By Daniel Chapple, Executive VP and Chief Commercial Officer, Quanticate
In part 1 of this article I discussed two sourcing approaches – in-house support and a contingent workforce utilizing contractors. Each has its advantages and drawbacks. In part 2 of this piece I would like to discuss two additional approaches: competitive bidding outsourcing and the functional service provision.
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 pharmaceutical 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. Whilst 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 instil. 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, there is 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)
Whilst 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 2-5 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 pharmaceutical company 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.
In the third and final segment of this piece, I will discuss the final two sourcing approaches, the centralized service provision and full-service divisional strategic support models, as well as using locations to optimize cost.