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FSP Relationships



Developing alliances with CROs



By Andrew S. Townshend and Dr. Peter Carberry, INC Research and Astellas Pharma Global Development Inc.



Published March 6, 2013
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Demand in drug development circles for expert resources and global reach is higher than it has ever been, making it vital that clinical outsourcing strategies focus on true partnership, innovation, optimization of oversight, and ultimately increased speed and reduced cost. Implementing broad portfolio-based outsourcing models such as a functional service provider (FSP) relationship is one way to tap into these values. FSP arrangements may package together related clinical research and activities from the sponsor with the goal of streamlining operations and management and generating high-quality data efficiently. However, the benefits of FSPs, ranging from cost savings to access to best-in-class suppliers by function, must be weighed against the very real challenges of implementing this often more complex outsourcing model.

There are various interpretations of the scope of activities and responsibilities in an FSP model. In essence, it involves a CRO providing a specific functional service to contribute to an entire clinical development program, rather than providing all services for the whole program. FSP arrangements have traditionally packaged similar repetitive tasks/functions such as data management, medical writing, biostatistics, and clinical programming. As the FSP model has matured, areas such as site management, site activation, study startup, clinical monitoring, medical monitoring, and pharmacovigilance have been increasingly integrated as well. These functions can be more readily managed independently in lower-cost or emerging geographies, though they still require significant oversight by the sponsor. Many view FSPs as a useful strategy in addressing the shortcomings of full-service outsourcing. Those can include a lack of standardized approaches across the varying therapeutic areas involved, the complexity in juggling multiple yet separate projects with the same client, and, for sponsors, sometimes limited buying power in negotiations with top CROs.1

For the sponsor, shifting to an FSP relationship requires realistic expectations around the complexity of implementation, as well as the need to overcome resistance to change.  For the CRO, it requires a willingness to take on full accountability for task delivery and quality, including taking risks, particularly in the initial stages of an engagement where perhaps there is a limited level of trust. For both sides, success requires the right governance, a single voice and commitment from both management teams, a comprehensive shared plan, tools, and the right people in place to evolve the relationship into a productive long-term engagement that will reap cost and time savings for sponsors and margin maximization for CROs. 

Outsourcing models in pharma R&D have changed considerably in recent years amid the rising economic and competitive pressures in the industry. Grabbing much of the attention has been the increasing implementation of so-called strategic, full-service alliances, highlighted by a select number of deals struck between big pharma and large CROs.2 These relationships are described as integrated, long-term alliances between sponsors and CROs on services across the entire clinical development spectrum. Strategic outsourcing relationships, however, remain few and far between, have usually been single function, and many such alliances, upon deeper inspection, are not actually end-to-end service arrangements at the study or project level, but rather still transactional at the activities level and function-specific. These realities further reinforce the prominent role FSP relationships continue to play in the industry. Many of the top pharma companies include FSPs as a major component in their long-term outsourcing engagements — contrary to the popular sentiment that sponsors are losing interest in FSP arrangements. In fact, with the emergence of clinical research markets in Asia-Pacific and other developing regions, there exists a rising trend in the use of functional-based outsourcing.

Many Options
Today, there are several options that sponsors can choose from. Transactional relationships, whereby sponsors employ a CRO on a per-project basis, remain the most actively used model across the industry. Such relationships are generally appropriate for short-term, one-off projects, where price is usually the prevailing factor in CRO choice. Preferred provider relationships represent another alliance type. Usually of a longer duration than transactional ones, these arrangements require fulfillment of preconditions and pre-qualifications by the CRO. Preferred provider status can benefit both parties by generating a more secure book of work and sole (or close to sole) sourcing. These relationships, however, much like transactional outsourcing, are largely project-by-project or therapeutic-area based. Strategic alliances create a more cost-effective mix of internal and external resources for the sponsor while allowing the CRO a more vested interest in the sponsor through increased portfolio transparency and a growing level of risk sharing on a development project.  This needs to be clearly distinguished from risk transfer in a more transactional relationship where a sponsor purely removes or reduces the level of risk that it bears and the CRO assumes this risk with little to no gain.

While a limited number of sponsor-CRO relationships have progressed to alliance status, companies are aware of the advantages of advancing traditional tactical-based relationships into more nimble global partnerships. Most top 40 pharma companies have or are implementing preferred relationships or strategic alliances, with many featuring FSP as a major part of those strategies. Among larger CROs, statistics point to a heavier dependence on outsourcing models such as FSP, compared to transactional work. These organizations associate a higher percentage of their business with full-service provision work either within one function or across multiple functions, as well as with integrated alliance services.3 Sponsors tend to keep areas such as clinical trial design and planning and regulatory strategy in-house while outsourcing other functions. Their focus on core competencies tends to lend itself well to FSP work, because of the model’s high reliance on project management.

