The market for pharmaceutical services outsourcing has grown to become a multi-billion dollar industry that encompasses a broad spectrum of outsourcing models, ranging from one-off contracts to preferred provider and strategic partnership agreements, and from tactical staffing arrangements to complex, strategic, full-service models. There are also ‘blended’ outsourcing models such as hybrid full service and FSP. No one size fits all—indeed within large pharma, it is typical to find a range of models, or mixed-model delivery—used depending on needs. The consensus view among market analysts is that the contract research organization (CRO) industry is generally expected to grow at a compound annual growth rate (CAGR) of 5–6% over the next five years.

Sponsors have become very knowledgeable about the different outsourcing models that are available. As a result, they can increasingly map the requirements of a clinical development program to the appropriate model or models and select a CRO or CROs based on these requirements. For a sponsor therefore, a CRO that is able to offer a full range of models is an attractive option as a single-source provider as it can enable an outsourcing manager to adapt any chosen model as required throughout the clinical development process.

Recent developments in outsourcing
Traditionally, the pharma industry had two reasons for outsourcing to CROs: to obtain additional staff or to obtain specific scientific, medical or operational expertise for a specific clinical trial. In the early days of outsourcing, there were basically two approaches: a project-by-project, full-service outsourcing model, in which a pharma company delegated an entire project to a CRO to run, or contract staffing, where additional staff were used to supplement the internal headcount as and when required.

From the wide range of models available today, both the strategic partnership/preferred provider model and functional service provision (FSP) have become commonly used outsourcing strategies, and enterprise-level partnership agreements between pharma and major CROs are increasingly prevalent. ISR recently reported that “in terms of model allocation, the Preferred Provider model continues to grow—34% of work is outsourced in this manner compared to 27% in 2015 and 21% in 2013. The Preferred Provider model is used for nearly as much work as in-house resources (36%).”

However, over the last decade, the FSP model has also increased in popularity, despite the considerable interest in strategic partnerships/preferred providers. This is in part due to one trend of large pharma companies reducing full outsourcing, but increasing the use of hybrid models consisting of full-service, FSP and internal capabilities.

Although there are a number of variants, the basic FSP model consists of a combination of traditional contract staffing strategies, single-service arrangements and high-volume, functional outsourcing. While it may be difficult to precisely define FSP, its fundamentals are consistent. It is particularly popular with sponsors for two scenarios:

1. For companies that want to outsource an entire function, such as data management, pharmacovigilance, clinical monitoring and study start-up, or just a part of it, but want to use their own in-house IT infrastructure and standard operating procedure (SOP) platforms.
2. For companies wanting flexible resourcing solutions that are able to respond to the fluctuating resource demands of a clinical development program. Over time, some of the principles of FSP have become blurred as companies have developed and innovated their own operational models but the core principle of FSP is that sponsors retain program ownership, infrastructure and central control.

The concept of enterprise-level partnerships, which is based on high-volume, program-level work, was originally interpreted as a move away from FSP by the pharma industry, with FSP considered to be a tactical model that lacked depth and specific expertise and so was no longer an attractive proposition. Broad strategic partnerships were assumed to be a strategy that pharma would employ to utilize the wealth of experience and expert project delivery that CROs can provide. In particular, some high-profile pharma companies moved away from FSP entirely and instead focused on a fully outsourced, strategic partnership model.

These assumptions were correct, to a certain extent, and there are many examples of highly successful strategic partnerships in the industry, which, as a rule, focused on the traditional model of project-by-project sourcing but using this model under the umbrella of a broad product development portfolio. However, strategic partnerships did not necessarily fulfil the requirements of some sponsors to retain control of certain key activities in-house, to centralize and standardize processes using their own SOPs and systems and to run some clinical trials themselves. Thus, for some pharma companies, broad strategic partnerships were viewed as being associated with a loss of control.

It is worth noting that currently only about 50% of clinic development activity is outsourced to CROs so approximately 50% is still conducted by pharma companies themselves. However, because of the internal infrastructure requirements to run a number of clinical development program, this is usually limited to larger companies. For most sponsors, there appeared to be two options: (1) to move entirely to a full-service outsourcing model or (2) to change their internal operations, processes and procedures in order to be able to utilize different models.

The rise of FSP
Over the past few years, some large pharma companies have been considering whether to use the strategic partnership model for all of their clinical development activity, i.e. moving from 50% to 100% outsourcing, or whether it is beneficial for them to retain some internal capability. However, increasing internal headcount to cope with the demands of delivering clinical trials on time and on budget is not always the best solution, particularly in an environment where costs are closely monitored relative to product pipeline projections. In these situations, FSP models have become increasingly popular due to their ability to act as a supplement to, or a substitute for, the need to maintain a large internal headcount, with its associated financial burden. FSP models have a number of advantages. They provide flexibility in resourcing and can allow central control and accountability by using the sponsor’s own standardized SOPs and systems. They move the costs and accountability for staff recruitment and retention to the CRO, enabling the consolidation of contract staffing costs by moving from a number of smaller recruitment agencies to just a few global CROs. They support the ability of a sponsor to conduct their own clinical trials, using their own infrastructure but minimizing the associated fixed costs.

