Clinical Research Outsourcing

Moving from transactional to strategic partnership-based outsourcing

By Kenneth Getz and Rachael Zuckerman

Drug development company reliance on the outsourcing of clinical research activities continues to rise sharply. In 2007, biopharmaceutical companies spent approximately $8.5 billion worldwide on contract clinical service providers — not including pass-through costs such as central lab fees and investigator grants. Sponsors spent 17% of their total development budget on CRO services in 2007, up from 14% in 2001. And the annual growth in spending on CRO services, 14.9% annually since 2001, has well outpaced the 10.5% annual growth rate in total global development spending.

A number of factors have contributed to this growing dependence on CROs. At a time when global clinical trial volume and scope is increasing, drug developers face significant capacity constraints. The number of projects in worldwide development has grown 6% annually since 2002, yet many major pharmaceutical and biotechnology companies have not increased their internal clinical research headcount. These capacity constraints are only expected to worsen: Since 2007, many biopharmaceutical companies — including Schering-Plough, Astra-Zeneca, Pfizer and Merck — have announced plans to downsize and consolidate their operations in response to difficult market conditions. Companies are turning to outsourcing for flexible capacity to better manage peaks and valleys in development activity.

The dramatic proliferation of small and mid-sized companies now conducting clinical research programs has also driven outsourcing growth. An estimated 1,800 companies worldwide are actively conducting at least one clinical trial, a 65% increase over the number of companies doing so five years ago. Smaller companies — many of them biotechnology firms — typically outsource a much higher percentage of their total clinical research budgets for expertise that falls outside their core capabilities.

Improvement in development performance is another outsourcing growth driver. Many sponsor companies are learning that CROs can provide speed advantages, at comparable quality, when they are used effectively. These findings were confirmed in a study conducted by the Tufts Center for the Study of Drug Development in 2006. The study found that, across a variety of project milestone measures, those projects utilizing CROs at higher levels tended to reduce cycle times by two to four weeks compared to those with lower CRO usage. For example, compared to low CRO usage projects, those with high CRO usage:

• Showed a median of 78 days, compared to 98 days, from protocol readiness to First Patient, First Visit (FPFV).
• Reached study data availability from protocol readiness in 196 days, compared to 231 days.
• Moved from protocol readiness to Last Patient, First Visit (LPFV) in 294 days, compared to 308 days.
• Required an average of 42 days to move from Last Patient, Last Visit (LPLV) to database lock, compared to 56 days.

Achieving More

Facing a difficult global operating environment, biopharmaceutical companies are looking to consistently increase CRO efficiency and performance. A 2008 Tufts CSDD in-depth case study of 10 biopharmaceutical companies found that sponsors are poised to move from widely-followed transactional outsourcing practices to more strategic, partner-based relationships. This transition signals a profound shift that has major implications for internal management decision-making processes and structures and for the CRO marketplace.

Traditionally, sponsors have outsourced on an ad hoc, per project basis, driven by insufficient internal personnel capacity to perform a given task or function. Under transactional relationships, sponsors typically interact with a large number of service providers, both full-service and niche. Additionally, sponsors contract full-time staff to supplement internal capacity.

Sponsors typically solicit three to five bids and select the lowest bid-provider. In many instances, sponsors have established preferred provider lists in order to expedite selection and contracting and to secure more favorable services pricing. Although cost control is a major goal of transactional relationships, CROs frequently must perform out-of-scope activity, resulting in cost overruns.

Typically in transactional relationships, once CROs are selected, sponsors tend to micro-manage the relationship in order to ensure communication and coordination with the project team, as well as adherence to the sponsor’s own standard operating procedures. Middle managers usually serve as the primary parties involved in outsourcing planning and governance.

Sponsors most often turn to transactional outsourcing relationships once the development plan and protocol are completed. Companies profiled in the Tufts CSDD study tended to use transactional outsourcing for site selection and management, study monitoring, data management and some medical writing. Quality Assurance and regulatory affairs tasks were typically handled by internal staff and contract full-time-equivalent (FTE) staff.

More recently, a number of drug development companies (e.g., Wyeth, Amgen) have supported broad functional outsourcing. These relationships give almost all responsibility for an entire function to a single CRO. Still, the outsourced function must be integrated with the rest of the sponsor’s development activity, including other functional tasks outsourced to full and niche-service providers. For this reason, full functional outsourcing appears to be an interim step in the direction of more strategic outsourcing.

Strategic Partnerships

The 2008 Tufts CSDD study finds that several sponsors — including Daiichi Sankyo and Bristol-Myers Squibb — are pioneering truly strategic partnership-based outsourcing relationships. Addi-tionally, a few sponsors are now making plans to implement structures and policies to support strategic partnerships.

Strategic partnerships begin with an in-depth assessment of the sponsor’s core competencies. What are the functions that are performed best in house? And what are those that can be best undertaken by a CRO that has greater expertise and higher levels of efficiency? This is an important first step, as most experienced CROs have managed a much higher volume of activity in many areas of clinical research than their sponsor partners.

