Andrew MacGarvey — The changing face of outsourcing

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Pharmaceutical Technology Europe PTE

Quanticate's Commercial Director explains the ins and outs of outsourcing.

Andrew MacGarvey, Commercial Director at CRO Quanticate, explains the ins and outs of outsourcing in an unsettling economic landscape.

Q1: How has outsourcing in the pharmaceutical industry changed in the last 2 years?
I have seen a couple of trends during the last 2 years. The first is a definite increase in demand for the functional service provision (FSP) model whereby the sponsor outsources on a functional or departmental basis; for example, the vendor may be asked to provide a number of personnel for the sponsor’s programming group, in effect becoming an extension of the existing team. From there, the interactions might be with other groups at the sponsor company or even other vendors. The model has proved very successful with significant cost savings being made through improved efficiency. The second trend I have observed is a move towards the use of specialist providers. This trend is the result of the current economic conditions and the increasing complexity of clinical development programmes. There is a growing understanding that although a ‘one-stop-shop’ may offer convenience, buying in specialist advice can add great value to the R&D process.

Q2: Do you feel that the current economic climate has encouraged companies to outsource certain functions/processes?
I have seen a number of effects of the tightening of the economic market. Sponsor companies are now looking to drive the cost of the development programmes down and there a number of ways to achieve this, perhaps the most obvious being off-shoring. While the move to off-shore providers predates the current problems in the global economy, the volume of work delivered off-shore has increased significantly as cost has become more of an issue. Of course costs can be reduced through increasing efficiency; the FSP model I describe above is one way of achieving this. With sponsor companies downsizing their operational capability, the need for cost‑effective delivery by an external provider has seen FSP become an attractive option to outsourcing managers. Finally, the use of specialist providers has increased subsequent to the economic downturn. As I describe above, these providers’ expertise and experience can add further value to a development programme. The win–win for outsourcing managers is that these companies tend to run smaller and leaner than their full-service counterparts and, therefore, can deliver the work cheaper.

Q3: Although there has been a clear trend towards offshoring, there is also a growing trend for western companies to outsource closer to home. How do the two regions compare for outsourcing?
Off-shoring has a clear cost advantage. Sponsors are reporting increased project management costs in doing so, but overall there is still a cost benefit. The challenge for these countries will be to retain the trained staff. We are seeing the beginnings of a ’brain drain’ as qualified, experienced staff seek higher salaries abroad.

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The advantage of outsourcing locally is seen in the ease of communication; working within similar time zones and having the ability to arrange face‑to‑face meetings can have a big impact on a project. Although the systems are in place now to allow global operations, my customers still tell me they appreciate a local point of contact.

Q4: How have CROs adapted to face current market conditions and demands?
Reviewing the press, it is clear that CROs have had to adjust to the market conditions. With clinical studies being delayed and even cancelled, demand has dropped and some CROs have reduced their work force as a consequence. The difference between the current recession (and hopefully we are at the tail end of it now) and previous economic downturns is that it hit the pharma/biotech sector hard. Previously, this sector has been almost immune to economic corrections as investors kept faith with what were seen as very safe stocks. This time the correction was just too big for our sector to escape, and the situation was compounded as governments in more than one country sought to reduce healthcare costs as they themselves reacted to a serious situation.

The CROs that have concentrated on their core products and protected their existing business will emerge as stronger organizations, and will be well placed to deliver what will be a growing backlog of studies in late 2009/2010.

Q5: What, in your opinion, defines best practice in outsourcing? How can this be made cost-effective and efficient?
In essence, a CRO solves a problem for a sponsor. Personally, best practice starts by identifying the real problem. It might be very simple; a study that needs to be delivered where the sponsor does not have the requisite resource. Frequently though, there are complexities. A good CRO will identify these and construct the right solution. In a regulated environment, the majority of deliverables are standardized and a sponsor should be confident that, whichever vendor is selected, the outputs will be accurate. Best practice ensures that the route to the deliverables is correct and efficient, and that the deliverables themselves are appropriate and relevant.

Q6: What are the cost, quality and efficiency implications when outsourcing, in comparison to keeping functions/processes in house?
If a vendor has a robust selection process, quality and efficiency should be expected and delivered to at least the same level as the in-house team by a CRO. The expectation should be that the CRO environment offers increased efficiency. Teams are built by CRO managers to operate efficiently and customers are attracted by this. With regards to cost, any overhead in negotiating and monitoring contracts is recovered through the savings in delivery.

Q7: Given the vast choice of CROs and CMOs competing for projects, what should pharma companies be particularly concerned about when looking for outsourcing partners?
The key word here is ‘relationship.’ A sponsor may work with a partner for some time, perhaps many years. The relationship has to work from the outset. My advice to outsourcing managers is to make a positive commitment to assess cultural fit of the vendor organization alongside the standard comparisons of cost, skill sets and geographic reach.

Q8: How does a CRO keep its employees happy?
The key to staff retention is to understand the profile of those who work in the business. Of course we sit in a service sector so recruiting talented people that are customer-facing is important, but all of our people are knowledge workers. To develop our teams we need to ensure a variety of work, strong succession planning and openness with regards to company direction. We have addressed these points during the last couple of years and when we review the results of our annual staff survey we see the scores going the right way. At Quanticate, for example, we have an Employer of Choice programme that bundles various initiatives — this should come to the fore by the end of this year and I believe it will set us up nicely for the future.

The key to staff retention is to understand the profile of those who work in the business. Of course we sit in a service sector, so recruiting talented people that are customer-facing is important, but all of our people are knowledge workers. To develop our teams we need to ensure a variety of work, strong succession planning and openness with regards to company direction. We have addressed these points during the last couple of years and when we review the results of our annual staff survey we see the scores going the right way. At Quanticate, for example, we have an internal Employer of Choice Programme that oversees initiatives across all departments in the organisation. The Programme bundles common initiatives together creating cross-functional teams who drive the remit of the group forward (e.g., knowledge management).

Q9: What do you predict for the future of pharmaceutical outsourcing?
I believe that outsourcing will continue to remain cyclical. During the last 2 decades, we have seen the move from insourcing to outsourcing and back again, more than once. As sponsors seek ways to reduce costs, these shifts in approach will occur. We are seeing a move towards FSP at the moment, this may change in time and the full service approach might once again become the primary model. The big change that is coming concerns the whole R&D process. The cost of healthcare cannot continue to rise, and although the contribution of drugs is only 10% of the whole healthcare spend, they are an obvious target for cost review. Pressure will be exerted on reimbursement programmes and this, coupled with the onset of personalized medicine, will lead to a change in how development programmes are designed. When this happens, CROs will need to adapt to solve a whole new set of problems for their customers.

www.quanticate.com