Inside OUTsourcing

INSIDEOutsourcingDecem

ber

2012

A SUPPLEMENT TO:

TRENDS.SURVEYS.ANALYSIS.

OutsourcingStrategic

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INSIDEOutsourcingSALES

Russ Pratt, VP of Sales & Group Publisher, Pharma Science [email protected]

Wayne Blow, Publisher, Applied Clinical [email protected]

Michael Tracey, Publisher, Pharmaceutical Technology and BioPharm [email protected]

EDITORIAL

Marylyn Donahue, Editor, Inside OutsourcingSpecial Projects Editor, Pharmaceutical [email protected]

William Looney, Editorial Director, Pharmaceutical [email protected]

Lisa Henderson, Editor in Chief, Applied Clinical [email protected]

Angie Drakulich, Editorial Director, BioPharm International, Pharmaceutical [email protected]

Adeline Siew, Editor, Pharmaceutical Technology Europe

Peter Houston, Content [email protected]

CIRCULATION

Mark Rosen, Circulation [email protected]

President, Chief Executive Offi cerJoseph Loggia

Vice President, Finance & Chief Financial Offi cerTed Alpert

Executive Vice President, Corporate DevelopmentEric I. Lisman

Vice President, Electronic Media GroupMike Alic

Vice President, Market DevelopmentGeorgiann DeCenzo

Vice President, Media OperationsFrancis Heid

Vice President, Human ResourcesNancy Nugent

Vice President, General CounselWard D. Hewins

Executive Vice President, Healthcare & Pharma/ScienceRon Wall

Copyright © 2012 Advanstar Communications Inc. All rights reserved.Return all undeliverable Canadian addresses to: Circulation Department or DPGM, 7496 Bath Road #2, Mississauga ON L4T 112. Printed in the USA.INSIDE OUTSOURCING does not verify any claims or other information appearing in any of the advertisements contained in the publication and cannot take responsibility for any losses or other damages incurred by readers relying on such content.Advanstar Communications Inc. provides certain customer data to third parties who wish to promote relevant products, services, and other opportunities that may be of interest to our readers. If you do not want Advanstar Communications Inc. to make your contact information available to third parties for marketing purposes, call toll-free (888) 527-7008 between the hours of 7:30 a.m. and 5:00 p.m., EST, and follow the instructions to remove your name from Advanstar Communications Inc. lists. Outside the United States, please phone (218) 723-9477.

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6 TABLE OF CONTENTS

8 Introduction Letter from the Publisher

LEAD STORY

10 Risk: The Peril and Promise Operating risk and resource risk

from sponsors to CROs being facilitated

By Kenneth Getz

MANUFACTURING

18 Taking Measure Inside Outsourcing’s annual report on the

state of the biopharmaceutical industry

By Eric Langer

CLINICAL TRIALS

20 Making it Succeed: Optimization Solving the common hurdles and challenges

for conducting Phase II and Phase III studies.

By Lisa Henderson

OUTLOOK

27 Boom Time Better-than-expected business performance

for contract services industry into 2013

By Jim Miller

ROUNDTABLE

28 5 Key Leaders on The New Innovation

Thought leaders weigh on what’s new

INSOURCING

32 Lilly’s New Hybrid A look at a very different insourcing relationship

between Eli Lilly and its partner, AMRI

By Patricia Van Arnum

SURVEY

32 Does the Size of Your Outsourcing Organization Really Matter?

It may not be rational but when picking an

outsourcing partner tends to go with sIze

By Janice Hutt

COMMENTARY

40 Strategic Partnership: The Emperor’s New Clothes

With all the talk, are strategic partnerships

really partnerships, and are they strategic?

By Andrew Parrett

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8 INTRODUCTION

In the six years since Advanstar’s Pharma Science

Group began publishing Inside Outsourcing,

we’ve witness a meteoric rise in outsourcing and

a dramatic evolution in the diff erent forms it

takes from tactical to strategic relationships be-

tween sponsors and their service providers— CROs

and CMOs.

Today, nearly all of the large sponsor companies

(e.g., major and some mid-sized pharmaceutical and

biotechnology companies) have adopted and are ac-

tively using single- and multi-functional partner-

ships under long-term alliance arrangements.

Sponsors are seeking not only more effi cient ac-

cess to dedicated global capacity and talent, but also

cost savings through partnerships with a select and

reduced number of contract service providers.

T is has been a boom to the outsourcing industry.

As Ken Getz points out in his fascinating story “T e

Peril and Promise of Risk Imbalance” on page 10, the

total global market for all contract services support-

ing prescription drug R&D is $90 billon to $105 bil-

lon, nearly fi ve times larger than commonly cited.

T e pressure for the pharmaceutical industry to

achieve higher levels of clinical development has

never been greater and more intense. Problem is

with this shift towards strategic integrated alliances

and the transfer of operating and resource risk,

CROs are in new territory. T ey are being asked to

take on more responsibility to create and implement

solutions far more innovative than have been tradi-

tionally generated and to weigh aggressive growth

strategies that may redefi ne the scope of contract

services traditionally off ered. Whether or not out-

sourcers are ready to assume this responsibility and

whether the sponsors will let them remains to be

seen. One thing is for sure—when it comes to phar-

maceutical and biopharmaceutical outsourcing—

we’re not in Kansas anymore.

Inside Outsourcing, an annual publication, is de-

livered digitally in a Nextbook edition to be found

on all of Advanstar’s Pharma Science websites.

I’d like to thank the combined marketing, sales,

and productions staff s for their eff orts. In addition,

my appreciation goes to the Editor of Inside Out-

sourcing—Marylyn Donahue, Special Projects Editor,

Pharmaceutical Executive. I would also like to thank

Angie Drakulich, Editorial Director BioPharm Inter-

national and Pharmaceutical Technology; Adeline

Siew, Editor Pharmaceutical Technology Europe;

Lisa Henderson, Editor In Chief, Applied Clinical

Trials; and William Looney, Editorial Director, Phar-

maceutical Executive.

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Peril and Promise

LEAD STORY10

OF RISK IMBALANCERisk mitigation strategies executed by CROs, combined with more

favorable capital market conditions, promise to drive substantial structural change throughout the outsourcing marketplace

BY KENNETH GETZ

INSIDEOutsourcing 11

It is a common criticism of contract

research organizations (CROs) that

they are incapable of providing new

and innovative ideas and practices

having evolved under the tutelage

and shadow of their pharmaceutical and

biotechnology company clients.

After all, critics reason, CROs have a

long history of hiring personnel trained

by sponsor companies and of having to

follow and use sponsors’ standard oper-

ating procedures, internal processes,

practices and systems.

T ese same critics may soon come to

see CROs in a diff erent light.

T e growing sophistication of clinical

development outsourcing has facilitated

the transfer of operating risk and re-

source risk from pharmaceutical compa-

nies to contract service providers. In re-

sponse, CROs — most notably the

market leaders — have taken on substan-

tially more fi xed costs and assumed more

autonomy and accountability in servic-

ing large and highly valued integrated

and strategic partnerships.

T e transfer of higher levels of risk is

pushing CROs to experiment with, and

implement, novel and innovative ap-

proaches to improve the speed, effi ciency

and eff ectiveness of a variety of func-

tions. T e jury is still out on whether

sponsors can be patient enough to allow

these novel approaches to pan out.

The Run-Up of Unbalanced RiskNearly all of the large sponsor compa-

nies (e.g., major and some mid-sized

pharmaceutical and biotechnology

companies) have adopted and are ac-

tively using single- and multi-functional

partnerships under long-term alliance

arrangements. T rough these integrat-

ed relationships, sponsors are seeking

not only more effi cient access to dedi-

cated global capacity and talent, but also

cost savings through partnerships with

a reduced, select number of contract

service providers.

Integrated relationships transfer much

higher levels of operating risk by holding

CROs accountable for functional perfor-

mance and cost and by reducing the

amount of oversight through shared gov-

ernance, coordinated communication

and issue resolution, operating processes

and systems. Sponsors who have entered

into integrated partnerships also look to

benefi t from strategic insight into and

engagement in future portfolio needs.

