International Clinical Trials
Kevin Deane of PA Consulting Group suggests ways to gain business advantage through outsourcing, even – or especially – in a recession
While life science organisations are perhaps feeling the pinch less than other sectors, they are keenly interested in controlling operating costs to cope with the lack of blockbuster drugs in the pipeline. Not surprisingly, we see many pharmaceutical companies, especially in tier one, re-assessing their outsourcing arrangements in the hope of finding further cost savings.
This preoccupation with outsourcing is reflected in a recent survey of over 100 large enterprises in western Europe, which found nearly 60 per cent of respondents planning to restructure existing outsourcing agreements or to outsource more services in the next year (1). In common with other respondents, pharma companies are not always confident about their ability to get the maximum benefit from whatever outsourcing arrangements they choose.
To shed some light on the reasons why outsourcing benefits can disappoint, this article discusses the survey’s findings in three linked areas: the trend towards multi-sourcing; the need to improve relationships; and the potential for innovation when outsourcing. The findings will be related to the general business process outsourcing needs of life science companies and to the special requirements associated with clinical trials. Outsourcing clinical trials could include everything from clinical data management to
outsourcing of full clinical programmes to contract research organisations (CROs).
MULTI-SOURCING – THE NEED TO INVEST
It appears that one approach that is attracting considerable interest at the moment is multi-sourcing. In this model, the company selects a small portfolio of suppliers based on their core capabilities and then sets up a market in which suppliers compete for different segments of the work; the hope being that the competition will drive costs down. Seventy-five per cent of survey respondents were planning to use this approach
Our view is that multi-sourcing can be a good way to lower costs and improve services, but that it needs upfront investment to make it work – a reality that companies often fail to appreciate. This problem is not limited to multisourcing;
many companies lack a clear idea of the outsourcing costs generally. A regular question in the outsourcing surveys asks whether respondents’ organisations understand their costs; 30 per cent of respondents said they ‘did not understand their costs'. Although this is a drop of 10 per cent from a few years ago, it is still disturbing.
When it comes to multi-sourcing specifically, it is not surprising that costs get swept under the carpet for as long as possible. Senior management tends to put those responsible for the outsourcing project under pressure to show a rapid return, so we see business cases that underplay the investment required, and that do not get corrected when the full investment emerges. We know of at least one pharmaceutical company that has gone down the multisourcing route, and is now trying to come to terms with the need to set up the structures required to integrate the various suppliers’ work belatedly.
At the moment, many pharma companies are in the relatively fortunate position of having the cash to invest sensibly upfront in making multi-sourcing work. What is required is for them to be realistic about the outlook: they need to invest now and plan to enjoy the benefits now – albeit brought forward if financially engineered.
What kind of investment are we talking about? In any outsourcing arrangement, it is essential to invest money and time in the ‘retained organisation’ – the in-house people that will manage suppliers. When multi-sourcing, it is worth putting in place structures that will allow the outsourcing contracts to be run in a consistent way and without reinventing the wheel. Whether the function that is being outsourced is IT applications, IT infrastructure, or indeed clinical trial data management, HR or finance, many of the basic requirements are the same. The best solution is often to put in place outsourcing ‘centres of excellence’, which can manage all the outsourcing deals in a consistent and disciplined way.
These observations are particularly applicable to pharma companies. Not only are they interested in the multi-sourcing trend for business process outsourcing, they already have a culture of multi-sourcing their clinical data management and CRO deals, since many of these deals are negotiated and managed on a per-campaign basis.
Companies could benefit from standardising these deals, and from integrating multiple deals to create stronger relationships with strategic suppliers with whom they can then build relationships of greater trust. By bringing clinical data management outsourcing (currently usually the preserve of the R&D function) closer to general IT outsourcing, they could benefit from the greater depth of experience in the latter area, and ensure that their decisions are in line with overall IT strategy.
Outsourcing to CROs at first seems like a different game, with specific requirements such as the importance of geographic considerations and disease specialisations. Yet, again, it makes sense to look beyond a particular campaign towards a more strategic relationship, and we see signs that some pharma companies are doing so already. Rather than contracting based on immediate needs, CROs should be seen as service providers that can fulfil a number of clinical and development needs as part of a long-term, multisourcing strategy.
A more rigorous approach to managing multi-sourcing, and outsourcing generally, may sound like a daunting break with current practice. If so, bringing in expertise to set up the right retained structures or provide interim management can be a good option, provided that the company is independent and is not going to push its own outsourcing services. Not only can their experience speed up and remove risk from the outsourcing process, but temporarily externalising the retained organisation can make its costs transparent. Once the multi-sourcing arrangement is running, the retained organisation can be brought back in-house.
BUILDING STRATEGIC RELATIONSHIPS
Another worthwhile area for investment and attention in multisourcing, and indeed all outsourcing, is supplier relationships. The current economic turmoil makes suppliers particularly receptive to the idea of doing more to help clients in order to avoid losing contracts or having their margins squeezed. An opportunity exists, therefore, for clients to sit down with suppliers and find better ways of working together – but the survey found little evidence that this is happening. Clients are still focused purely on driving cost down – something that is likely to make the suppliers feel threatened, resulting in uncooperative behaviour as soon as their market picks up.
