The outsourcing of clinical research is a significant part of the product development landscape in the biopharmaceutical sector. According to analysts, the global clinical research outsourcing (CRO) market was valued at $28.75 billion in 20141 and is forecasted to grow to more than $64 billion by 2020, with nearly 75% of all clinical trials performed by CROs2.
The continued growth of work outsourced to CROs relative to overall spending on drug development is to some extent an indicator of success: clinical trial sponsors are voting with their pocketbooks, and in response, headcount at CROs has surged. But the data also continue to show significant cost overruns and even more expensive delays (in terms of time to market, a critical driver of revenue in the patent-protected life sciences industry). According to the Tufts Center for the Study of Drug Development, the average clinical development time for newly approved drugs actually increased by approximately 10% over the past 12 years3.
Based on a benchmarking study Vantage conducted in 2013 on best practices for clinical outsourcing and sponsor-CRO collaboration, only a small minority of sponsors reported that the performance (in terms of cost and speed) of their outsourced programs was better than those conducted in-house. A troubling 29% reported that they did not know4 (Figure 1).
As bio-pharma companies seek to improve performance, they should consider what they can learn from outsourcing in other industries, and how they can adapt best practices from other outsourcing contexts to the unique challenges of clinical research outsourcing.
Cross-Industry Keys to Outsourcing Success
Establish clearly defined objectives for outsourcing
Our research and experience show that expectations for CRO partner-ships are often unrealistic and poorly defined. Too often, companies pursue “partnerships” or “alliances” with CROs without rigorously defining what that means, and without considering whether an alternate relationship model (e.g., a more transactional arrangement) might better support and enable achievement of their outsourcing objectives. When companies decide to engage in IT or business process outsourcing, they almost always conduct a rigorous assessment of in-house performance of activities, and from this, determine where and to what extent financial and operational performance can be improved through outsourcing.
In defining the objectives for clinical research outsourcing, the fundamental choice should be less about whether or not to form “alliances” or “strategic partnerships” with CROs, but first and foremost about what objectives the sponsor seeks to achieve through outsourcing. Clearly defined goals and a robust business case are the foundation for any successful outsourcing arrangement.
Align the business model for outsourcing with specific objectives for outsourcing
IT organizations, finance and accounting departments, and other business functions have leveraged a variety of business models to meet their outsourcing objectives, from outsourcing specific tasks to best-of-breed providers, to functional outsourcing, to outsourcing an entire business process to a single strategic partner. Best-in-class companies re-evaluate these decisions regularly to determine whether their chosen outsourcing model is delivering the intended business value, and whether changes in their strategy and/or market conditions warrant a modified approach.
To deliver maximum value, the structure and scope of the clinical trial activities to be outsourced (e.g., specific activities vs. individual studies or entire programs) should align closely with the sponsor’s outsourcing objectives. These in turn should drive the relationship model selected (e.g., transactional, functional provider, strategic partnership). While our experience, and a specific body of research, suggest that fewer, more closely integrated sponsor-CRO relationships can deliver significant benefits, there is no perfect, one-size-fits-all solution. As Figure 2 summarizes, any outsourcing model brings with it a unique combination of risks and benefits.
Customers need to carefully consider not only what benefits they are seeking to realize, but also what risks they are willing to take on and which they are best positioned to manage. Biopharmaceutical companies considering more extensive outsourcing, and more integrated CRO partnerships, need to engage in an honest self-assessment of the extent to which they are willing and able (not only based on formal systems and processes, but also culturally) to move away from the kind of micro-management of CROs which has been the historical norm for much of the industry.
Conduct a rigorous selection of outsourcing providers
Although the biopharma sector has increasingly (though by no means universally) moved toward an outsourcing model in which they work more closely with fewer CROs under more strategic arrangements, the use of traditional RFPs and a reliance on negotiated rate cards is still common. While straightforward and familiar, such methods are often at odds with the value sponsors are seeking to achieve.
In other outsourcing contexts, customers have adopted more sophis-ticated approaches to outsourcing provider evaluation and selection. RFPs include more detail on the strategic rationales for outsourcing, and invite supplier proposals that highlight different value propositions, business models, technical capabilities, and approaches from responding suppliers. This in turn requires more robust evaluation criteria and building skills to conduct “apples-to-oranges” comparisons across providers.