T e largest CROs — those uniquely

positioned to provide the breadth and

depth of capacity that sponsor portfolios

require — have been the primary recipi-

ents of integrated relationships. As such,

the run up of operating and resource risk

is imbalanced. A 2011 study conducted

by CenterWatch found that for leading

CRO companies, the majority of their

revenue comes from strategic, integrated

relationships. Among the top 10 largest

CROs, 71% of their reported revenue

comes from functional service and inte-

grated alliances, and 29% from transac-

tional relationships.

In contrast, the majority (60%) of rev-

enue for niche and mid-size CROs comes

from transactional service relationships.

Smaller pharmaceutical and biotechnol-

ogy companies continue to primarily use

transactional relationship outsourcing –

often under preferred arrangements —

to augment capacity for a specifi c proj-

ect-related task.

Greater autonomy in managing large

and highly valued integrated partner-

ships is but one aspect of operating and

resource risk assumed by leading CROs.

Customization is driving up additional

risk as no two integrated relationships

are identical. One sponsor’s multi-func-

tional relationship structure is not the

same as another. Every sponsor wants to

establish relationships that uniquely suit

their culture, their operating style, their

systems, practices and management

models. Each and every sponsor wants to

match their internal teams with the best

team that the contract service partner

can off er.

CROs that have entered into integrat-

ed relationships have had to increase

their own operating capacity, infrastruc-

ture, and capabilities in order to service

the unique demands of each partner-

ship. Customization cannot be scaled. It

demands more infrastructure and man-

agement, eats into the CRO’s ability to

operate effi ciently, and squeezes CRO

company profi tability.

Motivation and PatienceMarket leading CROs covet these inte-

grated, strategic relationships for their

value and for their continuity with, and

deep access to, the largest and most ac-

tive pharmaceutical and biotechnology

companies. Next-tier CROs have also

looked to get in on the game by scaling

capacity and capabilities through merg-

ers and acquisitions (e.g., INC, Inven-

tiv). An overwhelming majority of CRO

professionals (80%) expect sponsor-use

of integrated alliances to continue to

signifi cantly increase during the next

12 LEAD STORY

three-to-fi ve years according to that

same 2011 CenterWatch study noted

earlier. T e capital markets affi rm this

optimism. GBI Research, for example,

forecasts a 12-15% annual growth rate

in the contract clinical services market

through 2020.

Given the size and scope of each inte-

grated alliance, CROs are hard-pressed

to lose them. T e termination of a sin-

gle alliance will no doubt be highly dis-

ruptive to a major CRO’s fi nancial and

operating stability. Major CROs are

highly motivated to ensure that they de-

liver on the promise of effi ciency and

cost savings.

But sponsors are impatient for results.

Many are looking for quantifi able im-

provement despite the fact that the ma-

jority of these relationships have only

had a few years to take hold and that

sponsors have had limited experience

designing, executing and supporting in-

tegrated relationships.

Indeed, interviews conducted in 2011

by the Tufts Center for the Study of Drug

Development (Tufts CSDD) among two

dozen pharmaceutical company sourcing

executives found that the majority recog-

nize that implementation of their inte-

grated alliances has not been optimal.

Anecdotal reports highlight a number of

implementation shortcomings including

failure to engage and coordinate corpo-

rate outsourcing strategies among local

affi liates and support functions; Failure

to clearly defi ne governance roles and re-

sponsibilities of personnel at varying lev-

els in the organization; and strained rela-

tionships resulting from failure to set

expectations among investigative sites

and subcontractors.

A 2012 report by Booz & Company

based on interviews with top 20 pharma-

ceutical companies had similar fi ndings.

Booz found that sponsor companies have

expanded their level of outsourcing and

embraced deeper and more integrated

relationships without carefully thinking

through the necessary support mecha-

nisms and without aligning their out-

sourcing and corporate strategies.

Outsourcing insiders and analysts may

recall that the earliest reports on the im-

pact of integrated alliance relationships

were glowing: Pfi zer and Eli Lilly, two of

the earliest adopters, reported that their

three-year-old relationships had deliv-

ered signifi cant cost savings, cycle-time

improvements and fewer contract delays.

Eli Lilly, for example, reported 20% cost

savings on data management and moni-

toring and a 93% improvement in month-

ly patient enrollment volume. Pfi zer re-

ported saving $20 million in a single year

through consolidating management of

its vendors from 150 to 17; a 26% reduc-

tion in enrollment cycle time and an 80%

reduction in the number of contracts de-

layed by more than 120 days.

In 2010, based on a review of 89 func-

tional service and alliance relationships,

Tufts CSDD found that study start-up

times and CRO staff turnover rates were

dramatically improved compared to that

of traditional, transactional relation-

ships. And Parexel reported in early 2011

that the number of full time equivalent

(FTE) personnel assigned by sponsors

for every 100 dedicated CRO FTEs to

support transactional relationships was

three times larger than that for integrat-

ed alliances.

More recent assessment of strategic

integrated relationship is far less rosy

and documents the level of impatience

among sponsor companies. In a 2012

survey, T e Avoca Group, a New Jersey-

based consulting fi rm, found that one out

of fi ve (22%) sponsors had discontinued a

strategic alliance largely due to poor per-

formance and quality. T e detailed sur-

vey results are sobering and included the

following: 16% of sponsors said that their

partnerships failed to meet their cost

saving expectations and another 36%

were seeing mixed cost saving results;

21% of sponsors reported that their alli-

ances had failed to reduce the level of in-

ternal resources dedicated to oversight

and coordination and another third re-

ported mixed results; and 17% of spon-

sors said that their alliances had failed to

generate operating effi ciencies. And an-

other 40% said that operating effi ciencies

were only being met some of the time.

Most sponsor companies are tweaking

their integrated relationships to address

their shortcomings. Sponsors are modi-

fying and adjusting governance struc-

tures, collaborative processes and prac-

tices. Many are exploring ways to

empower internal staff at the execution-

level, more actively manage communica-

tion and coordination processes and sys-

tems, and more eff ectively measure

collaborative performance. Some spon-

sors are also closely watching regulatory

agency oversight of integrated outsourc-

ing in anticipation of tighter scrutiny of

TYPE OF RELATIONSHIP 15 LARGEST CROS MIDSIZE/NICHE CROS

Transactional (full, niche) services 29% 59%

Transactional (full, niche) services 33% 19%

Integrated alliance services 39% 22%

UNBALANCED OPPORTUNITY AND RISK IN

CONTRACT CLINICAL SERVICES OUTSOURCING

SOURCE: CenterWatch, 2012; (N=40 CRO companies)

14 LEAD STORY

clinical trial management and issue reso-

lution. FDA and EMA have both signaled

strong interest recently in understanding

how integrated outsourcing relation-

ships impact global clinical data quality

and compliance.

But although integrated strategic alli-

ances in theory pair the sponsor and

CRO partner on a more equal footing, it

is clear that some sponsors are already

willing to take severe action despite the

high cost of switching to a new alliance

partner. Regardless of where real blame

lies for poor performance and quality, in-

variably it is the CRO partner who must

bear the burden of the risk of failure.

Taking Risk by the HornsTop CROs are not resting on their laurels.

T ey have been very active in executing

initiatives to mitigate operating and re-

source risk. Many are consolidating as-

sets, subcontracting non-core capabilities

that are a drain on their profi tability, and

turning to the private equity markets to

adjust their business mix and correct

their performance out of the public in-

vestment community’s line of sight.

T e largest CROs are also aggressively

pursuing new and innovative initiatives

to wring out higher levels of speed and

effi ciency. During the past 12 months,

top CROs have introduced a number of

e-clinical solutions designed to simplify

and optimize data and project manage-

ment and to coordinate disparate tech-

nologies. Perceptive Informatic’s (Parexel)

launch of the MyTRIALS platform and

Icon’s launch of ICONIK are two such

examples.

