Companies are taking a new look at functional service providers (FSP), as they reassess their outsourcing models in the quest to continue to advance research despite constrained budgets.
Now, in addition to the traditional full-service CRO, biopharma companies are considering the relative merits of functional service provider relationships, in which an organization contracts a particular service, activity, resource, role, infrastructure, or output to support all or most of a sponsor’s research activities. Speakers at the recent SMI conference “Partnerships with CROs” explored those options.
The trend emerged in the late 1980s and early 1990s when young companies lacked R&D resources. “They needed to be knowledgeable, so they used the same vendors in multiple trials. Then big companies caught on,” explained Pasi Piitulainen, senior director of business and science affairs at Actelion Pharmaceuticals. Eventually, the trend shifted to one CRO performing the entire study. Now it’s shifting back as biopharmas seek out further cost savings.
Managing multiple FSP relationships requires in-house resources and expertise, Piitulainen noted. “They’re not for start-ups. If you’re small, you should fully outsource a project because you probably have insufficient human resources, facilities, information technology, etc. Often, you only have the science.”
Actelion took that approach, outsourcing everything in its early days. “Then as we grew, we wanted more control so we moved to functional outsourcing, choosing the best vendor for needs,” Piitulainen recalled.
There are three basic FSP models, Piitulainen said. Options include the transactional, preferred provider, and sole partnership models. Transactional models contract with FSPs for a single, specific project. This usually involves an open bidding system.
The preferred provider model (which Actelion chose) develops a pool of providers with specific capabilities. Because projects are bid into a pool of already vetted FSPs, the legal framework is already in place. The basic legal and business terms are already defined and pricing and discounts may already be established, so project managers need little more than a work order. “This is much faster than a transactional relationship,” Piitulainen said.
The sole partnership resembles an alliance structure. Like the preferred provider model, the framework already is negotiated. Because this model eliminates competition, there are inherent dangers of complacency and price inflation. “The literature recommends rebidding the contract every few years to keep both parties on their toes,” Piitulainen said.
The first issue is to determine what should be outsourced. As Piitulainen explained, “What is outsourced depends upon the company strategy and how much control it wants.”
The decision of what to outsource depends upon what the study sponsor considers core and noncore functions, said Ian Birks, vp of integration, resourcing, metrics, and reports for Quintiles’ global functional resourcing business.
“The critical success factors in an FSP relationship start with the strategic vision,” he noted. Whether that vision is to drive efficiency, generate cost savings, or move into new markets, the parties should agree on their goals.
Partners also need a similar mentality going into a relationship regarding those goals and levels of mutual trust, he said. “There is a real opportunity to work with leaders in many different fields,” creating a collaboration in which the sum is greater than its parts.
To transition into an FSP model, an implementation framework is needed. “The companies that transition most successfully are extremely good at governance,” Birks observed.
For an FSP relationship to succeed, governance must be well-defined and agreed to by all parties. “If you develop a governance framework yourself, it will fail,” Piitulainen warned. Instead, “Bring in the vendors and develop the governance structure together. Both the FSPs and the client should empower their committee participants to make decisions.”
After the framework is established, Piitulainen said, “Much of the success depends upon good communications. Define clearly how information is to be transferred, where it can be shared, and how often the project teams will meet, for example.”