Pharmaceutical companies are well-positioned to take advantage of the opportunity to build strong relationships. One meeting every six months is not enough: what is needed is a sustained programme of relationship management that looks at the short and longer-term needs of both companies.
The scope of the agenda, level of engagement and frequency of the formal interaction between the two parties should be determined by the nature of business relationship mutually sought. This will not be achieved overnight, as trust on both sides has to be established as a de facto starting point.
As already mentioned, strong, trusting relationships with suppliers are particularly critical where clinical trials are at issue. Clinical data is the pharmaceutical company’s crown jewels, and needs to be treated with the utmost confidentiality and sensitivity. It becomes much easier to set up a relationship of trust when the individual project is part of an ongoing relationship that is of value to both parties, but effort also needs to be put into the relationship management context. Companies should implement and adhere to strong governance disciplines both from an internal and supplier management perspective. Within such a management framework, companies should undertake the essential role of supplier coordination – the approach to which will be dictated primarily by the sensitivity of the projects in scope.
Even if a client-supplier relationship has become frosty, the end result does not need to be an irretrievable breakdown of trust. We have seen relationships salvaged through an approach that focuses on the three key aspects of an outsourcing relationship:
commercial, service portfolio and behaviour. Using a range of techniques applicable to each aspect, the approach identifies the various components that are misaligned within each area.
The approach then identifies the cause of the misalignment and what options are open for adjustment. This effectively creates a targeted ‘get well’ plan for the relationship, fostered by both parties.
HOW TO INNOVATE FROM DAY ONE
Building stronger relationships opens the way for innovation;another area of missed opportunity identified in the survey:
only a third of respondents felt that they were achieving technical innovation through IT outsourcing for example. Innovation should be tackled when the outsourcing arrangement – whether multi-sourcing or not – is being set up, and not at an ‘innovation workshop’ a few months later.
Rather than simply outsourcing existing processes, we recommend that organisations work with suppliers in order to see whether they can be improved. An external facilitator may also help here – for example, providing scenario
planning workshops which clients and suppliers can attend together at the start of their relationship. By tackling innovation in the planning stages of an outsourcing deal, outsourced processes can be set up in ways that save money and improve results from day one of the contract.
Innovation is especially relevant in the clinical trials area because the environment is set to change radically – for example, with the breakdown of the traditional division between phases of trials, and a growing emphasis on postlaunch programmes. One implication is that those who build infrastructure for clinical trials need to build in flexibility; they need to be able to work with a broader range of patients and find ways to accommodate novel clinical indications.
Clients and providers need to address these issues as early as possible and preferably when the outsourcing agreement is being set up.
Relationships with CROs are another fertile, but so far largely uncharted, field for innovation. One or two imaginative deals have been struck: for example, last year, Eli Lilly sold laboratories to Covance for $50 million, while at the same time signing a 10-year service agreement under which Covance would take out Lilly’s toxicology testing and other support activities (2) . Deals like this allow the client to focus on activities that bring competitive advantage and outsource those that an outside company can carry out more efficiently; the supplier also wins because they get a guaranteed volume of work plus the ability to use the asset for other clients.
THE DRIVE TO IMPROVE
Given the lack of blockbusters in the pipeline, pharma companies will in the future be launching larger numbers of drugs in lower volumes. Centralised management of outsourcing deals may be the way to go, but decision makers will need to balance the aspirations for autonomy of individual clinical campaigns’ against the collective need to build strategic and trusting relationships with suppliers. Efficient, streamlined management of outsourcing processes will be a minimum requirement; strong relationships will also be needed, while those with the foresight to use outsourcing as an instrument of innovation will gain the competitive edge.
It was notable in the survey that companies showed awareness of the issues we discussed, but often felt powerless to do anything about them. Respondents said their biggest concern was integrating multi-sourcing contracts, but also revealed that they were not doing much to build their retained organisations. As already mentioned, many organisations had yet to establish the cost of the retained organisation. Relatively few organisations rated themselves as ‘mature’ in managing suppliers, yet many were compounding their problems by increasing the number of suppliers.
Evidently, companies are getting distracted by the thought of cost savings, and are failing to invest in the management structures, relationship building and innovation that will make their outsourcing arrangements deliver the desired savings and profits. In general, organisations need to tackle the issue of outsourcing more seriously: if a company was going to make an acquisition worth £500 million, every member of the board would be involved; yet in an outsourcing contract of the same value, it is rare for the board to be made aware of the critical details.
By involving the company’s best brains in evaluating and challenging each outsourcing business case, and by drawing on existing experience in areas like relationship management and innovation, companies can avoid the rocks and steer for the treasure.
1. Outsourcing what lies beneath – PA’s international IT outsourcing survey 2009; for a free copy, contact
2. Lilly Sells its Greenfield, Indiana, Operations to Covance; Expands Existing Collaboration Between the Two Companies, http://newsroom.lilly.com/ReleaseDetail.cfm?ReleaseID=326599, 6th August 2008
Kevin Deane is a Managing Consultant in PA Consulting Group’s Global Healthcare and Technology Group, focusing on R&D transformation and improvement programmes. Kevin has worked with many life science and pharmaceutical companies over the past 12 years, improving R&D performance, which includes the strategic planning and implementation of new sourcing and service management models. Kevin sits on PA’s Healthcare steering group.