Pharma companies now view FSP and full-service models as viable options that can work together as different parts of their outsourcing strategy, rather than taking the increasingly outdated view that they are completely opposing models and only one or the other can be used. Thus, FSP and full-service models have become two sides of the same coin, with sponsors able to pick and choose the model that works best for them in a particular situation to improve efficiency and control costs.

Particular functions can be outsourced selectively where required, specific CRO expertise can be accessed for projects when needed and additional staff can be recruited to supplement a company’s own resources. The growing impact of digital disruption on pharma R&D and the clinical trials process is also driving the search for external partners with expertise and capabilities with the newer technologies that are forcing change. For example, traditionally clinical studies rely to a large extent on results from monthly outcome assessments carried out in a clinic. The potential to generate new insights from continuous measures captured as patients go about their real-life is significant. The use of wearables and related devices on a typical phase 2 CNS trial of a few dozen patients can generate nearly one billion data points per day.

Combining this data with ePRO and other physiological data such as heart rate and respiration rate can create a big, complex dataset that is beyond the capacity of standard EDC’s. Aside from this issue of data complexity and insight generation, running successful digital clinical trials present challenges such as patient acceptance, device selection, operationalization, privacy and security and regulatory acceptance.

In addition to projected growth in business-as-usual outsourcing, digital disruption is adding to this by fueling the need to outsource to CROs that can help develop new capabilities and drive change to operating models by providing integrated, complete end-to-end solutions for both technology and trial design (pragmatic, virtual, e-trial, adaptive), coupled with operational excellence.

Pharma companies are therefore adjusting their governance structures both internally and for external relationships to reflect this changing approach. In addition, vendor management organizations are becoming increasingly important and influential parts of a sponsor’s organization.

Current trends
As a general rule, small to mid-size pharma and biotech companies have tended to use full-service models, with the larger pharma companies being more likely to use mixed-mode models. Smaller companies tend to have fewer internal resources, meaning that it may be more practical for them to fully outsource individual projects and to concentrate their limited staff resources on management rather than conducting clinical trials. Indeed the huge amounts of venture capital currently  pouring into the biotech sector—in the first half of 2018 almost $10 billion of biotech VC funding was raised—has been a positive contributing factor in the growth of recent CRO reported earnings. 

In contrast, larger pharma companies are more likely to have the infrastructure that supports mixed model outsourcing, including the use of a FSP model. For a global CRO, it is crucial to understand the customer’s needs and to offer the right solutions that work best for them.

Although strategic partnerships have sometimes been a sole-source model using a single CRO, most pharma companies have preferred to mitigate the potential risks associated with using just one vendor by outsourcing to two or three preferred suppliers. For sponsors that are already using both FSP and full-service outsourcing models, there are benefits to be gained in using CROs that can offer both models. Some pharma companies may now even consider using just one CRO for their entire research portfolio. For global CROs, it is important that staff are able to move easily between the different outsourcing models in order to provide a seamless service to the sponsor. CRO staff should be as familiar with operating in large-scale FSP as in project-sourced models. CRO support functions, such as IT, HR and finance, have to be adaptable to the particular needs and features of the different models. Global CROs need to have substantial experience in operating governance structures with their customers that balance the demands of a research portfolio with those of the different functions and projects. For a sponsor, the benefits of using a single CRO to meet all their outsourcing needs should mitigate against any potential risks.

Future prospects
Declining research and development (R&D) efficiency is one of the biggest challenges the pharmaceutical industry is facing today, and as a consequence, clinical trials are changing.
All CROs are focused on providing optimal solutions for their sponsors. However, there are only a small number of global CROs that have the capability, infrastructure and experience to provide enterprise-level solutions and even fewer that have a track record of having done this. In the future, pharma, biotech and medical device companies and CROs need to work together more closely to develop customized partnership solutions that are fit-for-purpose for successful portfolio delivery to the benefit of patients worldwide. 

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Colin Stanley is president at ICON Functional Services, ICON’s dedicated functional outsourcing service line. Colin has over 20 years of CRO industry experience and joined ICON as a project manager in 2001. Since then, he has held a range of roles of increasing responsibility, enabling him to develop extensive operational, functional, and geographic expertise. Colin’s roles at ICON have included chief operating officer of DOCS; vice president, clinical operations, Asia Pacific; director of clinical operations, U.S.; and head of EU data management. He also led a global, cross-divisional, process improvement initiative within ICON. Colin holds a Bachelor of Science degree in biotechnology from Dublin City University, Ireland.