Investigative site performance and pa-

tient recruitment and retention are two

areas receiving considerable attention

lately. T e study conduct arena is argu-

ably one of the most highly ineffi cient

and unpredictable. It is also an area to

which the success of integrated partner-

ships is most measured. T e number and

quality of investigative sites engaged; the

proportion of sites achieving enrollment

targets; the rate and number of patients

enrolled, discontinued and evaluable –

these are but a few key success factors to

which CROs handling these functions

under alliance arrangements are held ac-

countable.

Various investigative site performance

optimization solutions have been

launched recently including Covance’s

Xcellerate methodology and Icon’s Firec-

rest Clinical. Quintiles has been highly

active building up its global Partner Sites

and Prime Sites programs to establish

more structured and supported relation-

ships with 1,000 research centers and 16

major hospitals respectively. Other ma-

jor CROs have also been actively estab-

lishing relationships with investigative

sites around the world with the primary

goals of improving control over site per-

formance and success.

T e ties between pharmaceutical and

biotechnology companies and the re-

search professional and patient commu-

nities are highly regulated and must be

kept at suffi cient distance. CROs have far

greater latitude to establish closer rela-

tionships with these stakeholders. To

name but a few notable initiatives de-

signed to improve patient recruitment

success and gain access to patient data:

Quintiles’ 2012 launch of its Digital Pa-

tient Unit marks the culmination of the

company’s eff orts to establish online in-

teractive patient communities that

bridge health care and clinical research.

PPD launched PatientView in 2011 con-

necting patients with research and health

STRUCTURAL LANDSCAPE CHANGE

SMALL CROs

• Focus on small sponsors relying on transactional outsourcing

• Traditional role as specialty providers within fragmented collection of CROs

• Reliance on subcontracted relationships

MID-SIZED CROs

• Mixed strategies: focus on transactional market or enter integrated relationship market

• Consolidation (M&A)

• Partnering with specialty and niche service providers

MAJOR CROs

• Declining margins; higher fi xed costs

• Divestiture and/or expansion into higher margin service areas

• Focus on more control over performance and effi ciency

• Differentiation through novel partnerships

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16 LEAD STORY

care professionals and enabling study

volunteers to more actively manage their

medical information.

T e list of innovative solutions imple-

mented by CROs during the past twenty

months are impressive and greatly ex-

ceed the space allowed here. T e key

takeaway is that top CROs are uniquely

motivated in the current operating envi-

ronment to pursue novel approaches —

that leverage manpower, enrich perfor-

mance data and online communities and

to help streamline and optimize develop-

ment performance..

CROs are stepping up their manage-

ment of resource risk in other ways. Last

year’s CenterWatch Report Card study

showed that management of CRO staff

performance has been steadily improv-

ing. In the study, investigative site ratings

of CRO staff professionalism, prepared-

ness and turnover improved substantially

to levels comparable to sponsor company

counterparts. And a 2011 Tufts CSDD

study on global study monitor capacity

and workload found that CRO-employed

study monitors today carry similar work-

load, but work fewer hours than do those

employed by sponsor companies.

Structural Change in the Broader MarketIn their eff orts to mitigate elevated lev-

els of operating and resource risk inher-

ent in strategic, integrated relation-

ships, major CROs will turn their

attention to new strategic growth op-

portunities that will boost company

profi tability. Many will turn to service

areas falling outside preclinical and

clinical development as part of a broad-

er strategy to off er end-to-end (i.e., from

discovery through approval) outsourc-

ing solutions. T e current global con-

tract R&D landscape is certainly ripe for

consolidation.

A recent Tufts CSDD study fi nds that

pharmaceutical and biotechnology com-

pany usage of contract service providers

in all areas of R&D is much higher than

expected.

Tufts CSDD conducted a rigorous,

bottom up study focusing on the US mar-

ket in this initial study due to the labor-

intensive nature of analyzing a large, frag-

mented market predominantly made up

of small, privately held organizations and

independent consultants. Data on more

than 4,500 companies across fi ve primary

market segments — Applied Research,

Non-Clinical Research (which includes

pre-clinical), Clinical Research, Chemis-

try Manufacturing and Controls (CMC)

and Staffi ng-Consulting-Management

(Other) services — was analyzed. T e re-

sults of this 2012 study found that the

largest segments are CMC and Non-Clin-

ical – at 29% and 21% respectively of the

total $40 billion US market. CMC and

Non-Clinical Research segments have the

highest concentration of publicly traded

companies and each has more than 1,200

companies providing services. T e Ap-

plied Research Services (e.g., Discovery)

and Other Services segments are the least

mature and most productive segments

with revenue per employee at $267,000

and $284,000 respectively.

T e results of this study suggest that

worldwide, the total global market for all

contract services supporting prescrip-

tion drug R&D is $90 billion to $105 bil-

lion, nearly fi ve times larger than com-

monly cited fi gures. T is huge,

fragmented and remarkably diverse mar-

ket may hold promise for CROs looking

to merge capabilities and infrastructure

where appropriate through backward

and forward integration.

T e intense pressure to achieve higher

levels of clinical development speed and

effi ciency at lower cost has never been

greater. Dynamics of the current out-

sourcing environment, specifi cally the

shift toward strategic integrated alliances

and the transfer of operating and re-

source risk, are pushing CROs out of

their comfort zone and beyond the con-

fi nes of their clients’ operating philoso-

phies and practices to create and imple-

ment solutions far more innovative than

have been traditionally generated and to

weigh aggressive growth strategies that

may redefi ne the scope of contract ser-

vices traditionally off ered.

Hopefully these novel strategies and

approaches will be given suffi cient time

and support by sponsors and CROs alike

to demonstrate their impact.

◗ Kenneth Getz is a senior fellow at Tufts

CSDD. He can be reached at kenneth.

[email protected].

ESTIMATED US TOTAL MARKET SIZE 2011: $32.9 - $39.5 BILLION

US CONTRACT R&D SERVICE PROVIDER MARKET SEGMENTS

Applied Research

Non-Clinical Research

Other

Clinical ResearchCMC

21%

16%29%

25%

9%

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• More experienced PhDs than any other lab

• Largest breadth of services and facility capacity for

cGMP biologics stability and release in the industry

Stability Testing and Storage

Method Development & Validation

Final Product Release Testing

Raw Materials Testing

Residual & Impurities Testing

Facility & Process Validation

Microbiology

Biochemistry

Viral Clearance & Viral Safety

Cell Bank Manufacturing

Molecular and Cell Biology

Mycoplasma Testing

Visit www.LancasterLabsPharm.com

18 MANUFACTURING

Companies must make diffi cult strategic decisions about

commercial manufacture earlier in product develop-

ment, especially since planning is becoming increas-

ingly more involved and extensive as outsourcing be-

comes more prevalent.

A recent BioPlan Associates analysis found that essentially all

biopharmaceutical developers use outsourcing services of

some kind for the manufacture of clinical or commercial sup-

plies, process development, R&D, assay services, fi ll–fi nish, or

other activities.1

Cost Cutting Not a Factor T e BioPlan survey, which included responses from 302 rep-

resentatives from biopharmaceutical companies and CMOs

in 29 countries, evaluated 23 key outsourcing areas in bio-

manufacturing.1 T e study showed that companies are incor-

porating outsourcing as a manufacturing strategy rather than

as an ad-hoc method of adding fl exible capacity or to simply

eliminate overhead costs associated with lower value produc-

tion activities. Data also show a spike in the percentage of bio-

pharmaceutical companies projecting outsourcing of analyti-

cal testing, validation services, and fi ll–fi nish activities.

T e BioPlan study further evaluated how companies are ad-

dressing cost issues in biopharmaceutical manufacturing.

T e survey identifi ed activities biomanufacturers undertake

to reduce costs. T e study showed that outsourcing activities

ranked in the bottom quarter of measured factors to reduce

costs although outsourcing increased slightly for certain func-

tions as a strategy for cost-containment during the past 12

months (see Figure 1).