Strong Growth Prospects
Irrespective of the relationship type, outsourcing in the pharma industry continues to experience solid growth. In recent years, many big pharma companies, under increased pressure to contain fixed costs and commoditize certain aspects of clinical trial practice, have reorganized their R&D operations. This has led to a sharpened focus by sponsors on de-risking their drug development efforts through the use of external, outsourced resources. Pharmaceutical outsourcing, which presently produces about $25 billion in revenue annually, is expected to grow at around 10% annually to more than $40 billion per year in five years and about $60 billion in 10 years.4 One major factor driving the activity is the increasing recognition that the clinical trial is now a global effort. More and more studies now require the inclusion of multiple countries in most geographic regions, with an increasing proportion of patient populations from developing countries being sought for participation.

Proven Value 
Regardless of whether or not clinical research pursuits are focused globally, pricing pressures are still an issue, and the need to get more for less is critical. That mission aligns closely with the FSP outsourcing approach. This model focuses on the economics of delivery while maintaining the standardization and consistency necessary to drive high-quality data output. There are several other benefits that can be gained from FSP relationships. If there is not a centralized decision-making mechanism within a sponsor organization or if there is freedom for functions to operate somewhat independently from one another, then often each function has autonomy on its choice of supplier. With this in mind the more a sponsor chooses to select and manage a vendor across independent functions, the more likely the sponsor will reap efficiencies from going the FSP route. Another benefit of this model is that it enables the delivery of best-in-class resources by function. If a sponsor solely uses a full-service CRO, it may get adequate fit-for-purpose support, but not necessarily best-in-class service by function. Specifically for CROs, FSP relationships provide increased stability and higher volume of work, albeit at potentially lower margins.   

Challenges in Implementation
Despite the potential benefits, there are several considerations that must be evaluated when a company pursues an FSP relationship. In the initial stages, it is important for the sponsor to determine — based on its size, portfolio of drugs in the pipeline, and revenue stream — what exactly are the main drivers to the supply and management of resources that are necessary for conducting clinical research. Once those are identified, there are several principles that should be followed when exploring sourcing of project work. Firstly, it is crucial to ensure that there is appropriate alignment and accountability between the sponsor and its development operations on the organization’s overall globalization vision. This will make it easier to match solutions and prioritize resourcing needs. For example, for many sponsors, meeting the drug registration, submission, and approval needs in different regions and markets is a major impetus behind most of their strategies, whether internal or outsourced. To that end, it is critical that a company executes all of its drug development programs under integrated global standards, processes, technology, and vendor strategy. 

At the same time, due to the constant risk associated with a development portfolio, sponsors must also be very cognizant, diligent, and fiscally accountable regarding their level of internal investment, recognizing that the attrition rate in drug development is not something that any single company is immune to. Those realities add to the importance of having the proper infrastructure in place to manage outsourcing relationships. Adeptly managing relationships across multiple suppliers is a challenge under the FSP model in particular. When a sponsor is not handing a project over to just one or two vendors, there is increased importance placed on project management and oversight. Therefore, choosing the right partner for an FSP relationship can be a difficult task for sponsors. For the engagement to be successful, companies must be able to find a vendor with the global reach and capability to meet the therapeutic-area and phase-specific needs of the sponsor. Also important is choosing a company with the ability to work using sponsor standards, SOPs, processes, and systems.

Why Do It?
Even with these complexities to navigate, there are a number of reasons companies continue to pursue FSP relationships. There is a general opinion in the industry that FSP outsourcing can deliver cost savings in terms of operational efficiency, but also off the bottom line. Generally, many sponsors are already in situations where they have gradually outsourced an increasing volume of work. As these companies have increased their outsourcing, they have maintained an internal overheard associated with oversight of the work. Sponsors, in some cases, have been unable to reduce the amount of overhead that they are devoting to full-service contracting. In an FSP setup, where the emphasis is on managing CROs by function, sponsors may be better positioned to maximize their internal competence around project management and conduct oversight correctly. In addition, most sponsors are already investing heavily in their own systems and technology and would prefer to avoid duplicating that investment by also paying for a CRO to provide its proprietary technology. In many FSP arrangements, there is a high reliance on the sponsor’s systems and technology.

