November 15, 2011 (Vol. 31, No. 20)
Functional Service Providers Can Provide More Focused Expertise and Economic Value
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.”
Managing research and development using FSPs is unlike managing a traditional CRO relationship because of the multiple interfaces required to manage multiple FSPs. The client needs well-structured internal processes that can deal with multiple FSPs. “If not, errors can occur,” Piitulainen warned. “We went through a learning period before we standardized our processes.”
The difference between CROs and FSPs is also noticeable in data analysis. A CRO typically would analyze the data, but an FSP pushes the data to the client. Therefore, the client needs strong informatics capabilities.
As an FSP, Birks said, “We become really integrated into the client company.” Ideally, the relationship will be so seamless that the team seems to be a part of the client company. In a relationship like that, “We have more touch points, and we work across the entire portfolio. We also have to interact with other partners, by region or by function, to integrate data and bring it together into the information system.
“Therefore, we must be very clear on study deliverables and standard operating procedures.” Typically, FSP relationships last several years.
Before beginning a project, particularly with a new team, run a pilot, Piitulainen emphasized. “Record everything. Then sit with the FSP to develop lessons learned and to identify any gaps.” He also advised implementing the lessons learned gradually. “It takes a few trials—depending on the team—to make the process smooth.”
Keeping the same project managers in-house and within the FSPs also helps. “Project managers are worth gold. They are the most important asset. There must be a very good reason for removing them. Ensure that not all trials start at the same time,” he cautioned.
“Once you decide to outsource, you can explore ways to leverage technology to automate processes or make more effective use of the data,” noted Tony Carita, president of CTB Solutions.
The challenge is in blending the technology platforms used by the many groups within an organization and integrating legacy data. Typically, the outsourcing, legal, finance, and project-management groups “all have different platforms, and more than 90 percent of the time, they don’t talk with each other,” he said.
Building a common platform integrating these groups necessitates determining system requirements, considering the business processes, identifying the handoffs, and designing a tool that allows each group to add its information.
“It may be as simple as an Excel Workbook,” he said, or may be a fully functional application like SynSource, which CTB Solutions designed for the R&D environment, to cut across functional silos and provide an integrated solution.
“SynSource supports requests for information, requests for proposals, bidding, negotiation, contract finalization, invoicing, benchmarking, earned value analysis, metrics, forecasting, and change management with a built-in document-management system all within a single web-based application.”
An R&D outsourcing management tool should integrate each of the activities and groups involved in managing an outsourced project across the enterprise, and include an audit capability to match invoices against purchase orders. It should be visible across the organization and consistent across all providers.
Currently, Carita said, “Very few tools are designed to optimize clinical R&D outsourcing across functional areas throughout the contract lifecycle. Usually, R&D uses tools designed for a fixed production environment, and we then make an attempt to force the more dynamic clinical trial process to fit the tool.”
FSPs offer the flexibility to select best-in-class providers of specific services rather than the best overall provider, but that type of relationship comes at a price, according to Sally Osmond, executive vp of INC Research.
Specifically, although the client gains the expertise associated with a particular aspect of the overall project, it loses the broad expertise and intellectual property aspects of the CRO. “With an FSP, the client company assumes it knows the blueprint of the model. Therefore, FSP relationships are best for well-established companies with ample in-house expertise to manage a project.”
FSPs aren’t really different from other outsourcing arrangements, Osmond said. The implications, however, can be more far-reaching. “If a company outsources payroll and they’re late, all that happens is that payroll is late.”
If, however, one of the many FSPs on a project is late, the effects ripple throughout multiple companies and may jeopardize the overall project. Therefore, ensuring such events don’t occur or are remediated requires a greater attention to interface management at the client company.
The key aspect of any arrangement with a contract research organization is the relationship, Osmond said. “If the relationship doesn’t work then the contract isn’t worth anything,” she emphasized.
Although disparate corporate cultures may not be barriers to good relationships, complementary cultures are important factors in getting the best out of an FSP, Birks said.
“Where you get a collaborative culture with shared decision-making, FSPs work extremely well. If, conversely, you take a buyer/vendor mentality, you are limited in what you can achieve.”
There also is a danger in seeing outsourcing as merely another way to reduce costs, particularly when profit margins become so thin that nobody really wants to focus on the project. Likewise, “it will never work if senior management doesn’t support it,” Osmond said.
A successful relationship between a CRO and a biopharma is based upon mutual benefit, Osmond stressed. Whether contracting for an FSP or a traditional full-service CRO arrangement, “The gains must be shared. The CRO should have the ability to leverage what’s been learned” without violating confidentiality agreements.
For example, she said, using an FSP for data management may not make sense for the FSP if it does essentially the same thing year after year. But, if the relationship develops a way to manage data more efficiently, for example, and the CRO can leverage that knowledge with other clients, the project becomes more attractive and more likely to succeed.
“Don’t think that a successful relationship will happen overnight,” Osmond cautioned. “If you do, you’ll be discouraged. Instead, develop the relationship and invest in it.”