Brad Anderson

Sponsors know that clinical trials are one of the most expensive endeavors for their company. Many sponsors would like to manage their trials in-house, but lack the needed infrastructure. Yet, sponsors have reservations outsourcing clinical research due to problems experienced working with CROs. These difficulties include lack of pricing clarity, poor communication, and inconsistent commitment to projects.

  In our experience, sponsors can better manage these issues by improving the processes they use when selecting CROs.

Sponsors typically select CROs in a competitive bid process. Sponsors issue a request for proposal (RFP) to a number of CROs. The RFP describes the project the winning CRO will perform. In addition, it instructs CROs to provide information the sponsor requires to identify the vendor that best meets its needs.

CROs then bid on the project by preparing a proposal. The sponsor reviews all proposals and awards the contract to one of the bidders.

The winning CRO's proposal, premised on the RFP, establishes the foundation of the project plan. An inadequate RFP leads to inadequate proposals, which leads to an inadequate project plan. This, in turn, leads to budget creep, insufficient resources to complete the project, and the potential collapse of the relationship between sponsor and CRO.

We have written proposals for CROs bidding on clinical projects valued at more than $10 million. Through this experience, we have seen poor RFPs as well as excellent ones. This article distils our experience and presents the five biggest mistakes sponsors make when preparing RFPs. Readers will learn what these mistakes are and gain insight into how to avoid these pitfalls. These mistakes include:					

Many sponsors issue RFPs before they have a sufficient understanding of their outsourcing needs. In some cases, this is okay if the sponsor is using a CRO to help finalize certain details of its clinical plan. However, if too much of the clinical plan is undeveloped, the sponsor gives the CRO power to design a plan they want, not the one the sponsor needs. The plan the CRO wants is the one that will win the contract.

CROs have learnt that, on average, a low price wins contracts. Moreover, they know that many sponsors will choose a proposal with a low price even if the proposed project plan does not reflect their needs. We once raised this issue with a clinical manager at a sponsor when we lost its contract to a lower bidder. To our surprise, the manager agreed with us. She knew she would need "extra" services from the CRO to meet their clinical needs. However, key decision makers at her company focused more on price than on what their actual needs were, or the risks of not having those needs met.

Sponsors allow this to happen when they do not take the time to educate themselves on what their needs are. Thus, CROs will design a bare-bones project plan with a low price. Only once the project starts does the sponsor learn the extent of the services it actually needs, and the project's scope and budget inflate. So, before issuing the RFP, sponsors should have a solid clinical plan.

Perhaps the sponsor will leave some details for the CRO to finalize. But the more the sponsor can tell the CRO, the more it retains the power to ensure the project plan and budget developed by the CRO are realistic. To do this, the sponsor must put in effort before issuing the RFP. It must thoughtfully map out its clinical program. If the company lacks the expertise to do this in-house, it should acquire expert help.

There is information CROs must have to develop a budget and work plan. In the absence of this information, CROs must make budget assumptions. Different CROs will choose different assumptions, undermining your ability to compare the costs from one CRO to another. Moreover, when CROs get to choose their budget assumptions, they tend to choose ones that make their costs look good.

It is true that in many cases sponsors may not know the details the CRO needs. Indeed, you may not know certain details, such as the number of queries per subject, until the study begins. In these cases, the sponsor should provide the budget assumptions in its RFP. If this is not possible—say, because you are asking the CRO to suggest the monitoring frequency—the RFP should clearly ask the CRO to state its assumptions, justify those assumptions, and provide a unit cost for the activity.

To help the CRO write a proposal, the RFP should provide:					

The number and location of clinical sites

Proposed case report forms (CRFs) or a list of required CRFs

An assumption of the number of queries per subject

An assumption of the number of serious adverse events per subject

This list is far from complete. Given the range of services a sponsor might require, providing a complete list of the information needed by the CRO is beyond this article's scope. There are, however, a number of resources available to sponsors, such as RFP manuals and templates.

  If you are unsure what information the CRO needs, ask them prior to submitting your RFP.

A clinical trial is one of the most costly activities sponsors perform. Moreover, the future success of the sponsor is dependant on the trial's results. Is it not worth some effort to ensure the CRO you hire is up to the task?

