Sourcing Approaches for Clinical Development

By Daniel Chapple , Quanticate | April 3, 2014

Exploring models for R&D

As budgets become tighter and tighter, many pharmaceutical, biotechnology and device companies are having to continually re-assess the way that they are supporting R&D activities to ensure a cost-effective approach while maintaining quality.

Some companies have moved towards a full-service strategic approach utilizing either an exclusive or dual-vendor strategy, others have moved towards a more functional approach utilizing different strategic vendors for different service areas, and still others have continued with a more ad-hoc preferred vendor approach where competitive bidding continues. In addition, the role and cost associated with the use of in-house staff, contractors and the locations of those staff continues to be key decision points in regards to the most optimal strategy.

We shall discuss the different strategies and offer some considerations when assessing each type of strategy.

In-house Support
If measuring the cost of staff at a salary level only, there would be a good case to maintaining a large in-house capability across functions, with minimal outsourcing. FTE salary costs are lower than the rates provided by both contractors and CROs. There is also the added benefit of keeping knowledge in-house and maintaining control, in terms of who is doing what and where.
However, when measuring overall cost, it is also important to take into account the overhead that every staff member has. Costs associated with buildings, utilities, benefits, management, attrition, technologies and training all need to be added to the cost per head. The location of offices can also impact overall cost since the offices could be based in higher cost locations.

In addition, flexibility can be compromised, as the FTEs are located in fixed locations and work either needs to be allocated according to spare resources or people need to have some idle time built into their work. The peaks and troughs of work according the pipelines of work and the limited visibility can make this all the more challenging. The efficiency and effectiveness of those working in-house also needs to be taken into account. There needs to be a wide range of productivity metrics collected and reviewed on an ongoing basis, and the technologies and tools available to enable day-to-day work may also impact productivity, positively or negatively.

Since contractors and CROs are working across multiple clients and much of this overhead can be removed or diluted, there is a strong case to outsourcing aspects of clinical development where possible. What initially can look like higher hourly rates compared to internal salaries can quickly become comparative or even more competitive when compared to the total cost of a person working full time within a pharma company.

Contingent Workforce Utilizing Contractors
The amount of flexibility during peaks and troughs can determine the efficiency of a solution. The use of contractors has become an option to many companies to ensure resource availability without the commitment and overheads of a FTE. Many people are attracted to becoming contractors due to independence and higher hourly rate which makes up for the insecurity of having contracts 100% of the time. Hourly costs are higher than an FTE within a company but are often lower than a CRO cost. Much like the FTE costs though, there are hidden costs associated with a contractor and also negative aspects in addition the positives of increased flexibility and reduced commitment.

This approach was, until recently, a preferred way of working, with many pharma companies choosing to work primarily through a mixed in-house/contractor model with the use of CROs as required to fill any specific needs. However, recent changes in employment regulations, higher hourly rates than FTEs, and the ability for staff to quickly move to other companies (resulting in loss of knowledge and increased cost of replacement), means that this approach has become less attractive. This has resulted in many pharma companies moving towards the use of CROs.

The management and oversight of a large number of contractors also adds further to the costs and higher turnover means that having a consistent, high quality team can become more challenging. Overseeing the overall quality, training and tracking of the team and ensuring tools and technologies are optimal can also become a large task for pharma companies that choose this approach. Many contractors are also required to be on-site, which then adds all the overheads seen by an FTE. A number of pharma companies that have historically used this method are now moving towards an outsourced approach to a CRO using one of the below methods to improve flexibility, assure quality, minimize oversight and reduce overall costs.

Competitive Bidding Outsourcing
For many years, the competitive bidding process using preferred vendors was the primary approach utilized to contract work to a CRO for many pharma companies. It is still the case in some companies. In a lot of cases, a preferred list of vendors would be used, and in others, 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. With each study team having their preferred companies to work with in different service areas, the ‘preferred’ list could be huge. 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 smartly, then individual study costs could be reduced, which would lead to savings. This model also fits well with a model that utilizes in-house staff/contractors and uses CROs to meet specific needs.

Under this approach, and other approaches that utilize a CRO, companies need to determine what the benefits (and negatives) are of moving towards the outsourcing of work compared to in-house/contractor approaches. Speaking on behalf of a CRO, the obvious 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, because it is a service industry, often a high focus on productivity, metrics and cost optimization. Investment in tools and technologies also continues at a high pace and a CRO is well placed to invest in these technologies since it is focused only in these 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 assure these can also be big.

Functional Service Provision (FSP)
While having a massive list of approved vendors that competitively bid has positives in terms of diversity and access to specific expertise, there are also challenges around the management of such large numbers of vendors, as discussed above. In addition, if lots of vendors are receiving small pieces of work, then partnerships between a customer and the CRO can be difficult to build up and time to invest in building such partnerships is very limited. There will not be as much allegiance or focus on improving relationships. By selecting strategic partnerships with higher volumes, there will be a much higher focus on ensuring an optimal partnership as the revenues will become more important.

