Over the last many years outsourcing clinical development as a whole or in parts has become an important strategic issue for pharmaceutical and biotech companies.In order to reduce the time to launch the product in the market, and expenditure on New Drug Development, pharmaceutical and biotech companies started outsourcing a part of, or full service, to service providers. Outsourcing aims to assist pharmaceutical and biotech companies in making therapeutic and diagnostic products and services available at attractive cost in the least amount of time without any compromise on the quality of the research on the product’s safety and efficacy.
Outsourcing strategies have developed in various forms over the last few years and have been uniquely structured based on the requirements of the sponsor companies and service providers.As outsourcing of drug development gains more and more acceptance, pharmaceutical and biotech companies and contract service providers experiment with and adopt various approaches to the packaging and delivery of their services. In recent years, sponsors have preferred to source services from contract research organization (CRO) on a full-service basis for their clinical development needs. Also, a majority of pharmaceutical companies are looking at a functional outsourcing approach under which they contract with a single provider to deliver a single or limited service in support of all their clinical trials.
The resources that become immediately available through this outsourcing strategy can become instrumental in the company’s core activities of drug discovery, brand building and brand management.Bernstein Research analyst Jack Scannell says, “Small groups focused on big problems can deliver more.”
Many pharmaceutical companies outsource either part or the whole project to service providers so that they can devote more attention to the company’s core competencies and to reduce the time to launch of new drugs. In recent years, the renewed interest in outsourcing has now led to increased activity in this space as the pharmaceutical industry has planned radical and aggressive cost reduction initiatives over the next few years. All these efforts have led to the realization of a new market potential particularly for countries such as India and China that have the capabilities to deliver high quality-low cost pharmaceutical products worldwide.
At any given time, the strategy a company employs depends on factors such as: in-house expertise in the conduct of clinical trials, identification of the company’s business requirements, leveraging “specialized” providers that are functional experts rather than hiring drug development experts, depends on internal/external “bandwidth” or scalability, quality control and consistency, and cost benefits.After internal assessment, the sponsor selects the outsourcing strategy and the appropriate service provider for the same.
It is generally accepted that sponsor companies outsources full service to CROs when they have a deficiency of adequate internal resources for the proper conduct of the clinical trials. Functional services are generally outsourced to niche service providers in case of non-clinical studies when they lack in-house staff.
Large pharmaceutical companies prefer the following outsourcing models for various trial management and data management services, supportive manpower and infrastructure.
Preferred Full-Service Model:
The pharmaceutical industry has experienced a rapid growth in clinical research over last few years. Pharmaceutical companies outsource their data management and trial management services to fully established global Contract Research Organizations and some local CROs. These preferred full-service providers have accommodated to this industry requirement with the development of large infrastructure and manpower to provide such services. The pharmaceutical companies get benefited in terms of time to market and capital investment on drug development. In return, the service providers have the cost saving on few hardware and software to start the data management business.
Retained Full Time Equivalent (FTE) Model:
Another model that is becoming popular for a few selected Pharma companies in India is the retained Full Time Equivalent (FTE) Model. In this model, the pharma companies outsource the job of developing the facility, offices and human resources (FTEs) [Statistical Programmer, Statistician, Data Viewer, DB Designer and Medical Writer] to a service provider, who could be a CRO or an IT company with the understanding of the clinical trial data management and biostatistics business. The pharma companies provide hardware, software and arrange for their installation and training.
For a sponsor company to begin the process of developing a functional outsourcing model, a discipline called “Category Management” (“CatMan” or “CM”) can be used. Category Management can be defines as “Marketing strategy in which a full line of products (instead of the individual products or brands) is managed as a strategic business unit (SBU). It is based on the concept that a marketing manager is better able to judge consumer buying patterns and market trends by focusing on the entire product category”.
Each category is managed much like its ownbusiness unit and tracks its own set of metrics. Much like how our industry tracks performance metrics, specific metrics are tracked for retail categories such as product turnover. Oneof the important aspects of category management is the shift in relationship between retailer and supplier – instead of an adversarial relationship, the relationship moves to one ofcollaboration, exchange of information and joint business building.
This sourcing strategy has many parallels to clinical research industry’s functional outsourcing.
A formal 8 step category management process was developed by the Partnering Group that isillustrated as a repeating circle.
The rationale for category management in the retail world transfers to our industry specifically when a functional outsourcing model is explored. The similarities of managingcategories as business units and customizing to meet needs, strategic management of categories through partnerships aiming to maximize profits, and adding value all apply. Theapplication to functional outsourcing is managing a functional area like a category (i.e., data management across all clinical trials), customizing to meet needs (i.e., selecting asupplier to provide data management services across all of a Sponsor’s clinical trials globally), strategic management of categories through partnerships aiming to maximizing profits(i.e., pricing volume discount opportunities when a single data management provider is utilized by a Sponsor across all clinical trial activity), and adding value (i.e., a data managementspecialty provider can provide expertise and experienced staff for the Sponsor and can manage the resourcing ebbs and flows).
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 common, 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 preferred 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.
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