Sponsors should perform proper due diligence of the CRO they hire. This includes reference checks, review of financial information, study of staff turnover, and a site visit.

 The RFP should instruct the CRO to provide at least three references from customers who have had projects similar to yours run by the CRO. This is critical to ensuring the CRO is capable of delivering the work you are contracting out at the level of quality you need.

 The CRO industry is becoming more competitive.

  As a result, the number of CROs in the United States is decreasing through attrition and consolidation.

  Should your CRO experience financial distress, this can jeopardize your project. Sponsors can assess this risk by asking the CRO to provide at least three years of financial statements. Someone with financial training at the sponsor should review this data to assess the CRO's financial strength.

 High staff turnover at the CRO can be disruptive to your study. The RFP should instruct the CRO to provide turnover data. The sponsor can then compare the turnover data among bidding CROs. Note that you can define turnover in several ways. Thus, the RFP should define how to make this calculation. We recommend the method presented in Figure 1.

 A site visit allows you to verify with your own eyes the CRO's abilities. In addition, when you hire a CRO their project team becomes a part of yours. Therefore, the compatibility of the two project teams is important. The site visit allows you to assess this compatibility.

As Table 1 shows, despite the importance of due diligence, very few sponsors make the effort to do it. This table summarizes the percent of sponsors who performed due diligence over one year at a CRO we worked with. As you can see, many companies did very little, if any due diligence on the CRO. This laxity increases the risk that the sponsor will end up hiring a CRO that will not meet its needs.

Unless instructed otherwise, each CRO will present its budget in its own format. To control for this, some sponsors present a bid grid in their RFP that instructs CROs how they want the budget presented.

In theory, this makes sense, as you can easily see where differences between CROs lie. In practice, though, there are shortcomings of relying too heavily on a bid grid. This stems from the fact that there are many ways a CRO can organize its workforce to perform a clinical trial. Each CRO organizes its budget to reflect its unique workflow. When you present it with a bid grid, it must now translate its budget into your grid. This requires discretion.

Consider the following: Where should a CRO allocate the cost for overseeing copying and shipment of paper CRFs from global sites to your data center? One CRO may file it under data management because they assign a data manager to oversee this task. In another, the monitor performs this function, so they allocate it to monitoring.

Once the CRO has allocated its expenses across your bid grid, it will review each category to see if any item seems too big or too small. It will then readjust how it allocated costs until the bid grid "looks about right."

If the sponsor does provide a bid grid in its RFP, we recommend keeping the details to a minimum. We have seen bid grids provided from sponsors containing over 100 budget line items that contain minutia such as "Prepare Investigator Notebooks." Imagine the effort required to compare the bids from three to five CROs across 100+ line items. Given the latitude CROs have in translating their budget to your bid grid, are differences across line items such as "Prepare Investigator Notebooks" very meaningful?

Dividing your bid grid into major categories, such as project management, data management, and so on is sufficient. Moreover, we recommend that sponsors not read too much into differences observed across categories in their grids. If the total budget of the most and least expensive CRO is within 25% of each other, then differences observed across the bid grid are probably not important.

Because of rising costs, sponsors obsessively search for the cheapest solution to their needs. To achieve this, they mercilessly drive down CRO rates and cut corners on their clinical plan. Unfortunately, many companies incur long-term costs in their search for short-term savings.

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Knowing what you want from a CROs proposal will help make the most of the selection process.

Top 5 Mistakes of RFP Writing

Many clinical development executives sense they are not getting the best value out of contract research organizations (CROs). Areas of concern include lack of clarity on pricing, poor communication, and an inconsistent commitment to projects.

  Managers feel that contracting to a CRO is less cost effective than performing activities in-house.

 Nonetheless, about two thirds of clinical trials involve CROs.

  Consequently, contract research is a multibillion dollar industry growing at 14% to 16% per year.

  Given this reliance, difficulties with CRO management represents a significant concern to the research and development of new medicines. 

This article establishes that drug developers are, in fact, ineffective at CRO management compared to other industries. There are identifiable causes of this inefficiency that this article describes. It also provides a sample of tools that drug developers can implement to improve how they manage CROs. 

