Ken Getz

In 2017, contract research services became the single-largest category of R&D spending by pharmaceutical and biotechnology companies. Spending on outsourcing services is approaching $80 billion annually, larger even than sponsor spending on infrastructure and internal scientific and operating personnel combined. 

Although a few notable top 25 pharmaceutical companies have announced plans to cut back on their CRO usage, there are many indications that CRO spending will continue to rise relatively rapidly. The overall drug development landscape continues to shed full-time positions. Since 2012, pharmaceutical and biotechnology companies have announced the elimination of nearly 40,000 positions. Nearly one-third of these position eliminations are from R&D functions. The volume of drugs in the global R&D pipeline continues to rise steadily, indicating that variable capacity obtained through outsourcing will be essential.

During the past five years, there has also been a proliferation of smaller pharmaceutical and biotechnology companies with at least one drug in active clinical testing. Of all companies sponsoring one or more clinical development programs, 61% now fall outside the ranks of the top 50 largest. Outsourcing meets a critical need for many smaller organizations that lack the personnel and experience to run clinical development programs.

Usage and oversight practice

Sponsor companies have implemented a variety of outsourcing models over the past several decades, with the goal of driving higher levels of efficiency and speed at lower fixed operating cost. Transactional models securing head count for a specific task per study are the oldest outsourcing approach. More recent models seek to achieve greater efficiency through higher levels of integration and coordination. These models leverage dedicated staffing; shared governance; integrated data; management control systems and procedures; and fewer sponsor personnel overseeing CRO execution.

To date, sponsor company use of a single or predominant outsourcing model has not been observed. Past research on outsourcing practices has shown that pharmaceutical and biotechnology companies use transactional and integrated outsourcing relationships simultaneously, mixing and matching the use of internal and contract staff across functions, varying the types of models used on a study-by-study basis. 

In 2018, Tufts CSDD conducted a new study-funded by a grant from Comprehend Systems-to update benchmarks and monitor trends in outsourcing model adoption. The study also assessed oversight practices and experience-an area that to our knowledge has not been evaluated previously.

Tufts CSDD implemented the survey online among pharmaceutical and biotechnology companies between February and March. A total of 88 unique companies-a 25% response rate-completed the survey. The majority of respondents (54%) had 10 or more years of experience in their current position. Nearly 60% of respondents were in clinical operations. The remaining respondents were distributed across clinical development (17%); quality assurance/quality control and clinical compliance (14%); and vendor procurement/vendor oversight (10%). Respondents largely had global outsourcing responsibility, with two-thirds based in the U.S.

Overall, pharmaceutical and biotechnology companies report mixed levels of satisfaction with their outsourcing management capabilities and their oversight effectiveness. More than half of the survey respondents reported using three or more different outsourcing models simultaneously. This finding reflects the realities of an outsourcing environment where sponsor companies prefer to modify approaches to meet individual project needs. More than three-out-of-four (77.3%) indicate that they routinely use full-service outsourcing. Approximately half (55.7%) routinely use functional service providers and four-out-of-10 use transactional, fee-for-service models.

Oversight practices were more actively supported by middle-to-lower levels of governance-most notably operating team and project team levels. Steering and executive committee oversight was less actively used. Managing risk and ensuring regulatory compliance were the primary objectives of oversight, followed by improving individual study performance and improving CRO productivity and performance. Approximately 80% of companies indicate that they use performance metrics to evaluate oversight effectiveness. Only 12% of companies report using industry-established standard metrics.

Email was the most frequently used (82% of respondents) oversight reporting approach. Status report teleconference calls, performance dashboards, and study portals were less commonly used to support oversight and escalate issues.

Companies are the most satisfied with oversight reporting accuracy and least satisfied with the clarity and practicality of proposed resolutions. Faster issue identification and resolution and more actionable insights and recommendations were the top areas where oversight could most improve. Companies also noted the need for more executive level involvement in the oversight process.

Flexibility and execution

Despite mixed levels of satisfaction, sponsor companies are choosing to use multiple outsourcing models-from traditional to more integrated-concurrently. This approach, while offering flexibility to meet individual study needs, is highly customized. As a result, it cannot be implemented across teams and functions consistently.

Top reported oversight objectives indicate that companies are placing a premium on execution. The primary purpose of oversight is to guard against and mitigate potential risks and to ensure regulatory compliance. As such, oversight is relegated to a more reactive role and its function falls largely to the project and clinical operations teams. More strategic and proactive objectives that would enhance collaborative trust and effectiveness are considerably lower priorities at the present time. 

Sponsors indicated a relative lack of senior management involvement in the oversight function. This is likely contributing to a less strategic and collaborative oversight approach, may enable more acrimonious executional interaction, and may be contributing to mixed levels of satisfaction with oversight effectiveness. 

Optimization pursuits

Taken in the aggregate, over a long time horizon, sponsor performance and inefficiency-regardless of the level of outsourcing used-have not improved. Drug development speed, cost, and success rates have not gotten better. In some cases, operating conditions have worsened considerably. Ongoing Tufts CSDD research shows that the cost of drug development continues to rise steadily by nearly 9% each year. Development cycle times have gotten longer and less predictable, with a higher incidence of unplanned delays and changes. And success rates are at their lowest, with only 11% of INDs filed ultimately receiving FDA approval.

The results of this study are consistent with past research conducted by Tufts CSDD. Wide variation in outsourcing model usage within sponsor companies may be limiting the achievement of efficient and predictable performance. As a start, the application of tools and technologies would go far in helping to enable better communication, reporting, and accountability.

Meanwhile, the outsourcing landscape continues to evolve and change rapidly. Traditional outsourcing is seeing notable increases in market concentration at the same time that specialty service providers experience unprecedented growth. Consolidation among mid-sized to large contract clinical research services providers during the past five years has been brisk and it has resulted in substantial market share gains among the top 10 largest CROs. During the past seven years, Tufts CSDD estimates that the 10 largest CROs have gained approximately 12 percentage points to capture nearly 57% of the overall outsourcing market.

Small niche and specialty contract service providers have enjoyed strong relative annual growth, approaching 10%. The mid-sized, full-service contract clinical services provider segment has experienced slow relative annual growth (4% between 2011 and 2017).

The largest CROs are intensifying efforts to differentiate themselves. Several are stretching their business models and including investigative site capabilities to drive scale efficiencies and economics. Some have expanded their portfolios to meet demand for higher levels of patient engagement as well as rich, advanced, and continuous data and analytics supporting learning health and research systems.

Outsourcing practices remain inconsistent and undisciplined-operating practices that invite inefficiency. These practices introduce incremental direct and indirect costs to support customized approaches. In addition, collaborative practice experience and efficiencies are isolated to individual studies and cannot scale across the development portfolio. 

There is ample opportunity to drive higher levels of collaborative value through more consistent and strategic outsourcing practices. And there is no better time than now to begin. The pressure to optimize drug development performance continues to intensify as the CRO landscape continues to grow and evolve. 

Ken Getz,MBA, is the Director of Sponsored Research at the Tufts CSDD and Chairman of CISCRP, both based in Boston, MA. email: kenneth.getz@tufts.edu