STRATEGIC OUTSOURCING
Exit task in-sourcing, enter comprehensive
outsourcing
Marriage of convenience or long-term strategic partnership? Jonathan Hughes and Jessica Varni
analyse the evolving pharma/CRO relationship, urging trial sponsors to increase eff_i ciency and better
leverage external expertise through broader, longer-term, and more committed outsourcing arrangements
T
oday, 70% of clinical trials are managed in
the case for change
• Sponsors spend significant time, project
whole or in part by CROs, and experts
In contrast to outsourcing in other industries,
to project, managing competitive bidding
expect the $17.8 billion clinical outsourcing
pharma companies have traditionally worked
processes, and CROs spend reciprocal
industry to grow by 15% per year for at least the
with CROs in a manner that might better be
time participating. All this time and effort
next f_i ve years.
1-3
However, our experience, and
called in-sourcing or what Andrew Bonf_i eld,
could be more productively spent
publicly available research, indicate that the results former chief f_i nancial off_i cer of Bristol-Myers
between a sponsor and one or a few
delivered through such extensive outsourcing have Squibb, has called “out-tasking”.
7
Sponsors
functional outsourcing partners
been mixed. On average, sponsors benef_i t from a view each clinical trial as a stand-alone project,
developing and implementing improved
30% reduction in cycle times as compared to trials break it into various activities, such as patient
processes and procedures for more
managed internally, which can lead to as much as recruitment and data management (tasks),
efficiently and effectively conducting
$150 million in additional revenue if and when a
issue RFPs for those project tasks, and then
clinical trials;
drug is brought successfully to market.
4
However,
negotiate contracts with various suppliers.
• Multiple hand-offs and transitions across
for many, these gains in speed to market are offset
Over the past 7-10 years, many pharma
multiple suppliers over the course of a
by increased costs.
5
In fact, most pharmaceutical
companies have attempted to form closer
clinical trial introduces significant
sponsors view CROs as being comparatively
“preferred” relationships with a smaller
inefficiency and potential for error.
expensive,
6
and according to a study by consulting
number of CROs (often somewhere between
“Where you really lose the efficiency
gain is not so much on the transaction in
f_i rm Campbell Alliance, 50% of outsourced trials
three and 10). However, despite the existence
and of itself, but on the integration of
go over budget.
1
There are several reasons for
of master services agreements, sponsors
the steps in between,” says Genzyme’s
this, as outlined in Box 1. Given that most clinical
continue to bid out individual trials separately;
chief financial officer Mike Wyzga.
7
Fewer
trials do not result in an approved medicine that
CROs are not guaranteed any specif_i c
amount of work; and sponsors have not shed
CROs mean fewer hand-offs, which
generates revenue, paying signif_i cantly higher costs
assets or signif_i cantly reduced their internal
means lower potential for error,
(10-30% higher than using internal resources) for
cost structures. increased efficiency, lower cost and faster
faster cycle times is a dubious proposition.
The lack of meaningful reciprocal
cycle times; and
towards strategic outsourcing
commitments between sponsor and CRO
• Using multiple CROs also means that
sponsors and CROs do not build up
The solution to more eff_i cient and cost-
acts as a tremendous tax on productivity.
effective management of clinical trials lies not in
The traditional pharmaceutical outsourcing
bringing more clinical R&D back in-house, but
approach prevents companies from realising
Box 1: Why outsourced clinical
in outsourcing larger and more comprehensive
the powerful benef_i ts of outsourcing entire
trials go out of scope
pieces of work, and doing so through long-
functions (rather than discrete tasks or
• Trial design and planning are typically conducted
term, committed partnerships with CROs.
individual projects) or entire programmes
with insufficient involvement from CRO teams;
What most pharma companies term clinical
(a group of studies from Phase I through to
• Sponsors too often conduct CRO negotiations
“outsourcing” is radically unlike outsourcing in
product approval) – benef_i ts that have proven
by focusing on quoted bid price – relatively little
every other industry.
compelling (notwithstanding signif_i cant risks effort is focused on jointly identifying what
could lead to changes in scope and increases in
Outsourcing arrangements have been used
and challenges) in other industries.
cost, and jointly planning how to manage
extensively outside of pharma for decades,
When a CRO manages only one or a
such factors;
initially with a focus on IT (for everything
few discrete activities during a single phase
• Few sponsors and CROs design, implement, and
from data centre operations to software
of a clinical trial, they have very limited
utilise structured processes and tools for
application development), and more recently,
opportunities to improve the process in ways
managing changes to contract scope;
with a broader focus on various administrative
that decrease costs, increase speed or improve
• Few sponsors have effective CRO scorecards and
business processes (so-called “business process
patient safety. Meanwhile, even with preferred
performance measurement processes, which are
outsourcing (BPO)”, typically focused on non-
master agreements in place, CROs have no in turn linked to future sourcing and bid award
strategic HR and f_i nance functions). The hallmarks
guarantee of, and usually very limited visibility
decisions. Consequently, sponsors tend to award
projects based on CRO bids, irrespective of the
of these unique business arrangements include
into, the amount of work a sponsor will award
often very different track-records CROs have
long-term (often 5-7 years or more) contracts
them. Such uncertainty greatly limits CROs’
when it comes to delivery; and
with a single, or very small number of suppliers
willingness and ability to make investments that
• Clinical research is a complex activity, and it
(depending on the scope of work involved),
would increase productivity (for a particular
requires close collaboration among many
and the shedding or transfer of internal assets
sponsor, and in general), and compromises
individuals with different roles and expertise.
(including staff), such that external suppliers their ability to eff_i ciently plan work.
Few sponsors or CROs have invested in providing
assume broad responsibility for execution of Moreover, the current model of outsourcing
their people with the skills to collaborate
major business functions, and f_i xed costs are discrete tasks and individual projects entails the
effectively and seamlessly – as if they were
members of a single organisation.
transformed into variable costs. following additional costs:
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