Clinical developers estimate the cost to manage a CRO is 20% that of performing the task in-house

  (in other words, if it cost $100 to do something in-house, it costs $20 to manage the vendor it was outsourced to). How does this compare to other industries? To assess this, a metric called Transaction Management Cost (TMC) is useful. TMC is the internal cost a company pays to manage vendors. These include costs to identify contractors, develop requests for proposals (RFPs), review proposals, and select a CRO. It also comprises the cost to negotiate and execute a contract. Finally, it contains ongoing expenses to oversee the CRO's activities throughout the project. 

Looking at the information technology industry, for example, Figure 1 shows that the average TMC is four cents on the dollar. That is, for every dollar paid to a vendor, the company spends four cents to manage the project. Looking at the biotech industry, the TMC is 15 cents on the dollar. Pharmaceutical companies have a TMC of 40 cents on the dollar.

  The difference in TMC between biotech and pharmaceutical companies likely arises from different operating styles. Most biotech companies are not yet profitable and are therefore compelled to run much leaner operations. 

Figure 1. The amount in cents spent on internal costs varies by industry. 

This statistic is not likely to improve soon for several reasons. Currently, the complexity of CRO selection is increasing. Companies are adopting team-based approaches to CRO selection involving many departments and executive management. RFPs are becoming longer and more complex,

  which adds cost and time to CRO selection. 

Moreover, two thirds of companies do not use preferred vendors or negotiate master service agreements (MSAs) with CROs.

  Thus, rather than gaining efficiency in CRO selection, most companies repeat the same process for every new project. Furthermore, when other industries outsource functions, there is a corresponding decrease in internal resources. This does not happen in the pharmaceutical industry.

  So companies pay twice: once for the CRO's team and again for their own "shadow" team. Together, this has a significant impact on budgets. Consider a $1 million outsourcing project. Using a TMC of four cents on the dollar, the cost to manage this project is $40,000. 

However, given the TMC in biotech and pharma of 15 cents and 40 cents on the dollar, the management cost is $150,000 and $400,000, respectively. If biotech and pharma companies could bring their TMC in line with the IT industry, this would reduce the total project budget by 10% and 26%, respectively.

There is a spectrum of outsourcing models ranging from tactical to strategic. The drug development industry typically limits itself to tactical outsourcing models

  (see Figure 2). Tactical models include fee-for-service arrangements and preferred vendor models. Contracts are project focused and companies choose vendors on a case-by-case basis. Strategic models include the formation of partnerships and alliances. A true strategic relationship must meet three criteria. 

Figure 2. Drug developers typically limit themselves to the tactical model. 

The company aligns its outsourcing strategy with its corporate strategy

Scope of the partnership extends beyond a single project

The CRO and drug company share the risks and rewards of clinical development.

How does entering into strategic relations lower the overall cost of outsourcing? Strategic models align incentives by sharing risks and rewards. Both drug developer and CRO share quality and performance incentives, which create value and efficiencies. Moreover, firms can implement long-term programs to improve performance. Additionally, managers reduce the costs of CRO selection because partnerships span many projects. Some pharmaceutical companies have shifted toward strategic outsourcing. As Table 1 shows, Wyeth Research and Solvay Healthcare have each entered into strategic partnerships with CROs, and each has achieved significant benefits. 

Table 1. Strategic partnerships proved fruitful for both Wyeth and Solvay. 

In tactical relations, however, incentives are misaligned. The drug developer wants more value for the dollar, and the CRO needs to protect its profit margins. The final contract is a negotiated compromise between these opposing incentives. Moreover, because relations between the companies end upon completion of a project, there is no incentive to improve long-term performance. 

The limitations of tactical models and benefits of strategic outsourcing beg the question why strategic relationships are so rare. Typical answers include: 

 Many managers believe only large firms can enter strategic relations. This is untrue. Size does not restrict the ability to outsource strategically. 

 Due to lack of data, it is difficult to quantify the benefits of strategic outsourcing in clinical development. 

 Managers believe they might lose control of outsourced activities.

  If the company uses only tactical models, this fear may be justified. Strategic outsourcing, however, can lessen this risk. 

