Rising sponsor-company spending on contract services, the growing profit margins of publicly traded contract research organizations, and the high rate of consolidation among providers suggests an extremely healthy and optimistic period for outsourcing. Indeed, in 2015 approximately half of every pharmaceutical research and development (R&D) dollar will be spent on contract service providers to support global pharmaceutical R&D programs.
Historically, the decision to hire contract service providers was driven in large part by the need to employ variable capacity and to gain access to scientific and geographic expertise. More recently, in response to downsizing and growing receptivity to outsourcing non-core competencies, a growing number of pharmaceutical and biotechnology companies have implemented more integrated and coordinated engagements with CROs.
These integrated engagements are considered strategic alliances in nature and they hold the promise of offering higher levels of efficiency at lower cost to the sponsor organization through the use of advanced planning; dedicated staffing; shared governance; integrated data, management control systems and procedures; and fewer sponsor staff overseeing CRO execution. These relationships are typically established under preferred pricing arrangements, offering cost savings to the sponsor.
All of the largest and nearly two-thirds of the mid-sized pharmaceutical and biotechnology companies have now entered into at least one strategic outsourcing relationship. Major sponsor companies establish an average of three strategic relationships to support their portfolios. However, although strategic outsourcing relationships have been widely adopted during the past seven years, there is little evidence to suggest that they are contributing to faster and more efficient R&D activity on a consistent basis. Recent research conducted by the Tufts Center for the Study of Drug Development (CSDD), Vantage Partners and the Avoca Group suggest that integrated, strategic outsourcing relationships are delivering mixed results.
A study of 89 sponsor companies conducted by the Avoca Group in 2012, for example, found that one out of five sponsors had terminated a strategic relationship with a CRO. That same study noted that approximately one-third of sponsors surveyed were not satisfied with the performance of their strategic relationships and nearly half of sponsors do not believe that their strategic relationships will ever achieve the intended outcome.
A 2013 study conducted by Vantage Partners among 81 sponsor company representatives and 88 CRO company representatives found that a large percentage of strategic relationships were unable to establish a collaborative working style, and failed to align expectations and capabilities. In addition, one-third of sponsor organizations reported that their strategic alliances had not delivered expected cost and time-savings, while 56% said that their relationships were not delivering innovative solutions.
The authors of the Avoca and Vantage Partners’ studies concluded that cultural barriers, poor communication, failure to achieve organizational buy-in, and unreasonable expectations are the key factors driving ineffective outsourcing collaborations.
Figure 1. The Incidence of Change OrdersAssessing Actual Outsourcing Practices
Based on two recent research studies, Tufts CSDD has concluded that actual sponsor outsourcing practices may be a primary culprit driving mixed sponsor-CRO collaborate performance. In 2012, Tufts CSDD assessed the frequency of change orders in studies for which the majority of its budget was allocated to contract service providers. ‘Change orders’ are defined as formal, written changes to the original scope of work agreement. Tufts CSDD hypothesized that strategic relationships would result in fewer change orders, because the parties share planning and governance, and the CRO partner is given more autonomy to manage the study. However, the findings revealed no difference in the frequency of change orders between traditional, transactional relationships and strategic relationships, suggesting that the latter are having limited impact on R&D efficiency.
In early 2014, Tufts CSDD conducted a second study involving an extensive analysis of project specific outsourcing practices. Nine of the top 20 largest pharmaceutical companies participated in the study and each organization had been involved in multiple strategic, integrated relationships for a minimum of three years.
Participating companies selected phase II and III studies conducted and completed since 2012. The studies selected were those with similar scope (e.g., number of enrolled patients; number of countries and number of investigative sites) and therapeutic areas as those found in each company’s development portfolio. For each study, sponsor companies met with their clinical teams to document outsourcing relationship models used to support specific functional areas. Sponsor companies also indicated whether internal staff (including temporary personnel) supported a given functional requirement.
Transactional relationships are defined as relationships where a CRO provides a specific task for an individual project requirement. Strategic integrated relationships are those for which a CRO provides single or multi-functional support -- for longer time period -- across projects in a sponsor’s portfolio under shared governance, integrated systems and practices.
In total, eleven functional areas were examined:
- Protocol Design
- Regulatory Affairs
- Site Identification and Selection
- Patient Recruitment and Retention
- Site Monitoring
- Medical Monitoring
- Central Site Payment Administration
- Data Management
- Statistical Analysis
- Medical Writing
- Submission Preparation
These areas were selected to capture the most common outsourcing practices across three broad clinical study requirements – (1) Study design and regulatory affairs; (2) Site management and study monitoring; and (3) Data management and dossier creation and submission.
Detailed data on 43 phase II and III studies were collected. The studies were representative of multiple disease conditions: 20% in central nervous system diseases and disorders (CNS); 18% in oncology; 10% each in respiratory, endocrinology, immunology and infectious diseases; and 5% each in cardiovascular and hematologic disorders.
Participating companies also provided performance and quality data for each individual study to determine if the independent variables (outsourcing relationship model used) had a measurable impact. Study specific performance and quality data collected included planned to actual study start-up cycle time; planned to actual study conduct cycle time; planned to actual study close out cycle time; screen failure rate; study volunteer drop out rate; number of protocol amendments; number of protocol violations; number of change orders; and queries per thousand clinical data points collected. Two tailed t-tests were performed to evaluate differences between dependent variables by transactional versus strategic outsourcing relationship used per study.
