R&D Directions recently posted that the National Bureau of Economic Research (NBER) is investigating the rising costs of drug development. The fact that even a non-profit group is taking a stab at what factors contribute to increasing cost components proves the issue affects more than just those in the biopharmaceutical/medical industries. According to the R&D Directions interview with Iain Cockburn, Ph.D., economists place great emphasis on innovation and R&D as sources of long-term gains in economic growth and productivity, and drug development is an important part of the economy on its own terms.
Challenges in patient recruitment, sicker patients, and growing trial complexity are, no doubt, significant drivers attributed to increasing development costs, but in reality, there is a real a lack of accurate data in understanding the true drivers. Hoping to change that, NBER is using industry benchmark cost data from two proprietary Medidata databases to test the feasibility of building price indexes to track clinical development spending.
It will be interesting to see the findings from this study, but there are also many proactive things the industry can be doing to lower costs, such as using a “fixed-price” model for clinical trials.
The dynamics of billing by the hour are now proving to be counterproductive to the achievement of mutual goals by CROs and research sponsors, proving to be not only excessive in difficult economic times, but also opening the flood gates for unethical bidding practices. There’s been a definitive shift toward building strategic relationships between CROs and sponsors and with that comes the desire to mitigate risk and contain budgets.
According to a study published by Industry Standard Research (ISR), many small and mid-market CROs lack service delivery differentiation, therefore price becomes their main tool for competing in the marketplace .
When the best price is all that is required to win a deal, there is an added incentive to bid low to win the job. And when a low bid is truly unrealistic, it opens the door to future scope changes and change fees. Most contracts anticipate scope change and put a limit on it. But what does it say about a system that often allows a range of 50% to 100% difference between the original bid and the end cost? It says that it is acceptable to underbid the job by up to half in order to win it, and it is also acceptable to make up the shortfall with change orders.
One reason we’re able to offer fixed-price clinical trial contracts is because we have adopted an integrated service delivery platform built on technology. The use of technology to drive process re-engineering is critical to gaining maximum cost reductions and efficiency benefits across the spectrum of phased trials.
Now that technology has evolved beyond simple electronic data collection, progressive CROs have and will continue to turn towards a comprehensive technology platform as a way to reduce costs through improvements in efficiency over the full range of processes. It’s the purposeful integration of technology and business process improvements that enables the next step in the evolution of the CRO business model.