While cost savings are largely viewed as the basic driver for sponsors pursuing FSP relationships, there are other reasons drug developers choose this path. Under the FSP model, a CRO can provide the sponsor with transparent performance metrics within the given function and the reporting of those metrics that are actionable. In addition, the CRO typically devotes senior-level governance, structure, and attention to not just the relationship but the delivery across the entire portfolio. This level of governance does not usually or consistently exist in traditional one-off outsourcing engagements. Sponsors using FSPs can also benefit from the ability of CROs to dedicate project resources, due to the large volumes associated with FSP-type work. This can lead to efficiencies beyond the pure mechanics of delivery but in developing and managing relationships with clinical investigators, for instance. From the CRO perspective, there are also several factors that compel companies to pursue FSP deals. CROs in these relationships are able to view the sponsor’s portfolio and thus there is removal of associated competitive bidding requirements, reduced cost of sales, and time to project assignment. In portfolio-based relationships such as FSPs, a CRO can also add significant backlog. For CROs, there is often increased stability of staff and resources as well. The CRO team often feels like an integral part of the sponsor’s delivery unit and in many ways becomes an extension of the sponsor.

Critical Success Factors
When starting an FSP relationship, it is crucial that sponsors and CROs understand the expectations of their respective customers and stakeholders. In implementing any type of outsourcing relationship, but particularly FSPs, companies need to realize that they may have a skeptical customer base internally, at least at the outset. Typically, over the first few months of the relationship, there are limited tangible results that the companies can show their clients and investors. Therefore, it is crucial that the companies pay attention to several critical success factors and invest in those up front or risk losing out on the potential long-term benefits of the relationship. Perhaps the most important success factor is establishing a common agreement and agenda around people (talent, competence, placement). In setting up FSPs, there must be assurances that there is the right talent for each position at the CRO and sponsor, and that the sponsor’s experience and qualification requirements are strictly met. It is also important for both parties to agree on how individuals will be trained and the expectations for training. Lastly, the partners should develop a plan to manage not only the talent that joins the relationship, but also the strategies in shifting the competencies of that talent as a sponsor’s portfolio evolves, its disease-area presence changes, or individuals at the vendor transition to new jobs. One of the biggest hesitations sponsors have in engaging in long-term outsourcing relationships is the perception (and sometimes reality) of high turnover rates at CROs.

A second factor critical to the success of an FSP relationship is organization and governance. It is important that both parties subscribe to single global leadership at functional and competency levels. In addition, there must be joint accountability between the sponsor and the CRO around the overall governance of the entire relationship. That should involve everything from the day-to-day work to issue escalation in such areas as site enrollment, data cleaning, and data reporting. Another key success factor is technology. A robust strategy and a roadmap around what technologies a sponsor presently has and what it may have in five to 10 years is critical. So is investing in a single technology platform to help avoid disparate system issues that could otherwise surface. Process and quality represent a critical success factor as well. Although obligations for the sponsor and CRO are different, the use of single standards, processes, and tools is beneficial in an FSP relationship. This affords the companies a single and measurable view of what the quality standards should be. Also, because both parties are adopting the same process, they can more easily engage in continuous process improvement. Such activity is built into the long-term goals of the relationship. If an FSP relationship does not adopt a single-process platform, it is difficult for the vendor to comprehend which areas of the relationship are in need of improvement.

True Alignment is the Goal and Key
The benefits for sponsors and CROs in more actively pursuing true alignment through the FSP approach are clear. However, for these oft-complex relationships to work, they must be firmly aligned with the parties’ respective business models. Committing to an FSP alliance only makes sense if there is clear economic benefit for both parties and a strong enough infrastructure in place to manage the relationship.

If those criteria are met, then the relationship should be characterized by long-term goals, integration of operations and leadership, and optimized delivery based on portfolio transparency, dedicated resourcing, and innovation in process and technology. Recognizing the unique challenges associated with implementing an FSP model from the sponsor and CRO perspectives is critical. Equally important is the job of identifying the critical factors — from people to process and technology — that will best drive a successful FSP relationship, and matching those with the expectations of the customer. 

References
  1. A New Approach to CRO Partnerships. Pharmafile. Published online June 4, 2009. www.pharmafile.com/news/new-approach-cro-partnerships
  2. Pfizer Teams with Parexel and Icon in CRO Sector’s Latest Strategic Deals. Outsourcing-Pharma.com. Published online May 26, 2011. www.outsourcing-pharma.com/Clinical-Development/Pfizer-teams-with-Parexel-and-Icon-in-CRO-sector-s-latest-strategic-deals
  3. www.ctti-clinicaltrials.org/website-administration/documents/Getz_AugustCTTI-FDA%20Meeting.pdf
  4. Langer, E. Biopharmaceutical Outsourcing Trends: The Next Decade. BioPharm International Supplements. 25(3): s4-s5. www.biopharminternational.com/biopharm/Outsourcing/Biopharmaceutical-Outsourcing-Trends-The-NextDeca/ArticleStandard/Article/detail/763578

Andrew Townshend is vice president, Alliance Development at INC Research, a global full-service CRO. Dr. Peter Carberry is senior vice president, Global Development Operations at Astellas Pharma Global Development Inc. Visit www.incresearch.com and www.us.astellas.com for more information.


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