Moreover, the evaluation and selection process should focus not only on experience and technical capabilities, but also on cultural fit and a two-way exploration between customer and supplier of how well they will be able to work together. It requires hardly any effort to find cases where a given CRO, or any other outsourcing provider, has been extremely successful – and cases where they have failed rather spectacularly. Some of this is due to differential supplier capabilities and expertise, which are better suited to some customer contexts than others. That being said, our research and experience clearly show that the difference between outsourcing success and failure is less often due to the competence and capabilities of the provider, and is much more a function of the extent to which provider and customer were able to work effectively together.
Examples of criteria, as part of a balanced and comprehensive CRO evaluation process (based on our work with biopharma clients), can be seen in Figure 3.
Figure 3. Figure 4.
Negotiate contractual terms and incentives that are aligned with business objectives
Conventional, activity-based pricing agreements (based on rate cards) are arguably sufficient for transactional relationships where a narrowly defined scope of work is being outsourced. However, paying CROs on the basis of activities performed creates a perverse incentive to perform more activities, instead of finding more efficient ways to achieve desired outcomes. Put another way (since we do not believe that CROs consciously employ business models based on doing unnecessary work), if conducting faster, more cost-efficient studies (without in any way compromising patient safety, data integrity and so forth) is the goal (since this will result in more medicines getting to patients, sooner, and more affordably), then CROs that invest in finding innovative ways to do just that will end up being penalized under traditional pay-for-activity models.
Improved outsourcing performance requires contractual terms, and associated KPIs, that better align sponsor and CRO incentives. Standard IT and BPO outsourcing agreements involve the customer paying a fixed fee for defined outputs or outcomes (e.g., system up-time, transaction processing time) – subject to carefully defined exclusions and exceptions. Robust service level requirements are also defined and agreed to by customer and supplier, along with associated penalties (usually in the form of service credits), and often upside incentives (often defined as off-sets to credits). Outsourcing providers typically have significant (though not total) control over how to achieve such outcomes, and are thus motivated to continuously improve their operations and invest in new capabilities and innovative approaches. Such arrangements have become more common in the biopharmaceutical industry over the last five years or so, but they are still much less common and usually less robust than in other industries.
Outcomes over which a CRO does not have control (e.g., “compound achieving regulatory approval”), may not work in most outsourcing arrangements, but outcomes such as successful trial completion and key interim deliverables (e.g., patients enrolled, errorfree data submitted to regulatory agencies) can form the basis of contracts with better aligned incentives – especially when coupled with penalties and bonuses tied to patient safety and welfare. One benefit of more comprehensive and longer term outsourcing relationships is the ability to consider more innovative pricing arrangements (such as paying a CRO per patient enrolled, or per patient completion).
Finally, biopharmaceutical companies should consider doing what is increasingly common in other industries; namely, employ two-way or reverse scorecards and KPIs – in which the supplier rates their customer on key aspects of the customer’s performance. (Such KPIs may or may not be tied to formal financial consequences; more often they serve to ameliorate penalties for which the supplier might otherwise be liable.) The logic is simple. In most complex outsourcing arrangements, a supplier’s performance depends to a significant degree on the customer, and the extent to which they help or hinder the supplier’s performance.
Track, report, and actively manage projects against budgets
Given the high cost of clinical trials, it is cause for concern that 47% of sponsors in our clinical outsourcing study reported having no formal process for monitoring trial progress against the contracted scope of work and budget, and for resolving scope changes. (Such processes are nearly universal in every other outsourcing context.) Not surprisingly, sponsors without these processes are more than twice as likely to have their trials run over budget or timelines than sponsors with a formal process.
Clinical outsourcing is indeed more complex than simply outsourcing an IT help desk, or basic payroll and benefits administration. (It is not so obviously more complex than outsourcing management of a comprehensive set of IT and telecommunications services on a global scale, or the design and development of a major sub-system of a new defense platform.) Regardless, the inherent complexity and uncertainty that attends clinical development is not a reason to punt on rigorous budget and scope management – it is a reason to do so with enhanced discipline. Regular joint reviews of progress against plans and budgets create opportunities to identify and address unforeseen difficulties early (before they lead to cost increases – and often significant delays as well) and to do so collaboratively, in turn reducing the likelihood of a cycle in which delivery challenges lead to reduced trust and damaged relationships, which in turn contribute to worsening performance.