T ere was an increase in respondents using outsourcing of jobs

in manufacturing to cut costs: 14.5% in 2012, up from 11.8% in

2011. Approximately 13% of respondents outsourced jobs in pro-

cess development and 8.8% did in R&D. An equal number of re-

spondents (9.4%) reported outsourcing manufacturing activities

to domestic and nondomestic service providers. (see Figure 1)

Outsourcing Budgets FlatT e survey showed clear evidence that budgets are bouncing

back in all areas in 2012, except outsourced manufacturing.

T e uptick in areas other than outsourcing represents a

change from two years ago when budgets decreased in areas

ranging from production, hiring new scientifi c staff , and new

facility construction.

T e survey also separately asked respondents to indicate how

their outsourcing in R&D and manufacturing will change dur-

ing the next 12 months.

On average, future outsourcing at individual facilities will see

moderate overall increases for all types of outsourcing not just

manufacturing (9.3% during the next 12 months). T ese increas-

es are more heavily distributed on key outsourcing areas (see Fig-

ure 2) rather than broadly seen as increases across all operations.

ProjectionsT e survey evaluated 24 diff erent areas associated with out-

sourced operations and asked respondents which activities will

be outsourced “more often” during the next 24 months. More

than one-third (35.4%) expect to increase outsourcing of ana-

lytical testing/bioassays. BioPlan believes much of this increase

relates to product characterization, including for biosimilars.

BY ERIC LANGER

Planning and decision-making for the manufacture of biopharmaceuticals is becoming more complex as companies continue to implement cost-saving

efforts, including outsourcing many support and even critical tasks.

BIOPHARM OUTSOURCING

TAKINGMEASURE


Validation services was the area where

respondents predicted the highest rate of

increase (32.3% indicated high rates in

outsourcing in 2012, compared with

22.1% in 2011 and 23.8% in 2010). Also,

26.2% of biomanufacturers predict they

will outsource signifi cantly more fi ll–fi n-

ish operations during the next 24 months

compared with 23% in 2011, and 25% in

2010. Other areas of outsourcing growth

include: API biologics manufacturing,

cell-line development, testing for lot re-

lease, and toxicity testing.

Some recent decreases in predictions

for outsourcing growth are in: down-

stream production operations, testing/

product characterization, media optimi-

zation, upstream production operations,

regulatory services, upstream process de-

velopment, and testing cell-line stability.

Looking aheadT e biopharmaceutical industry con-

tinues to focus on productivity, effi cien-

cy, getting more out of existing internal resources, and maxi-

mizing performance from their provider relationships.

Although outsourcing can improve overall effi ciency and re-

duce costs, the management of relationships continues to be

challenging and necessitates CMO/CRO fl exibility to meet

clients’ shifting needs.

Data from this study shows that CMOs are expanding their

manufacturing competence through the use of novel technolo-

gies, single-use/disposable bioreactors, and other diff erentiated

bioprocessing services. Improved services are resulting in in-

creased adaptability, lower costs, faster turnaround, and higher

yields, thereby off ering more choice for biopharmaceutical com-

panies. At the same time, the costs for using CMOs for product

manufacturing are becoming slightly more competitive.

◗ Eric Langer is president and managing partner of BioPlan Associ-

ates and a member of BioPharm International’s editorial advisory

board, [email protected].

OUTSOURCING ACTIONS TAKEN BY BIOMANUFACTURERS TO

REDUCE COSTS AT FACILITIES DURING THE PAST 12 MONTHS.

GAUGING BIOPHARM OUTSOURCING

Outsourced Jobs in

Manufacturing

Outsourced Jobs in

Process Development

Outsourced Manufacturing

Activities to Domestic

Service Providers

Outsourced Manufacturing

Activities to Nondomestic

Service Providers (Offshoring)

Outsourced Jobs in R&D

■ 2012 ■ 2011 SOURCE: BIOPLAN ASSOCIATES

SOURCE: BIOPLAN ASSOCIATES

SELECT OUTSOURCING ACTIVITIES PROJECTED TO BE DONE AT SIGNIFICANTLY HIGHER LEVELS

14.4%

11.8%

13.3%

8.8%

9.4%

9.4%

13.2%

9.0%

7.1%

5.7%

■ 2012 ■ 2011 ■ 2010

Analytical Testing

(Including Other Bioassays)

Validation

Services

Fill-Finish

Operations

API Biologics

Manufacturing

Cell-Line

Development

REFERENCE: 1. BioPlan Associates, 9th Annual Report and Survey of Biopharmaceutical Manufacturers (Rockville, MD, April 2012), www.bioplanassociates.com.

35.4%

32.3%

26.2%

23.1%

24.8%

18.5%

13.5%

12.4%

15.4%

17.3%

12.4%

22.1%

23.8%

18.3%

16.2%

20 INSIGHT DATA

Given that pharma is relying on CROs and service providers in its clinical research more than ever before, study optimization

becomes key as shown in a recent survey

BY LISA HENDERSON

Making itSucceedCLINICAL STUDY OPTIMIZATION

Recently, Applied Clinical Trials surveyed its audience to

determine the current challenges in clinical trials. T e

survey asked questions about regulatory and market

considerations, upcoming trends, study start-up chal-

lenges, and protocol design and development. T ese

results, culled and prioritized, point to insights on clinical study

optimization.

As is well documented, the cost to develop a drug is be-

tween $300 million to $800 million. Phase I-IV clinical re-

search accounts for 35% to 40% of a drug’s development

and each day a clinical trial is delayed can cost a pharma-

ceutical company between $600,000 to $8 million to the

drug launch. There is a lot of dialogue and activity on many

fronts on how to improve efficiencies in clinical trials and

to address delays as well as to bring down elevated costs.

And foremost for the pharmaceutical sponsor is how to en-

gage properly with its outsourcing partner so that efficien-

cies and cost containment are a priority on both sides.

There are statistics on the global CRO market size and

penetration. Business Insights forecasts the market to be $35

billion next year, and Frost & Sullivan anticipates Compound

Annual Growth Rate of 10.5% through 2017. William Blair &

Co. expects the current outsourcing penetration rate to in-

crease by a few percentage points over the next year or two,

and CRO management commentary suggests that over the

next five to seven years the outsourcing penetration per-

centage could increase to more than 60%. Its model current-

ly anticipates a 10% increase in penetration from 2010

through 2015. What this all means is that pharma is more

than ever relying on CROs and service providers in its clini-

cal research. Study optimization then becomes key.

Clinical SourcingClinical research accounts for 16% of the total US contract R&D

service provider market. Approximately 154,000 people are em-

ployed in this total space, which also includes Applied Research,

Non-Clinical Research, CMC and other. As Tufts Center for the

Study of Drug Development (CSDD) noted: As R&D costs rise,

operating and regulatory complexity increases, and mergers, ac-

quisitions and consolidation continue, the use of contract service

providers as integral and integrated sourcing providers will simi-

larly continue to grow.

In our survey, we asked respondents what is the predominant

form of sourcing its company uses? See results in Chart 1. And

then we asked in what specifi c areas of clinical trials do you

utilize your sourcing model (see Chart 2).

T ere is much discussion in Applied Clinical Trials as to the

relationship models and how best they should be managed. In

Ken Getz’s Clinical Insights column from September 2011, he

says, “T e adoption of functional service provider (FSP) and al-

liance relationships has evolved lopsidedly. Only the largest

CROs are capable of providing the depth of capacity that spon-

sors require to support their portfolios. T e vast majority of

newly established FSP and alliance models have been awarded

to the top 10 largest CROs. According to investment banking

fi rm Fairmont Partners, the market for integrated alliances


rests largely with the top fi ve largest

CROs. T ese leading companies have en-

tered into more than 100 alliances during

the past several years.

A recent 2011 CenterWatch study of

134 contract research organizations

draws a similar conclusion. Most of the

revenue for leading CRO companies now

comes from strategic, integrated relation-

ships. Based on aggregated data from the

top 10 largest CROs, one-third of revenue

comes from functional service provider

relationships; 39% from integrated alli-

ances; and 29% from transactional rela-

tionships. In contrast, niche and midsize

CROs earn nearly 60% of their revenue

from transactional service relationships.

