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Pharmaceutical Executive

Pharmaceutical ExecutivePharmaceutical Executive-04-01-2009
Volume 0
Issue 0

Big Pharma is finally making a commitment to partner-based outsourcing.

Eli Lilly's August 2008 announcement that it will transfer not only its clinical trial monitoring function to Quintiles, but also its early drug development facility to Covance, sent tremors through industry R&D. That transaction, and others like it, signals a profound shift in outsourcing practices. More and more drug companies—including Merck and Pfizer—are moving from "transactional" (capacity- and project-based) outsourcing to "functional" (competency- and portfolio-based) partnerships. One industry exec said, "The pharmaceutical industry has sailed right into a perfect storm that will likely increase its reliance on CROs [clinical research organizations]: an uncertain global economic and political environment, profitability and productivity pressures, tighter regulations, rising workload and tighter capacity."

The acute need to increase productivity while cutting costs is driving companies to better leverage performance and efficiency in their CRO relationships; higher levels of integration and standardization are key. Based on in-depth interviews with 10

mid-sized and large biopharmas, we analyzed both the advantages and the challenges of this industry-wide shift. Here, we offer management how-tos to support outsourcing relationships.

Playing the CRO Field

Traditionally, companies have outsourced their clinical research tasks on an ad hoc basis driven by insufficient internal capacity. (For more on the rapid growth of worldwide clinical trials, see the chart below right.) The sponsors profiled in this study by the Tufts Center for the Study of Drug Development (CSDD) reported that they generally use transactional outsourcing to perform circumscribed protocol tasks such as site selection and management, study monitoring, data management, and some medical writing. By contrast, quality assurance, biostatistics, and regulatory affairs are typically handled by internal staff.

Under such ad hoc arrangements, sponsors interact with a large number of providers: full-service and niche CROs, as well as functional contract services that provide statisticians, medical writers, and the like. Sponsors typically solicit three to five bids, and select the one with the lowest cost. This approach is primarily tactical, often last minute, and focuses only on the current "work package." Although cost control is a primary goal, the unpredictable nature of these projects often results in cost overruns. Sponsors tend to micromanage the relationship to ensure communication, and require the provider to use the sponsor's standard operating procedures (SOPs). Middle managers usually do the planning and problem solving. As such, most governance is reactive.

More recently, major drugmakers such as Amgen and Wyeth have begun outsourcing on a functional rather than transactional basis. These functional arrangements give almost all responsibility for a function to a single CRO. One pharma sponsor told us, "The primary purpose of these relationships is standardization—of processes, practices, and systems. They can reduce duplication and inefficiency by [removing] overhead expense." (Under the study's rules of confidentiality, all quotes are anonymous.)

Still, the outsourced function must be integrated with the rest of the sponsor's development activity, circumscribing the CRO's involvement in long term planning. For this reason, fully functional outsourcing tends to be tactical—and of limited value.

CRO Development Speed and Quality

Making a Commitment

A small but growing number of pharmas are pioneering more strategic, partner-based outsourcing. The process begins with an in-depth assessment of the company's core competencies, determining which functions are best performed in-house, and which should be handled by a CRO offering greater expertise and efficiency. "We're deliberately trying to establish alliances because we believe vast [CRO] development experience [and expertise] can be accessed that way," one biotech exec told us. In fact, on an annual basis, the top ten CROs have managed a much higher volume of work in many areas of clinical research than their sponsor partners. The five largest CROs have succeeded in submitting more total INDs and NDAs than almost any pharma or biotech in the industry. (For more on CRO vs. in-house performance, see "CRO Development Speed and Quality," page 65.)

In these partnerships, the goal is to build a team with complementary competencies to take full advantage of what each party brings to the table. Sponsors look to retain senior level expertise (for project planning and concept sheet development), while reducing the number of internal staff. As a result, sponsors can streamline operations by managing rather than doing the work.

The selection of the right CRO provider—based on such criteria as expertise, capacity, positioning, and culture—is essential. (See "A New Approach to Selecting a CRO Partner," page 65.) From the outset, there must be a shift from capacity- and project-based to competency- and portfolio-based outsourcing. On the CRO side, this affords an opportunity to plan for upcoming activity, and reduces the likelihood of cost overruns.

Governance is a shared responsibility. Once a sponsor has picked a partner and determined the scope of the work, the companies together create a senior level governance committee. Members, chosen from both companies, meet once or twice a year to review projects. Meanwhile, lower level committees implement the relationship on a day-to-day basis. The sponsor and the CRO rely on a set of coordination operating procedures (COPs) to ensure that each party's SOPs are consistent, integrated, and compatible; conflicts are resolved by the appropriate mid- or senior level committee. In this way, the CRO has greater autonomy to leverage its expertise and efficiencies.

Sponsors tend to work with only a few full-service CROs in partnership relationships, and the responsibility of managing niche service CROs is often transferred to the partner provider. The sponsor's time is focused instead on overall strategy and planning, as well as high level management of the relationship's performance.

Nearly all of a drugmaker's functional tasks can be outsourced in partnership relationships. Companies are increasingly receptive to using CROs for protocol development, site selection and management, study monitoring, data management, biostatistics, medical writing, quality assurance, and routine regulatory affairs tasks.

