This paper examines the practice of pharmaceutical firms outsourcing clinical research, particularly to countries like India. It explores the economic rationale grounded in comparative advantage theory and discusses how competitive labor markets reduce drug development costs. The paper identifies which research tasks are easily outsourced and which require domestic oversight, analyzes ethical concerns around regulatory differences, and concludes that outsourcing can deliver significant cost savings without compromising quality when appropriate international standards are maintained and key design and oversight functions remain domestically controlled.
Firms outsource clinical research for a number of different reasons. The theory of comparative advantage underlies clinical research outsourcing (CRO), as firms in other countries might be able to conduct research more effectively or efficiently. Often, outsourcing is done to save money, as is particularly the case with India. In other instances, the outsourcing goes to firms that have developed particular specialties in research (Piachaud, 2002).
In India, firms are competing for jobs doing clinical research, and that competition has driven down costs. This is important for the industry because the cost of new drug approval has reached over $1 billion, in part due to the high costs associated with clinical research. Greater competition in research and the use of lower-cost labor have helped companies contain those costs (Jayaraman, 2004). Different patient populations also make it easier to recruit people for trials in some countries, thus lowering the time spent on later clinical trial phases. At that point, the patent will already be in place, so speeding up the trials process allows companies to bring the drug to market faster, extending the period during which the firm can exploit its patent monopoly.
Some tasks are easier to outsource than others, however. One task that is difficult to outsource is research that seeks to determine the effects of an intervention on specific ethnic groups. Unless the outsourcing is to Canada or the United Kingdom, it is difficult to find populations that exist in the U.S. Outsourcing to India does not give access to the genetic diversity found globally, making it more challenging to conduct such specialized research. With respect to trials in general, however, most tasks are relatively easy to outsource because they can be performed anywhere with adequate laboratory facilities and trained personnel. Some risks have been identified, such as risks associated with transmitting data and maintaining privacy standards, but technology upgrades in the developing world can address these concerns (Jayaraman, 2004).
A key issue is the ethical considerations involved in outsourcing clinical research. If regulations in a country like India are lower, and this is helping to lower the cost of clinical trials, this raises the question of whether people are being put at risk because of the lower regulatory standards. The reality, however, is that cost savings typically result from it being easier to find recruits—because there are fewer patients with insurance or government health care in some regions—rather than from compromising safety standards. The result is that a drug can be brought to market sooner, which provides greater value before the patent expires. This need not raise significant ethical concerns if the same quality standards are used overseas as in America, provided that cost savings do not come from putting people at risk (Singh, 2008).
Maintaining international standards and enforcing consistent oversight can mitigate the ethical risks often associated with offshore research. When clinical research standards are harmonized across locations, the primary advantage of outsourcing becomes efficiency and labor cost savings rather than regulatory arbitrage that could endanger trial participants.
Thinking from the perspective of company management, outsourcing offers substantial benefits that should be leveraged strategically. As Jayaraman notes, outsourcing can cut 40 percent off the total price because trials can be conducted faster overseas and because of labor savings and competitive bidding. However, the oversight of the process must remain with the home country. The design of the trials is absolutely essential to quality control and should be conducted domestically. Where American genetics cannot be replicated overseas, the entire trial should remain at home.
Working with international standards, ethical issues can be avoided, and cost savings can come from other areas such as labor efficiency and reduced recruitment timelines. Maintaining domestic design of trials and oversight of the trials process ensures that quality standards are upheld. By taking advantage of the opportunity to have trials conducted faster and more cheaply overseas, while preserving critical control functions at home, companies can achieve significant cost reductions without compromising quality or research integrity.
References
Jayaraman, K. (2004). Outsourcing clinical trials to India rash and risky, critics warn. Nature, 10(2004), 440.
Piachaud, B. (2002). Outsourcing in the pharmaceutical manufacturing process: An examination of the CRO experience. Technovation, 22(2), 81–90.
"Domestic oversight and design control balance cost benefits with quality assurance"
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