Specifi cally, to FSPs, Getz notes that

the larger CROs managing many FSP and

integrated alliances need to watch their

bottom lines. T e danger is “running up

fi xed infrastructure costs to service client

customization requirements.” A later ar-

ticle, appearing in the July issue of Ap-

plied Clinical Trials, titled “Navigating

Beyond the Plateau” takes on the FSP

model and how it should best be struc-

tured. T e table, Elements of the Core

FSP, notes what the authors believe make

for a successful FSP.

However, as the ultimate responsible

party, pharmaceutical sponsors still

need to manage and oversee their rela-

tionships. With the increased use of out-

sourcing, the task of managing this rela-

tionship and providing oversight has

also increased. For 61% of the respon-

dents, the oversight has increased or

dramatically increased over the last two

years.

Regulatory Top of MindRegulatory issues, by virtue of the fact that

this is a highly-regulated industry, also

rank high among clinical trial profession-

al’s concerns. To that end, we based our

choices of what we see as current top-of-

mind-topics in Regulatory, because of the

workload they cause a pharmaceutical

company; level of anxiety, for example, an

FDA warning letter, or newness of a regu-

lation, or as in the case of social media, no

FDA guidance or regulation.

T e top answer at 33% was making

sure that the sponsor’s clinical trials are

registered in all the required countries.

And that is no small task. Clinical trials

have to be registered multiple times, in

multiple systems globally. Also, some

Strategic

Relationship

“Horizon Scanning”

Value and Innovation

Lead Metrics

Operational Delivery

Project/Risk Management

Lag Metrics

Quality

Resourcing

Complete Resourcing Plan

Skill Requirements = Customer Expectations

Resourcing Metrics

Support

Account Management/IT Support

Best Practice/Lessons Learned

Training/SMEs

Learn/Teach the Customer’s Way

Elements of the Core FSP

SOURCE: QUINTILES

WHAT IS THE PREDOMINANT FORM OF SOURCING YOUR COMPANY USES?

Niche or Specialized CRO Work

Data Management

Biostatistics4%

Transactional Relationships

Functional Service Providers

Internal Capacity

Preferred Provider

Strategic Alliances

22%

17%

11%

26%

9%

15%

IN WHAT SPECIFIC AREAS DO YOU UTILIZE YOUR SOURCING MODEL?

Monitoring

Full-Service CRO/All Areas

Clinical Trial Supplies

4%Medical Writing

2%

Pharmacology2%

Core Laboratories4%

Subject Recruitment

5%

22%

13%

42%

22 INSIGHT DATA

WHAT ONE CURRENT REGULATORY ISSUE KEEPS YOU AWAKE AT NIGHT?

WHICH FACTORS DOES YOUR COMPANY CONSIDER THE TOP CAUSE OF STUDY DELAYS?

Getting Timely IND Approval

Regulatory Authorities Approval

Ethics Committee Approval

Availability of Study Drug

Investigator Selection

Protocol Design

Contract Negotiationswith Clinical Sites

Patient Recruitment

Social MediaElectronic Submissions

(eCTD)

Getting a Warning

from FDA

Changes in EU Pharmacovigilanc

Managing Sunshine Act Requirements

Registering the Clinical Trial in all

the Countries/Registries Required

21%

33%

7%5%

23%

7%

5%

11%

20%

41%

15%

5%

4%

4%

medical journals have published articles

and editorials on the missing data that

goes unpublished either in these registry

websites, or in general.

At a 2009 forum on clinical trial results

and database, which was soon after the

FDA’s required deadline in September

2008 for the implementation of clinical

trials results requirements on clinicaltri-

als.gov, Nicholas Ide, the chief architect

of ClinicalTrials.gov said of the 250-plus

results submitted to the database, only

46 had been published to the website and

the rest had been sent back to sponsors

with queries and comments on the data.

Ide had said at the time “T e data we

have been getting is diffi cult to under-

stand and the quality is pretty bad.”

Fast forward only three short years later,

and that same ClinicalTrials.gov has taken

some criticism. In the March 3, 2011 issue

of the New England Journal of Medicine,

“T e Clinical Trials.gov Results Data-

base—Update and Key Issues” was pub-

lished and one of the authors was Nicholas

Ide. In the article, the authors noted that a

growing number of researchers were using

ClinicalTrials.gov for analyzing trends in

globalization of the clinical research en-

terprise; selective publication of study re-

sults and correspondence levels between

registered and published outcome mea-

sures. However, the authors cautioned

about the limitations of ClinicalTrials.

gov—trials that aren’t required to be reg-

istered; missing records of information

based on imprecise entries and human

error; and new policies in registry and

registration worldwide.

T is past August, four members of

Congress introduced a bill, the Trial and

Experimental Studies Transparency

(TEST) Act of 2012, to address what they

term clinical trial loopholes in ClinicalTri-

als.gov. Specifi cally, as noted above, trials

that aren’t currently required to be regis-

tered. And the major issue that TEST

aims at is to expand the clinical trial regis-

try data bank – ClinicalTrials.gov – with

stronger reporting requirements, and re-

quire that all foreign clinical studies meet

the same requirements as domestic trials

if they are used to support an application

for marketing in the United States.

Currently, twenty-three countries have a

mandatory legislative-based requirement

for registering a clinical trial. Eleven addi-

tional countries have voluntary require-

ments, with strong incentives to register,

such as ethics committee approval. And

most of the registries require only protocol

information, not the study results.

T ere are third-party software ven-

dors who do off er solutions in this area of

managing the registration of global trials.

However, registering clinical trials, while

extremely important and problematic, is

but one slice of the clinical study regula-

tory burden. As noted by the other is-

sues, there is a lot of pressure to get time-

ly IND approval, manage complex

Sunshine Act requirements. In the other

category, respondents noted changing

expectations by FDA, risk-based moni-

toring guidance, investigator compli-

ance, and IRB paperwork management.

Study Start-upStudy start-up delays are frequently

quoted as a problematic area that could

use some help to cut down on looming

cost pressures. Recently, a senior analyst

of clinical business operations with a

Janssen unit, quoted the costs of a Phase

III US study of 200 sites at $4.4 million

before enrollment began. T at was bro-

ken down into the following: Patient re-

cruitment, 32% of costs; supplier fees,

25%; site recruitment, 14%; CTMS tech-

nology, 12% and site retention at 8%.

T is list is not complete. T ere are also

IRB costs, CRO costs, monitoring visits

accounted for 36% of the CRO costs for

a global 14-country 220 site, 1,670 sub-

ject Phase III trial. And then screen fail

rates in the area of 64%, equaling $15

million dollars. Lab costs for one year

have the potential to be $4.3 million.

T e most cited reasons for bottlenecks

in clinical trial negotiation— long turn-

around at the clinical site; lack of sense of

urgency; diffi cult communication; and

lengthy budget negotiations.

So, before the trial starts, there’s al-

ready a considerable outlay.

24 INSIGHT DATA

WHAT GLOBAL REGION CONSISTENTLY MEETS OR EXCEEDS YOUR TARGET ENROLLMENTS?

AT WHAT POINT WOULD YOU USE EXTERNAL RECRUITMENT AND RETENTION AGENCY TO HELP YOU AHIEVE YOUR TARGET ENROLLMENTS?

Asia Pacifi c

Latin America

Would Involve Them Before the

Study/Park of Study Start-Up

Involve Them After the Trial Has Launched

Involve Them After Enrollment Falls Behind

Within a Year

Involve Them After the Enrollment Has Failed to Meet Post-Year Milestones

North America

Western Europe

Eastern Europe

None

Following is an examination of the top

three causes of study start-up delays, as

noted by the survey; patient recruit-

ment, contract negotiation, and protocol

design and timelines.

Patient Recruitment Sixty-fi ve percent of the respondents say

that they meet their targeted enrollments.