Unintended Consequences
Despite the fact that each sponsor company had entered into several strategic outsourcing relationships, in no instance did a single CRO manage all functional areas supporting an individual phase II or III study. Internal staff typically managed protocol design and regulatory affairs functions, with less than one in five supported by a transactional or strategic outsourcing relationship. With respect to performance and quality, no statistically significant differences were observed between studies managed by transactional versus strategic relationship partners.
Nearly all (95%) of the studies outsourced site monitoring, and 86% outsourced site identification and selection. The majority of studies also outsourced data management (80%); medical monitoring (73%); patient recruitment and retention (68%); and statistical analyses (63%). Although these areas were heavily outsourced, the relationship models used were inconsistent and highly variable.
Site management and study monitoring functions were supported by transactional relationships for between 40% and 50% of studies. Strategic relationships were used to meet these functional requirements for 25% to 40% of all studies.
For the majority of studies, internal staff was used to support medical writing and regulatory document submission preparation. Data management and statistical analysis functions, however, used outsourcing relationships extensively. Approximately 40% of all studies used transactional outsourcing relationships to support these functional requirements, and between 25% and 40% used strategic outsourcing relationships.
Clinical research studies conducted by the same sponsor company used different outsourcing relationship models without a clear or systematic pattern. One company, for example, varied its use of in-house staff, and utilized transactional (full service provider) as well as strategic relationships on each study to manage the site monitoring function. Another company alternated between transactional service providers and a strategic partner to provide statistical analyses. The same variation in outsourcing relationship usage was observed in site identification and management and in data management functions.
Across all functional areas, it is clear that sponsor companies are mixing and matching a variety of outsourcing approaches to meet the unique requirement of each clinical study. Despite the investment and effort required to identify, select and integrate strategic outsourcing relationships, sponsor companies clearly choose to keep all options on the table. The outsourcing practices observed in the Tufts CSDD studies indicate that sponsor companies are not fully invested in strategic relationships; i.e., they are not ready to hand over the keys – and operating risk – to their strategic partners.
While the mix-and-match approach offers pharmaceutical and biotechnology companies some flexibility, inconsistent practice is the enemy of efficiency. Actual sponsor company outsourcing practices compromise the conceptual promise of strategic relationships. Sponsor company staff must simultaneously support processes and procedures that accommodate multiple relationship models. Collaborative practice experience and efficiency is isolated to individual studies and does not carry across the development portfolio. In other words, current outsourcing practices are preventing sponsor companies and their CRO partners from achieving scale operating efficiencies
Numerous dynamics play a role in the use of multiple sourcing models by sponsor companies. The high level of fragmentation within major pharmaceutical companies and the difficulty in implementing and enforcing new practices while simultaneously juggling legacy practices contributes to the difficulties in integrating and coordinating the use of select providers.
Aversion to risk entices sponsor company staff to hedge their bets by maintaining multiple contract service providers under a variety of sourcing models. Perceptions and attitudes about contract service providers – also noted by the Avoca Group and Vantage Partners studies – are deeply ingrained in company culture and are a major factor in the types of relationships companies establish with CROs. The long-held view that CROs are commodity service providers that must be carefully policed by sponsor staff to ensure quality is hard to change and contributes to distrust in strategic relationship partners.
When key staff leaves the partnership – particularly those involved in critical operating roles and in ensuring consistent practices – old habits and novel approaches fill the vacuum.
The conceptual promise of integration remains compelling but it appears to be beyond reach in the near term. Many organizations believe that continuous improvement and refinement in their outsourcing models and technology adoption will help realize the benefits of integration. Some of these improvements focus on facilitating higher levels of operating interdependence where internal staff and their many collaborative partners acknowledge and support clearly defined and delineated roles and responsibilities without necessarily aiming for broad-based systems integration, and consistently shared practices and procedures. If the conceptual benefits of strategic outsourcing relationships are to be realized, it is critical that sponsor companies recognize that their actual internal sourcing practices are driving inefficiency.
New dedicated internal mechanisms may assist sponsor companies in identifying and managing this friction more effectively. These mechanisms may ultimately serve as a catalyst in assisting organizations in transitioning to a more consistent and leveraged approach to strategic outsourcing relationships. Internal metrics to assess the level of interaction and coordination between different outsourcing relationship models will also assist sponsor companies in understanding ways to adjust their use of sourcing approaches.
In the absence of widespread, clear successes and measured return on investment, sponsor organizations and their CRO partners may lose patience in their strategic, integrated relationships. It will become harder to implement refinements and take remedial steps as levels of organizational resistance and fatigue grow. A mix-and-match approach compromises the promise of integrated alliances and reinforces the need to simultaneously accommodate multiple, inconsistent and variable relationship models.
Although a growing number of sponsor companies expect their use of integrated strategic outsourcing relationships to continue to increase, based on current outsourcing practices, the anticipated and much needed positive impact of these relationships on performance, quality and cost will remain elusive.
Kenneth A. Getz is the Director of Sponsored Research and an associate professor at the Tufts Center for the Study of Drug Development , Tufts University School of Medicine where he conducts research programs on drug development management strategies and tactics, outsourcing, global investigative site and patient recruitment practices and policies.
Dr. Mary Jo Lamberti is a senior research fellow at the Tufts Center for the Study of Drug Development , Tufts University School of Medicine where she manages multi-sponsored and grant funded research projects on pharmaceutical industry practices and trends affecting contract research organizations and investigative sites.