Outsourcing of clinical research to a CRO or other vendors is a critical business process with a high impact on the outsourcing company and its procedures, especially for small sponsor companies.
According to the Avoca Group’s Industry Research Report on Clinical Outsourcing (2019) smaller sponsors spent 78% of their available finances on outsourcing, compared to larger sponsors with 50%. The overall outsourcing activities in the industry is stable at 65%.
Strategic Evaluation of outsourcing
Smaller sponsors, especially during their first clinical activities, are faced with the decision whether to outsource all activities and which activities to conduct in-house. For each activity to be outsourced, small sponsors should evaluate:
- The strategic importance
- The risks and benefits (e.g. oversight management, access to opinion leader and expertise, management complexity)
- The main reasons for outsourcing (e.g. cost savings, conversion of head counts to variable costs)
- Which core competencies should be maintained in-house
- Which broader strategic objectives can create a competitive advantage
Companies need to evaluate the costs and resources required to effectively select and coordinate vendors. The effort to appropriately locate internal resources to select the vendors is often underestimated by small sponsors. Typically these activities are given to the clinical teams who are already faced with the challenges of setting up the new clinical trial. It is advisable to have a team dedicated to prepare, implement and evaluate the whole outsourcing process, to ensure that procedures are standardized and comparable to support the decision making process.
The company´s management should be aware if the clinical team is ready to delegate activities to vendors, thus ready to move from managing the clinical trial to managing and supporting vendors. If the clinical team is not prepared appropriately, the consequences may reach from delays and increased costs in clinical outsourcing to outsourcing failures.
Moreover, the clinical team should be experienced in conducting clinical trials and therefore capable to recognize and mitigate potential risks associated with outsourcing as well as with the performance of the clinical trial in terms of budget, quality and time while maintaining patient safety and data integrity.
Costs of vendor selection and vendor relationship management
Vendor relationship management involves considerable cross functional management time, resources and coordination. These so-called “hidden costs of outsourcing” are associated with the transition to outsourcing and cover in general:
- Internal costs of the vendor search, evaluation and contracting
- Increased domestic and international travel during start-up
- Preparing vendor management processes
- Increased activities for accounting and financial management
The vendor selection process, when conducted in full requires personal meetings with vendors (bid defense meetings) and qualification audits of the pre-selected vendors at their premises before the final decision is made and the vendor is ultimately selected. Selection of unsuitable vendors can result in another round of vendor selection which impacts the overall costs of the selection process and will significantly delay the start of the clinical trial.
Also the subsequent contract negotiation process can be a lengthy and resource intensive activity which involves not only the clinical but also the legal and financial teams. Companies that are not used to outsourcing and to collect regular invoices from the vendors are faced with the additional challenge that the accounting and financial teams are often not prepared to review the increasing amount of invoices, not only from the vendors, but also from investigators or clinical sites, and to track budgeted vs actual costs.
Once the final decision on the vendor is made and contracts have been closed, the next challenge will be to implement your vendor management process (link to vendor management article on website) and to foster your relationship with the vendors to strive for a smooth clinical trial performance.
Outsourcing is rarely a one-time activity of a company. It is more important to be prepared for the transformation of the company into an outsourcing-ready sponsor company and thereby, minimize the risks and maximise the benefits of outsourcing. At the end, it should lead to considerable time and cost savings for the sponsor company to gain competitive advantage in the highly competitive drug development environment.