And, for the question, in what countries

do you meet or exceed your goals, that

was a bit surprising. Confl icting data from

Tufts rates Asia-Pac fi rst in enrollment,

Latin America second, which contrasted

to our results of North America fi rst, fol-

lowed by Asia-Pac and Eastern Europe.

T e survey asked respondents at what

point they would use an external recruit-

ment and retention agency. Most noted

they would before study start-up, however,

27.5% said they would not use an outside

recruitment agency. Not surprisingly, in

analysis, it turns up that the respondents

who meet or exceed their enrollment

goals, also aren’t the ones who would

choose to use an outside agency. But ap-

parently, this same group is generally not

opposed to outsourcing services. T ey do

lean toward full-service CRO sourcing, as

well as monitoring.

Contract NegotiationContract negotiations with clinical sites,

was cited by 20% of the respondents as a

delay to study start-up. T e average ne-

gotiation period for a clinical trial agree-

ment is between six and 12 weeks.

Earlier this year, Applied Clinical Tri-

als and a Danish legal fi rm conducted a

more in-depth survey specifi cally ad-

dressing clinical trial agreements. In that

survey, we found that the most often cit-

ed reasons for bottlenecks in the clinical

trial negotiation process was long turn-

around at the clinical site; lack of sense of

urgency at the site; diffi cult communica-

tion between diff erent parties involved,

and lengthy budget negotiations.

Taking that a step further, if sites are lo-

cated in a country known to have trouble-

some site negotiations, then this survey

noted that 30% of the respondents would

not choose to contract with sites in that

country. T ose countries perceived as dif-

fi cult to negotiate contracts were the US,

France, Spain, Italy, Russia and Poland.

Protocol Design and TimelinesMedidata Solutions recently released its

Insight data to Tufts CSDD to analyze in

an unrestricted grant from Medidata,

and the top-level results were released at

DIA. T ese results found that approxi-

mately 25% of all clinical trial proce-

dures are considered non-core, i.e. are

not directly tied to the trial endpoints as

agreed upon prior to the study by the US

FDA for demonstrating the safety and

effi cacy of the drug or therapy in ques-

tion. Further, non-core procedures rep-

resent roughly 20% of a clinical trial’s

budget—an estimated $1 million in non-

core procedure costs per clinical study.

However, the total burden of the clini-

cal trial increases with data manage-

ment, monitoring, statistical analysis,

recruitment/retention, including these,

non-core procedures are estimated at $3

to $5 billion each year.

Our survey also noted in addition to

only including core procedures that sup-

ported study endpoints or safety objec-

tives as an improvement to protocol devel-

opment; identifying eligibility criteria and

potential populations would also help.

More and more in the budgeting pro-

cess, medical teams are being asked to

examine protocols as a budget item as

well as a scientifi c item. T ey are hoping

that the teams can address the burden of

protocols in an objective way. Not to im-

pede the regulatory or the science, but

include what is necessary and ultimately,

cost eff ective.

As this survey noted, clinical study op-

timization is an area ripe for attention by

both the sponsor and outsourced pro-

vider community. Please visit applied-

clinicaltrialsonline.com to search for

more articles related to this topic.

◗ Lisa Henderson is Editor in Chief of

Applied Clinical Trials

21%

8%

25%

8%

22%

16%

Would Not Use an Outside Recruitment Agency

45%

6%

18%

27%

4%

Our Focus—Your Success

Ophthalmic

Product

Development

• Formulation Development

• In vitro Ocular Penetration Studies

• Analytical Method Development

• Stability Studies

• Clinical & Non-Clinical Supplies

• Clinical Labeling

Our Focus

Your Success

Dow Pharmaceutical Sciences

www.dowpharmsci.com

707.793.2600

Petaluma, California

26 OUTLOOK

The 2012 edition of the Pharm-

Source–Pharmaceutical Technol-

ogy Outsourcing Survey found a

contract services industry that is

enjoying better-than-expected

business performance in 2012, fueled by

increases in R&D spending at all levels of

the bio/pharmaceutical industry. Con-

tract service providers clearly have been

enjoying the 2012 spending boom. How-

ever, the survey, administrated in June

2012, indicates the industry remains ag-

gressive in seeking new business, but is

also is keenly aware of the risks that

could change its fortunes.

Bio/pharma respondents reported

strong growth in their spending on con-

tract services, with 62% reporting that

spending in 2012 has increased over 2011,

including 43% who said that spending has

increased by 10% or more this year. One-

quarter of bio/pharma respondents indi-

cated that spending on contract services

has been fl at for the year, while only 12%

said their spending has been down.

All segments of the bio/pharma indus-

try appear to be contributing to the

strong performance. Mid-size and spe-

cialty pharma, which has typically been

the best performing of the major cus-

tomer segments, have again been leading

the way, with 25% of service provider re-

spondents putting them fi rst. However,

the other major segments are close be-

hind, with global and small bio/pharma

companies each getting 20% of responses

and generic-drug companies getting 18%.

Rising Expenditures Drive OutsourcingT e overall strength in the services mar-

ket appears to be due to growth in total

spending more so than to growth in the

level of outsourcing. Among bio/pharma

respondents to the survey, 39% said that

spending on contract services is growing

at the same pace as all spending, while

27% indicated that outsourced spend is

growing faster than total spending.

However, that 27% is down from 37% in

the 2011 survey and more in line with the

years previous to 2011. An even higher

share, 34%, indicated that spending on

contract services is actually growing

more slowly than total R&D and manu-

facturing budgets.

Despite the improved market condi-

tions, most CROs and CMOs aren’t tak-

ing anything for granted and remain ag-

gressive in seeking new business. Over

half of bio/pharma company respon-

CROs and CMOs have Cause to Celebrate.

New survey show strong growth for service

providers and promises to continue into 2013.

BoomTIME

dents reported that service providers are

willing to cut price, the same as in the

past 3 years. However, 33% indicated that

service providers were insisting on fi rm-

er pricing, which is up slightly from last

year. We would expect to see fi rmer pric-

ing in a strong market.

We did not see any major changes in

the way that bio/pharma companies are

managing their portfolios of service pro-

viders. Among bio/pharma company re-

spondents, one-quarter indicated they

have reduced the number of vendors they

work with, while the same number indi-

cated that they plan to work with even

more vendors. One-third (33%) plan no

changes in the number of vendors, and

only a small percentage are making plans

for further supplier reductions.

One area where bio/pharma companies

continue to look for new supplier options

is in emerging markets, especially India

and China. Among bio/pharma company

respondents, 46% indicated they are ei-

ther actively sourcing services from India

or China, or are actively looking for ven-

dors from those countries. T at is up only

slightly from 2011, but it continues a slow-

but-steady trend toward getting Asian

companies into their vendor mix. Only

one-third of respondents indicated that

they have no plans to source from emerg-

ing market vendors, but that is down from

50% just three years ago.

Risk FactorsDespite the generally rosy contract servic-

es environment, risks to CROs and CMOs

remain. One is the continuing wide gap

between clients and services providers in

the perception of CRO/CMO perfor-

mance. Clients still give service providers

substantially lower grades for technical

and operational capabilities, project man-

agement and customer service than ser-

vice providers give themselves, and the

gap really has not narrowed in all of the

years we have asked that question.

Although we have no doubt that clients

often have unrealistic expectations of their

service providers, especially in areas such

as the time it takes to respond to technical

problems and schedule changes, we also

BY JIM MILLER


believe that service providers have not

been as mindful of the need to invest in

their “soft” capabilities like project man-

agement and customer service as they

have been of investing in their manufac-

turing equipment and instrumentation.

Service providers are very conscious of

the risk posed by the tenuous nature of

funding for R&D spending at both large

and small pharma companies. When

asked about what they perceive as the

biggest risks to their businesses in the

next two to three years, 40% of CRO/

CMO respondents indicated that the po-

tential for R&D and funding cuts is their

biggest concern.