Focus on, and invest in, transition and change management
Ultimately, as in much of business, success in outsourcing comes down to the people involved and how well they are able to work together – to make decisions, diagnose and solve problems, resolve conflicts, respond to change, and learn. It is our experience that while clear definition of outsourcing objectives, rigorous supplier selection, and careful negotiation of a sound contract are all important – nothing has as much impact on outsourcing success or failure as a carefully managed transition (whether that be initial outsourcing, changing providers, or restructuring the outsourcing model and relationships with providers), along with substantial investment in change management.
Figure 5. Figure 6.
That clinical development outsourcing is often characterized by significant micromanagement of CROs by sponsors is a more or less universally acknowledged truth – as is the cost of doing so, which sponsors pay at least three times over. Sponsors pay CROs to do work which has been outsourced to them; sponsors typically continue to pay “shadow teams” of internal individuals who have often not been trained to engage in efficient and effective oversight, and who thus naturally end up engaging in micro-management of CRO staff; and, due to such micromanagement, sponsors end up quashing the ability of CROs to drive the kind of innovation that was part of the rationale for outsourcing in the first place. Ironically, even at companies where micro-management is (or was) an acute problem, the opposite dynamic of “throwing work over the fence” to CROs, with insufficient communication of context or guidance, is also fairly common.
The regulatory reality in which biopharmaceutical companies operate is surely a complicating factor. While regulators have begun scrutinizing CROs more closely, and holding them accountable alongside sponsors, sponsors still bear primary responsibility, and thus outsourcing without micro-management is a real challenge. But again, lessons can be drawn from outsourcing in other contexts.
First, sponsors need to spend significant time, both in selection of CROs, and during post-selection transition, jointly reviewing each other’s SOPs. Both sides need to agree on and clearly define when a CRO can use its own SOPs (which of course they understand better, and will thus almost certainly follow more effectively and consistently), and when (often best by exception) there is a compelling reason for the CRO to follow the sponsor’s SOPs.
Second, sponsors need to invest in change management and skill development workshops to help their staff understand and make the transition from doing some or all clinical development work themselves, to engaging in what we refer to as “enabling oversight.” This entails both the exercise of responsible oversight, as well as providing subject matter expertise and support to CRO teams. In our experience, most (though not all) sponsor staff will ultimately embrace such an evolution in their roles, though not without some initial trepidation. At the same time, this change in role requires a major change in mindset, skills, and behaviors – hence the need for investment in change management and training.
Choosing the right CRO relationship model
In our work in the biopharmaceutical industry over the past 15 years, we have seen ongoing ambivalence and vacillation when it comes to outsourcing. On the one hand, there is a fairly pervasive belief that fundamental improvements in clinical development require strategic collaboration with CROs under some kind of cooperative, partnership-oriented relationship. On the other hand, there is frequent disappointment with the results delivered by attempts to engage in such partnerships, and in some quarters a cynicism about whether the notion of “partnership” with a CRO is anything but a dangerous fantasy. As we noted above, we do not believe there is a single ideal outsourcing strategy or CRO relationship model that will work for all biopharmaceutical companies. We do believe that more clearly defining outsourcing objectives, and defining and aligning around clearer, more realistic expectations between sponsors and CROs, is necessary to the success of any outsourcing arrangement. While “best practices” from other outsourcing context cannot simply be copied in clinical outsourcing in plug and play fashion, we have found that the lessons we’ve summarized above do have broad relevance and applicability – including in the life sciences sector.
Jonathan Hughes is a Partner and head of the Outsourcing and Supply Chain Management Practice at Vantage Partners, a global strategy and management consulting firm. Ashley Hatcher is a Senior Consultant at Vantage Partners, and a member of the firm’s Outsourcing and Supplier Management Practice. Vantage Partners helps clients drive supply chain transformation initiatives, supports development of outsourcing strategies, helps implement supplier relationship management programs, advises on high-stakes supplier negotiations, and provides a range of training solutions to executives and professionals who need to work effectively with third party suppliers. Jon and Ashley can be reached at [email protected] and [email protected].