A Review Of Sourcing Approaches Within Clinical Development – Part 1

By Daniel Chapple, Executive VP and Chief Commercial Officer, Quanticate

As budgets become tighter and tighter, many pharmaceutical, biotechnology and device companies are having to continually re-assess the way that they are supporting research & development activities to ensure a cost effective approach whilst maintaining quality.

Some companies have moved towards a full service strategic approach utilizing either an exclusive or dual-vendor strategy, others have moved towards a more functional approach utilizing different strategic vendors for different service areas, and others still have continued with a more ad-hoc preferred vendor approach where competitive bidding continues.  In addition, the role and cost associated with the use of in-house staff, contractors and the locations of those staff continues to be key decision points in regards to the most optimal strategy.

As a niche vendor with global capabilities, we are seeing a wide range of scenarios and this paper assesses the different strategies that we are finding together with some considerations when assessing each type of strategy.

In-house Support

If measuring the cost of staff at a salary level only, there would be a good case to maintaining a large in-house capability across functions with minimal outsourcing.  FTE salary costs are lower than the rates provided by both contractors and CROs.  There is also the added benefit of keeping knowledge in-house and maintaining control in terms of who is doing what and where.  However, when measuring overall cost, it is also important to take into account the many overheads that every staff member has.  Costs associated with buildings, utilities, benefits, management, attrition, technologies and training all need to be added to the cost per head.  The location of offices can also impact overall cost since the offices could be based in higher cost locations.

In addition, flexibility can be compromised as the FTEs are located in fixed locations and work either needs to be allocated according to spare resources or people need to have some idle time built into their work.  The peaks and troughs of work according the pipelines of work and the limited visibility can make this all the more challenging.  The efficiency and effectiveness of those working in-house also needs to be taken into account.  There needs to be a wide range of productivity metrics being collected and reviewed and the technologies and tools available to enable day-to-day work may also impact productivity positively or negatively. 

Since contractors and CROs are working across multiple clients and many of these overheads can be removed or diluted, there is a strong case to outsourcing aspects of clinical development where possible.  What initially can look like higher hourly rates compared to internal salaries can quickly become comparative or even more competitive when compared to the total cost of a person working full time within a pharmaceutical company.

Contingent workforce utilizing contractors

The amount of flexibility during peaks and troughs can determine the efficiency of a solution.  The use of contractors has become an option to many companies to ensure resource availability without the commitment and overheads of a FTE.  Many people are attracted to becoming a contractor due to independence and higher hourly rate which makes up for the insecurity of having contracts 100% of the time.  Hourly costs are higher than an FTE within a company but are often lower than a CRO cost.  Much like the FTE costs though, there are hidden costs associated with a contractor and also negative aspects in addition the positives of increased flexibility and reduced commitment.

This approach was, until recently, a preferred way of working with many pharmaceutical companies choosing to work primarily through a mixed in-house / contractor model with the use of CROs as required to fill any specific needs.  However, recent changes in employment regulations, higher hourly rates than FTEs, and the ability for these staff to quickly move to other companies resulting in loss of knowledge and increased cost of replacement, means that this approach has become less attractive.  This has resulted in many pharmaceutical companies moving towards the use of CROs. 

The management and oversight of a large number of contractors also adds further to the costs and higher turnover means that having a consistent, high quality team can become more challenging.  Overseeing the overall quality, training and tracking of the team and ensuring tools and technologies are optimal can also become a large task for pharmaceutical companies that choose this approach.  Many contractors are also required to be on-site which then adds all the overheads seen by an FTE.  A number of pharmaceutical companies that have historically used this method are now moving towards an outsourced approach to a CRO using one of the below methods to improve flexibility, assure quality, minimize oversight and reduce overall costs.

In part 2 of this article, I will discuss competitive bidding outsourcing and the functional service provision.