance indicators and minimize issues. If the list of preferred vendors is big, then the investment in time to validate vendors can also be big.

 

Functional Service Provision (FSP) 

 

Functional partnerships usually consist of a small number of CROs with expertise in specific areas taking on responsibility for specific functions. A company could decide to split functions further or have a single provider across multiple functions. It is usual, however, for two to five vendors to be selected per function, the idea being that with fewer vendors, more focus on partnership development can be achieved by the pharmaceutical company, that and a higher volume of work given to a CRO ensures a priority focus on the partnership. While a small number of companies have formed exclusive partnerships, having more than one vendor enables some degree of competitiveness and prevents reliance on a single company.

 

Functional partnerships are often preferable because they allow the use of vendor companies that have focused expertise in specific functions. There can also be competitive benefits to having multiple CROs involved in a single study or program, rather than a single CRO across all functions, and there is an element of risk mitigation in having multiple partners.  Having functional partners also should result in efficiencies across studies that can then help to reduce the overall cost of the work if programs are outsourced intelligently. This, coupled with less oversight, optimal overheads, reduced contractual development and improved communication pathways, can enable the total cost to be lower than with utilizing in-house or contractor approaches. From an operational efficiency perspective, a CRO with specific functional expertise will have invested its development of tools, technologies, processes, training and staff in those specific functional areas and so can provide added benefits. 

 

The key disadvantages of using functional partnerships compared to competitive bidding outsourcing is that the overall number of vendors will be limited and individual study team preferences may not be available. A functional approach may also lose some efficiencies that can be gained across certain tasks that fall across multiple functions. For example, statistics and medical writing functions can be synergistic if supported by the same company for certain tasks.

 

Centralized Service Provision (CSP) 

 

Supporting at a functional level does have the potential to have partners supporting different service areas working in silos. There are efficiencies at the task level to having the same company support specific tasks across functions. For instance, having one company provide project management and monitoring services, and another offer data centralization, statistics and programming, can be beneficial, particularly if a technology solution can help to bring it all together to enable a pharmaceutical company to get more out of its data or make trials more cost-effective and efficient. A centralized service provision approach therefore has the benefits of a traditional FSP approach coupled with the added efficiencies seen in a full service approach, but with minimized risk and greater access to expertise and flexibility. 

 

The disadvantages are similar to those seen in a functional partnership, although the cross-function efficiency loss can be mitigated.

 

Full-Service Cross Functional Strategic Support 

 

A number of larger pharmaceutical look to large, full-service CROs to provide all services. In some cases, this has progressed to the point where a product is handed to the CRO and the pharmaceutical company has a completely hands-off approach to its development. The objective of such an approach is to maximize efficiencies across the development process. The introduction of various penalties and bonuses can also be used to ensure timelines and key milestones are met, since the CRO has full control of all aspects. A risk-based approach can also make CROs more accountable for the resulting data and for ensuring that decisions are more effective. There are also benefits related to minimized oversight and the amount of time available to both companies to ensure an effective and optimal partnership.

 

The challenge to utilizing such an approach is primarily the reliance on a very small number of CROs (sometimes only one), and that the expertise and capabilities in specific service areas may not be as consistently strong across the CRO. Since over 90% of the time and budget relates to the clinical operations aspect, the primary selection of a full-service CRO is based around capabilities in clinical operations, and a functional or centralized approach may therefore be preferred to provide greater flexibility and to minimize risk. 

 

The role of a CRO is continually evolving, but close integration between CROs and pharmaceutical companies offers many advantages. This can result in reduced overall cost and increased flexibility through greater access to global locations, efficient technologies and expertise. The key is to select a group of CROs that have the experience and culture to develop strong and focused partnerships, which will enable the development of an optimal solution that best meets the needs of all involved.

 

Daniel Chapple is Executive Vice President and Chief Commercial Officer, Quanticate