How to Make the Marriage Work

Having decided to move to a more strategic partnership, how can you do it smoothly and successfully? The execs we interviewed generally agreed on the following five tips:

1 Make a total commitment to the transition Sponsors too often ignore the importance of—or discount the difficulty of—such a sustained company-wide shift. If parts of the organization are allowed to maintain "pet" providers, or insist on keeping a competitive environment, the transition is almost certain to fail. At minimum, a three-year commitment is typically required to make the transition, ride out bumps, and create a stable environment.

2 Determine which parts of drug development must be retained internally An unbiased evaluation of core capabilities typically reveals that many tasks can be fully outsourced. (For a phase-by-phase breakdown, see "R&D Outsourcing Continuum," page 66.) For instance, sponsors often view their interface with regulatory agencies as too critical to be handled externally. However, their regulatory affairs groups often handle such routine agency filings as annual reports, requiring additional staff. Moreover, most sponsors fail to meet all annual report deadlines, since that work tends to take a back seat to NDA filings and other essentials. Outsourcing the less significant tasks can reduce internal workload and increase on-time performance in areas like annual report submittals.

3 Define the partnership Topping the list of core elements are goals, duration, service levels of both parties (such as staff availability, turnover, cycle times, and quality), workload, funding, transition of work from the sponsor (and its many vendors) to the partner, governance, information sharing, and problem resolution (for both project and relationship issues). It is critical that an agreement be designed based on a vision of shared success rather than on factors that might result in penalties or a breakup. For example, a failed enrollment campaign must be viewed not as the CRO's failure, but as a mutual mistake to be corrected. In this way, the partnership can improve both organizations through better planning, information sharing, and problem solving.

4 Select the right partner Companies should typically identify more than one CRO that shares your stated vision and supports the anticipated pipeline. Instead of using the typical competitive Request for Proposal process, evaluate and compare each potential partner's business philosophy and day-to-day practices.

5 Build a strong relationship with the CRO partner An investment of both time and commitment by both parties is essential to making good on a shared vision.

Making the move from a multi-contractor approach to a more limited number of outsourcing partners can be done in two different ways: Ask a single partner CRO to manage all the various vendors now under contract, or consolidate the various vendor tasks into a few long term CRO contracts.

The first approach, which is tantamount to simply "outsourcing the outsourcing function," is quicker and creates minimal disturbance. The partner takes over management of the existing patchwork of vendors and contracts going forward. No economies or efficiencies are gained, but you are now relieved of a non-core task and its incumbents hassles.

The second approach is slower but ultimately more valuable. For instance, as clinical studies finish, the follow-on studies are transferred to the strategic partner—as are other clincal-study functions as contracts with existing vendors terminate. All of this is done in a phased way to minimize disruptions in portfolio activity and avoid overload.

Having Issues

While the advantages of partnership relationships are still only theories, the test cases are too few and too new for proof of concept. And some disadvantages were voiced by our interviewees. Several sponsors, particularly small and mid-sized companies, expressed concern that "as a small company, we won't get the best CRO staff. They [CROs] allocate resources based on availability and the promise of future business. Small companies can't hold up to the larger companies."

Yet given the large and growing number of full-service CROs worldwide, and the competitive nature of the business, it is likely that you will find a sufficient number of CROs willing to become strategic partners. Also, as the outsourcing market migrates to more strategic relationships, entrepreneurial CROs will likely find new ways to ensure a sponsor's teams satisfaction.

Sponsors have also expressed concern that high levels of CRO staff turnover will prevent companies from realizing the maximum benefits of strategic partnerships. Those sponsors already engaged in partnership relationships are quick to respond that they themselves have comparable, if not higher turnover, and that their partnerships typically offer good stability and continuity.

One risk that must be mitigated is a relationship termination. Given the time-consuming care that must be given to a collaboration's successful delivery on pipeline commitments, any breakup is disruptive and costly. For this reason, you should plan your partnerships carefully and commit for the long term. However, it may also be prudent to establish multiple strategic partnerships to guard against the loss of a single partner.

During the next several years, most outsourcing biopharmas anticipate gradually establishing partnerships for select new programs while also maintaining transactional relationships to support the existing portfolio. As a result, the landscape for niche and small CROs will no doubt change. Given the growing volume of global clinical trials, these companies will continue to have an important role to play. But they may need to form tighter relationships with major CROs that have been engaged as partner providers. The major CROs can act as lead contractors, managing a larger group of individual service providers. This model is similar to that of the "prime contractor" used by the US government.

The current drug development environment, with tougher capacity constraints and rising global activity, necessitates that sponsors achieve higher levels of performance and efficiency. Strategic partner-based outsourcing relationships hold promise in helping you meet that challenge through a competency-based team approach to managing development portfolio demands.

Kenneth Getz, MBA, is a senior research fellow, and Rachael Zuckerman, a research analyst, at the Tufts Center for the Study of Drug Development, in Boston. David Zuckerman is president of Customized Improvement Strategies LLC, in St. Louis, and author of "Pharmaceutical Metrics" (Gower Press, 2006). Charles Piper, PhD, is president of CEP Consulting, in Chicago.

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