Functional partnerships usually consist of a small number of CROs with expertise in specific areas taking on responsibility for specific functions. For example, companies will often have functional providers for clinical operations (monitoring, etc.), data management, statistical programming, biostatistics, medical writing and pharmacovigilance. A company could decide to split functions further or have a single provider across multiple functions. It is usual though for two to five vendors to be selected per function. The idea being that the smaller the number of vendors, the more focus on partnership development can be given by the pharma sponsor and the higher the volume of work that ensures a priority focus by the CRO on the partnership. However, having more than one vendor enables some degree of competitiveness and prevents reliance on a single company.

Functional partnerships are often preferable because it allows 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 also an element of risk mitigation by not putting all eggs in one basket. Having functional partners also should result in efficiencies across studies that can then help to reduce the overall cost of the work. This, coupled with less oversight, improved communication pathways and minimized contractual work helps to bring overall cost down further. Furthermore, the use of functional experts is that 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.
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 when looking at the task level to have, for instance, the same company supporting specific tasks in statistics and medical writing rather than two vendors doing both. Likewise, having the same company providing project management and monitoring services and another offering data centralization, statistics and programming can be beneficial particularly if a technology solution can help to bring it all together to enable a pharma 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 within a functional partnership, although the cross-function efficiency loss can be mitigated.

Full-Service Divisional Strategic Support
A number of larger pharma companies have moved away from a functional approach and have looked 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 pharma company has a completely hands-off approach to its development. The objective of such an approach is that efficiencies can be seen across the development which can then ensure that the development is efficient and cost effective. The introduction of various penalties and bonuses can also be used to ensure timelines and key milestones are met. A risk-based approach can also make CROs more accountable for the resulting data and to ensuring that decisions are more effective. There are also benefits related to minimized oversight and the amount of time available by 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 more than 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.

As a data-focused CRO, we often see gaps in certain service areas such as statistics and programming and we find that we are being contracted to support the full-service CRO behind the scenes. While this minimizes the interactions that a pharma company has with its primary CRO, it does mean that the sponsor may not be seeing all the benefits of forming a functional partnership and it is more removed from decisions and opportunities to improve and expand the partnership.

Utilization of Locations that Optimize Cost
In addition to the sourcing strategy employed, costs can be significantly saved if lower cost locations are utilized. There has been much discussion in regards to the use of lower cost locations, particularly in Asia, South America, Africa and Eastern Europe. There are clear cost advantages from FTE salary and officer overhead perspectives. Whether the use of lower cost regions are utilized in-house or via a CRO depends to a certain degree on size, investment availability, knowledge of the local regions, experience utilizing lower cost locations and whether there is an inclination to oversee and put in place processes to use these regions. Some companies have decided to open large captive centers in locations such as India to provide not just resources involved in tasks such as data management, programming and pharmacovigilance, but also those involved in functions such as finance.

In terms of clinical development, the determination of location of where staff are based is also something that different companies have differing views on, but the utilization of staff based in locations such as India, Poland, Russia and China does enable a reduction of cost using staff that have the experience to undertake specific tasks.

Most larger CROs and all BPO-type companies now have capabilities in lower cost regions and there is an attraction for pharma companies deciding to reduce costs by moving to lower cost regions to utilize the longer term expertise of CROs and BPO companies.

Having the right levels of quality control and oversight, while ensuring quality, timeliness and effective communications are all key to ensuring that the cost-benefit of lower cost staff is not outweighed by oversight in higher cost locations at both the vendor and sponsor companies. As this model has progressed and quality has been demonstrated, the use of lower cost locations has become more popular. The key longer term issue is whether the cost differential will remain, as inflation in many of these lower cost locations is rising much faster than in more developed locations. It is therefore important to put in place a sustainable approach and a forward-thinking strategy.

In conclusion, there are a number of ways to ensure that a cost-efficient approach is put into place to ensure an optimal solution to support clinical development. Our belief is that there are a lot of advantages to the functional (FSP) and centralized (CSP) service provision approaches. These approaches offer a cost-effective solution that remains flexible and enables access to expertise. Additionally, CROs are well placed to maximize the use of lower cost locations and can spread the growth across customers. This minimizes risk and enables a longer term and more sustained approach to continually evolving the model.

The role of a CRO is continually evolving but we believe that close integration between CROs and pharma 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 CRO that has the experience and culture to develop strong and focused partnerships that enables the development of an optimal solution that best meets their needs of all involved.

Daniel Chapple is executive vice president and chief commercial officer, at Quanticate, a CRO dedicated to the management and analysis of data related to clinical & postmarketing studies. www.Quanticate.com

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