In a strategic relationship, the goal is to build a team of complementary competencies to take full advantage of the expertise and operating efficiency that each party brings to the table. Under strategic partnerships, sponsors look to retain senior-level expertise, but they reduce the number of internal staff involved in those functions deemed most suitable for outsourcing. As a result, strategic partnerships offer sponsors an opportunity to better leverage internal operating resources and to streamline select functional areas.

The identification and selection of partner providers is a key relationship success factor. Success depends on a variety of criteria, including CRO-company expertise, capacity, positioning, and culture. Once a sponsor has selected a partner CRO and has determined the scope of work to be done, the companies together create a senior-level committee. Executives on the committee, from the sponsor and CRO companies, meet periodically (e.g., once or twice annually) to review the portfolio of projects on which they will partner. From the outset of the relationship, there is a shift from capacity-based outsourcing to competency-based outsourcing: from project outsourcing to portfolio outsourcing. On the CRO side, these partner-based relationships afford an opportunity to anticipate and plan for upcoming activity. This approach reduces the likelihood of out-of-scope costs and allows the CRO to be more proactive.

Governance in strategic partnerships is a shared responsibility. The sponsor and the CRO rely on a set of Coordination Operating Procedures (COPs) to ensure that each party’s own respective SOPs is consistent, integrated and compatible. When there are conflicts to resolve, they are addressed by the senior level committee. This approach affords the CRO greater autonomy to leverage its expertise, operating practices and efficiencies.

Under strategic partner-based relationships, sponsors tend to work with only a few full-service CROs, and the responsibility of managing niche service CROs is transferred to the partner provider. As a result, the sponsor devotes little time managing and coordinating a disparate collection of specialty and full-service CROs. The sponsor’s time is therefore optimized and can be focused on the overall performance of the partner provider and its managed network of contractors.

Nearly all functional tasks can be outsourced in strategic partner-based relationships. Companies profiled in the Tufts CSDD study supporting strategic partnerships are open to using CROs for protocol development, site selection and management, study monitoring, data management, medical writing, Quality Assurance, and some regulatory affairs tasks. Internal sponsor staff focused on the identified core competencies: typically preparing the development plan and handling interactions with regulatory agencies. It does not appear necessary for sponsors engaged in strategic partner-based relationships to utilize contract FTE staff.

Benefits and Risks of Strategic Partnerships

The impact of strategic partner-based relationships is unknown, as these collaborative structures are relatively new and only a few case examples exist at this time. Still, clinical projects managed under strategic partnerships hold promise in delivering higher levels of performance and efficiency than heretofore achieved by transactional, project-based outsourcing. Although these relationships will not result in lowest-bid providers, the long-term efficiencies, minimization of out-of-scope costs, and performance improvements theoretically surpass short-term cost savings. Given autonomy, trust, and proactive use of their competencies and expertise, it is likely that strategic CRO partners will develop greater value, and will be more effectively leveraged, than transactional CRO partners.

Several sponsors, particularly small and midsize pharmaceutical and biotechnology companies, have expressed concern that they will not be attractive enough to warrant the CRO partner’s best staff or ‘A-team.’ Given the large number of publicly- and privately-held full-service CROs operating worldwide, it is likely that sponsors will find sufficient strategic partners. Additionally, as the outsourcing market migrates to more strategic relationships, entrepreneurial CROs will no doubt find new ways to ensure that sponsors are satisfied with the teams provided.

Sponsors have also expressed concern that high levels of turnover will prevent companies from realizing the benefits of strategic partnerships. Those companies already engaged in partnership relationships are quick to respond that they have comparable, if not higher, internal levels of turnover and that their CROs offer stability and continuity.

One particular risk that must be mitigated in strategic partnerships is the unlikely event of a relationship termination. Given the time-consuming care that must be taken to select the right partner provider, a termination will no doubt be highly disruptive. For this reason sponsors should plan to establish several strategic partnerships, and perhaps take initial steps to keep one in the back pocket should a replacement be needed.

As strategic partnerships become more commonplace, the outsourcing landscape for niche and small CROs will likely change. In this case, smaller, niche CROs will continue to have an important role to play. However, they will need to form tighter relationships with major CROs that have been engaged as partner providers. These CROs will act as lead contractors and gatekeepers, managing a fragmented group of service providers.

Other industries have embraced strategic partner-based outsourcing for more than two decades: aerospace, automotive and communications industries, for example. This fact is not particularly reassuring in light of a recent debacle at Boeing; its entire assembly of its 787 Dreamliner was undermined by mismanagement of a large, fragmented collection of small providers. Clearly, sponsors need to invest in and support outsourcing management mechanisms that engender trust while ensuring that all parties succeed.

In the current drug development environment, it is essential that sponsors achieve higher levels of performance and efficiency. The profound transition from transactional, project-driven capacity-based outsourcing to strategic, portfolio-driven, competency-based partnerships promises to help sponsors meet that challenge.

Kenneth Getz, MBA is a senior research fellow, and Rachael Zuckerman a research analyst, both at the Tufts Center for the Study of Drug Development, Boston, MA. The center is located at csdd.tufts.edu and can be reached at csdd@tufts.edu.