One risk that has become much more

prominent on service provider’s radar has

been the threat of supplier consolidation

at the global bio/pharma companies. Fully

20% of CRO/CMO respondents indicated

they were concerned about that trend, the

same share as was concerned about the

spending cuts. Although CMC services

have not yet experienced the wave of pre-

ferred provider deals that have swept the

clinical research services sector, providers

of manufacturing, process/formulation

development, and analytical services have

certainly taken notice of that trend and

are girding for it to take hold in the CMC

sector as well. In the meantime, concern

over competition from India and China

has declined markedly.

Looking ahead to 2013, the Pharm-

Source–Pharmaceutical Technology survey

suggests that the impact of these risk fac-

tors is not likely to be felt in the near fu-

ture. Overall, 71% of bio/pharma respon-

dents expect contract services spending

to grow in 2013, with 47% expecting

spending to jump by 10% or more. T at is

a similar response to results received

from the 2010 and 2011 surveys, and

suggests that 2013 could be a good year

for the industry. As a cautionary note,

however, it should be pointed out that

14% of bio/pharma respondents are pre-

dicting a spending decrease, which is up

sharply from last year’s 6% although still

in line with 2009 and 2010.

What it MeansMost contract services vendors went into

2012 with muted expectations: nearly

50% of CRO/CMO survey respondents

have found the year to be better than ex-

pected, and only 14% have found it worse.

With bio/pharma respondents indicating

continued spending growth in 2013, they

■ 2009 ■ 2010 ■ 2011 ■ 2012

Increase > 20%

Increase 10 – 20%

Increase < 10%

Decrease

Stay the Same

0% 5% 10% 15% 20% 25% 30% 35% 40%

HOW WILL YOUR CONTRACT-SERVICES SPENDING CHANGE THIS YEAR?

should look forward to next year with

greater confi dence than they did 2012.

Still, there are reasons to remain cau-

tious. For one, funding of R&D for early

stage companies remains somewhat ten-

uous, especially in a diffi cult global fi nan-

cial environment. And while reported

spending by global bio/pharma compa-

nies continues to grow, we suspect more

of it is going into licensing and partner-

ing deals rather than directly into new

development candidates.

Service provider concerns regarding

supplier consolidation are also warrant-

ed. T e vendor base for CMC services is

diffi cult to consolidate because of the

breadth of technologies involved and

concerns over lengthy supply chains. By

contrast, clinical services have been easy

to consolidate because they involve most-

ly staffi ng and enterprise-level informa-

tion technology. However, as bio/pharma

companies get comfortable with the out-

sourcing models they are developing on

the clinical side, we expect they will adapt

those models to CMC as well; certain ser-

vices like clinical packaging and analyti-

cal services are already in that process.

ConclusionEconomic and fi nancial imperatives in

the bio/pharma industry still favor out-

sourcing, especially in R&D. Still, as the

PharmSource–Pharmaceutical Technol-

ogy Outsourcing Survey has shown over

the years, contract service providers are

continually challenged to demonstrate

that they can out-perform internal capa-

bilities and deliver on promises of cost

and time savings. T ey can’t do this

alone, of course. Outsourcing exposes

the complexities of managing the bio/

pharmaceutical development process,

and bio/pharma companies themselves

must be willing to continuously examine

and improve the process if they are going

to meet their cost and delivery targets.

However, CROs and CMOs must lead

the way in that process improvement ef-

fort. After all, it is their ability to improve

R&D outcomes that is the very reason for

their existence.

◗ Jim Miller is president of PharmSource

Information Services, Inc and publisher of

Bio/Pharmaceutical Outsourcing Report

28 ROUNDTABLE

5ON THE NEW INNOVATION

KEYPLAYERS

The growing sophistication of

clinical development outsourc-

ing has facilitated the transfer

of operating risk and resource

risk from pharmaceutical com-

panies to CROs and CMOs.

Most notably the market lead-

ers have taken on substantial-

ly more fi xed costs and as-

sumed more autonomy and

accountability in servicing

large and highly valued inte-

grated strategic partnerships.

What does this mean for the

sponsors and also for the con-

tract research and manufac-

turing organizations? What

are the advantages and the

drawbacks of such relation-

ships? And will sponsor com-

panies relinquish the control

necessary to allow innovation

to happen? This year, Inside

Outsourcing asked our panel

of 5 industry leaders to weigh

in on the subject. The follow-

ing is what they had to say:


HUGE OPPORTUNITIES

Gregg BrandyberryCEO, WILDFIRE COMMERCE AND

SENIOR ADVISOR, A.T. KEARNEY

PROCROCUREMENT AND

ANALYTIC SOLUTIONS

Everyone has the best intentions

whether it is Big Pharma, CRO’s,

CMO’s or Tier 1 suppliers within

the pharmaceutical supply chain.

T ey all desire to be innovative,

fast, effi cient and eff ective because they

know, for the most part, that today’s nov-

el drug discovery is hardly moving the

needle when it comes to getting new

drugs to market. While the market is

fl ooded with new drug extensions, it is

not with new products. So, as Big Phar-

ma continues the perennial wait for the

new pipeline, they continue to cut costs

by rationalizing supply networks, be-

coming leaner in all aspects of their busi-

nesses, and by outsourcing more and

more of their drug discovery, research

and manufacturing.

As the CRO’s, CMO’s and Tier 1’s be-

come ever more important so does the

necessity for them to be increasingly in-

novative, fast, effi cient and eff ective. Tru-

ly outstanding performance is required

for the long term success of Big Pharma.

One major issue CRO’s, CMO’s and

Tier 1’s face is that their customer is

still Big Pharma. One can only hope

that Big Pharma can act in a way that

allows these critical suppliers to be-

come nimble, agile, fl exible and all the

other attributes needed to be both effi -

cient and eff ective.

Personally I’m rooting for the pharma-

ceutical supply chain to enter a new gold-

en era. Many of today’s problems were

the result of Big Pharma getting too large

and too complex over the past two de-

cades. Stagnant new product discovery

and approvals drove the need for merg-

ers and acquisitions.

Mergers then drove synergies while le-

veraging a larger existing product portfo-

lio, and acquisitions to buy late stage

pipelines and the potential of additional

profi table discovery. Unfortunately, in

many cases, the majority company swal-

lowed the acquired and stifl ed the inno-

vation that made them desirable in the

fi rst place.

T e challenges and opportunities now

are huge for the CRO’s, CMO’s and criti-

cal Tier 1’s. Let’s just hope that as they

grow they don’t repeat the painful les-

sons of the past giants.

VALIDATION

Steve Walfi sh PRESIDENT, STATISTICAL

OUTSOURCING SERVICES

The biggest advantage that the bio-

tech industry has—and is seeing—

in the area of validation is the abil-

ity to move into what I call a

consistent validation model—that

is a validation model that is very similar

to its counterparts in the pharmaceutical

and the medical device arena. We’re get-

ting effi ciencies across the board, and

this is crucial for us as an industry be-

cause, as most people know, we’re seeing

more and more combination products.

In the world of combination products,

companies that historically have grown

up as a medical device manufacturers are

now taking raw materials that are biolog-

ics, putting them together into a single

product, and having that product go for-

ward and validated. Having a model for

validation that’s consistent with the other

parts of the FDA regulated industry is a

tremendous advantage for our industry.

In addition, we now have the ability to

be effi cient in method validation and test

methods. T rough the ICH Q2 (analyti-

cal validation) document and similar

guidance documents, we have a scientifi c

and technological advantage as an indus-

try—that is, consistency of methods

across the global landscape.

DESIGN THINKING

Rick Sax, GLOBAL HEAD, CENTER FOR

INTEGRATED DRUG DEVELOP-

MENT, QUINTILES

For most biopharmaceutical com-

panies today, the primary barrier

to success is that the cost of devel-

oping a new medical entity is too

high relative to the probability of

achieving a successful market entry. One

of the most promising approaches bio-

pharma can employ to combat current

challenges is to embrace a culture of de-

sign thinking. Quintiles leverages its plan-

ning and design experts and a facilitated

interactive computer-assisted design en-

vironment called SEMIO to help its part-

ners enhance and refi ne design thinking.