 Many managers are unaware of the range of outsourcing options. 

 Rationally determining which functions to develop in-house and which functions to outsource can be difficult.

  Therefore, companies perform outsourcing ad hoc when internal capacity is lacking. 

 Strategic outsourcing requires a significant commitment at the executive level. Thus, managers turn to tactical outsourcing because it is easier. 

The goal of an effective outsourcing program is not to enter a strategic relation with every CRO.

  Strategic relations need significant energy to implement, and are therefore not appropriate for every function. Instead, the goal is to form the right relationship with the right CRO for the right activity. To do this, the firm must first decide what functions to outsource. Then it must determine the best relationship to form with its CRO. 

In the early 1990s, the concept of "core competency" drove outsourcing decisions. This school of thought suggested companies could achieve a long-term competitive advantage by identifying core competencies. Managers then outsourced remaining functions. Identifying core competencies, however, is difficult, contentious, and subjective. A more practical method of making outsourcing decisions uses the concept of relative efficiency.

  That is, if you perform a function better and cheaper than other firms, perform it in-house. Otherwise, outsource the function to a CRO who can. 

Easy to say, but this involves choices many managers struggle to accept. There may be functions managers consider strategic that the relative efficiency model suggests should be outsourced. However, it is not a company's ownership of capabilities that matters but rather its ability to control them. If strategically designed, an outsourcing program will allow managers to retain control of critical functions. 

The following presents a three step framework to help managers choose what to outsource.

 Managers assess each function in their development program. Does the company perform the activity in a manner unique to the industry? Does the way in which the company performs the function deliver a competitive advantage? If the answers to the above questions is no, then the function is an outsourcing candidate. Otherwise, consider retaining ownership of the activity. 

 Managers evaluate the company's cost effectiveness and ability in each activity. Regarding costs, managers compare their costs of performing an activity against industry standards. Concerning ability, managers determine whether they perform the activity better or worse than required. If the company's costs are higher than industry standard, consider outsourcing the function to CROs who can do it cheaper. If the company's ability is less than required, consider outsourcing to get performance to adequate levels. If the company performs the activity cheaper than industry standard and performs the function adequately or better, consider keeping it in-house. 

Based on the findings from the above two steps, managers make a decision about which functions to outsource and which to develop internally. But before implementing this decision, managers need to perform the third step. 

 Managers evaluate whether there are extenuating circumstances affecting their decision. What are the potential unintended consequences of the decision? Will the firm need to develop processes to mitigate these effects? Will the decision affect current relationships with key opinion leaders? Will the decision result in layoffs, and if so, what are the associated costs to the company? 

Based on these three steps, managers identify activities for outsourcing. The next step is to determine the appropriate relationship to enter in with the CRO. 

Another three-step process can be used to help managers choose the right relationship with the right CRO.

 Before a company can develop an outsourcing strategy, the business strategy must be in place. The company should have answers to questions like:  

Will the company develop its products to commercial stage or will it sell or outlicense the technology midstage?

Does the company compete in a therapeutic area or in a technological area (e.g., lipid-based drug delivery systems)?

In what countries will the company seek approval for its products? In what order will it seek those approvals?

What is the company's source of competitive advantage?

 Drivers are elements that justify a strategic relationship. The company's business strategy influences these drivers. There must be significant benefits for the company and CRO if a strategic relationship is to succeed. The benefits should be long-term and difficult for competitors to match. The following list summarizes benefits from the drug developer's perspective. The CRO should also assess drivers from its own perspective.  

Asset/cost efficiency: Integration of activities may reduce costs and increase managerial efficiency.

Improved clinical development: Tighter integration of activities may improve overall quality of clinical development (e.g., faster timelines and reduced queries).

Marketing advantage: Closer integration may accelerate time to market, facilitate entry into new markets or foster pipeline growth.

Profit stability/growth: Partnerships may lead to joint use of assets and other benefits that improve profitability.

 Whereas drivers provide motivation for forming a strategic relationship, facilitators support and strengthen the liaison. The following list summarizes important facilitators.  

Productive relationships with CROs require a well thought out strategy on the part of sponsors.

Brad Anderson

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