STEVE WALFISH

GREGG BRANDYBERRY

30 ROUNDTABLE

In contrast to the traditional biophar-

ma design paradigm, design thinking is

performed in a structured manner that

fi rst defi nes the research question well,

integrates all available information, and

then engages in prototyping the process

of developing and testing diff erent sce-

narios and time-cost-risk tradeoff s before

crystallizing the fi nal design decision.

T is process can be summarized as De-

fi ne, Integrate, Prototype, and Crystallize.

Design skills should be embedded

within biopharma, allowing good design

practice to sit at the heart of drug develop-

ment. A driving facet of design thinking is

constant consideration of the probability

of successfully bringing a compound to

market. Design teams are created and

geared to drive outcomes, and all design

activities are assessed on the basis of val-

ue. Each step provides better information,

understanding risk and objectively ad-

dressing potential biases that may occur

in decisions. Information is power, and a

structured approach to integrating and

using it is even more powerful.

T rough application of design think-

ing, we’re fi nding it can help partners in-

novate in developing drugs but also uti-

lize the power of information to increase

the probability of success.

INVEST IN TECHNICAL CAPABILITIES

Dave BackerDIRECTOR MARKETING AND

BUSINESS DEVELOPMENT, SAFC

Successful CMOs and CROs must

be innovative to succeed in this

market. Taking an innovative ap-

proach allows CROs and CMOs

to increase the value of the rela-

tionship through solutions aligned with

changing market and/or customer needs.

T is innovation can take many forms, in-

cluding utilization of new technologies,

processes, or even facility design. One

specifi c example of taking the non-tradi-

tional approach is with Antibody Drug

Conjugates (ADCs), which requires

small and large molecule manufacturing

technologies to make an HPAPI, a

monoclonal antibody, a linker, and be

able to perform conjugation to create

the fi nal product. Just a few years ago,

this would have been an unheard of

combination, but today there are a num-

ber of capable CMOs that can perform

these types of processes.

Beyond that, economics have changed

the relationship between customers and

service providers, which also calls for an

innovative approach. For years, compa-

nies were manufacturing a single prod-

uct per plant, but now most new facilities

(particularly with CMOs) are designed to

be fl exible and multi-product.

In short, a willingness to continue to in-

vest in technical capabilities is a key

component of continued success in this

market. Clients are looking for expertise

and proven experience, but even more

so, a willingness to commit the resources

necessary to manage the project(s). Cus-

tomer intimate organizations defi ne

themselves by the problems they solve,

not the products they sell. T ough this is

not easy, the best organizations are able

to do it through a commitment to cus-

tomer service, technical expertise, and a

commitment to innovation.

NEED FOR DISRUPTIVE CHANGES

Uwe Gottschalk VICE PRESIDENT, PURIFICATION

TECHNOLOGIES, SARTORIUS

STEDIM BIOTECH GMBH

The CMO sector has always been

very innovative, and that is be-

cause we obtain a clear benefi t

from fl exible concepts. We have

seen some interesting develop-

ments, including also the appearance of

single-use technologies that has had a big

impact, especially in the sector of con-

tract biomanufacturing.

For the next 25 years, I personally want

to see more disruptive types of changes,

not just more of the same. Not only opera-

tional excellence but also concepts that go

beyond the current physical limitations.

In downstream processing, for example,

which is my comfort zone, I want to see

concepts that enable downstream pro-

cessing to keep pace with fermentation

and to deliver fi nal products no matter

what quantity and what location within a

couple of days. We might also see closed

systems so that we are meeting the re-

quirements for the perfect conditions that

we now have in fermentation.

RICK SAX

DAVE BACKER

UWE GOTTSCHALK

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32 INSOURCING

New Hybrid Lilly’s

AMRI, a contract research and manufacturing organization, discusses its adaption of an insourcing model with Eli Lilly and what the promise of true collaboration looks like

BY PATRICIA VAN ARNUM


Basis of the RelationshipInside Outsourcing: In late 2011, AMRI formed an insourced

partnership with Eli Lilly for chemistry services to support Eli

Lilly’s drug-discovery programs. Can you describe the na-

ture of the partnership in terms of the resources

(staffi ng, expertise, services) that AMRI is pro-

viding and the related infrastructure and sup-

port that Eli Lilly is providing as part of the

partnership?

Conway: In November 2011, AMRI en-

tered into a six-year collaboration with Eli

Lilly based on an AMRI insourcing mod-

el. As a result of the experience gained in

establishing operating infrastructure at

several remote locations in India, Singapore,

and Europe, AMRI’s knowledge of the logis-

tics, legal ramifi cations, human resources needs,

information technology and infrastructure demands,

and fi nances associated with the insourcing model has enabled

a smooth establishment and ramp-up.

AMRI announced in November 2011 that it would employ

more than 40 synthetic chemists in Indianapolis in 2012 to sup-

port Eli Lilly’s drug-discovery programs. T is team is anchored

by a core of experienced AMRI employees, who had been based

in Albany, New York, and who have relocated to Indianapolis to

assume various leadership roles. T e remaining employees are

new hires, the majority of which are being recruited from Indi-

ana and surrounding states.

Comparison with Traditional Outsourcing ModelsInside Outsourcing: How does an “insourced” relationship

diff er from a traditional “outsourced” relationship? What are

the advantages of such a relationship compared with a tradi-

tional outsourcing relationship?

Conway: An insourcing relationship has the potential to ac-

celerate a customer’s drug-discovery, drug-product develop-

ment, or manufacturing eff orts by maximizing the real-time

exchange of scientifi c information and the resulting abili-

ty to rapidly adjust research priorities in response

to breaking results. Working closely together,

AMRI’s scientists can rapidly adapt to chang-

ing project needs, leading to faster turn-

around response times and yielding re-

duced cycle times in lead-optimization

programs. Co-location brings such bene-

fi ts in sharp contrast to having synthesis

support at a remote location in Asia, for

example.

An insourcing relationship is an ideal op-

tion when the sponsor may have signifi cant un-

occupied laboratory facilities and equipment avail-

able because of prior downsizing initiatives. T ese are

already paid for or are being depreciated anyway, and utiliza-

tion of an insourcing opportunity derives the most value from

these assets.

Customers/sponsors can take advantage of AMRI’s intellec-

tual capital because the insourced scientists still have access

when needed to AMRI’s global network of knowledge and ex-

perienced problem-solving in drug discovery and development.

In addition, working with hundreds of companies across the

industry exposes AMRI to best practices that the company can

bring to the table. From a human resources (HR) perspective,

the insourced scientists are AMRI employees, and this increas-

es the fl exibility of these resources while also relieving the bur-

den of HR support, recruiting, and providing employee bene-

fi ts, which remain the responsibility of AMRI and are already

baked into the research agreement.

Pharmaceutical companies are looking for CROs and CMOs

that can use their expertise in more strategic ways. Insourcing

sets the stage for true collaboration. In a traditional vendor–cli-

The practice of outsourcing development and manufacturing services is not new in the pharmaceu-

tical industry. The traditional outsourcing model involves a sponsor company outsourcing particular

projects to a contract services provider, which performs the agreed-upon services at the CDMO’s

or CMO’s facilities. Other variants of this model can be adapted, however, as in the case of an

adaption of an insourcing model. Although the term “insourcing” typically refers to taking func-

tions back in-house to perform internally with in-house staffi ng and resources, a hybrid of insourc-

ing and outsourcing can also be employed. Such is the case with an insourcing relationship be-

tween Eli Lilly and the contract research and manufacturing organization AMRI for chemistry serv-

ices. CHRISTOPHER CONWAY, vice-president of business development with AMRI, recently discussed

the partnership with Inside Outsourcing.

&

34 INSOURCING

ent relationship, the vendor’s scientists work at their own site,

often far removed from the client. With insourcing, a core team

of scientists is located at the customer facility. T is close prox-

imity allows for constant communication, idea sharing, and

joint problem-solving, ultimately creating a real-time collabo-

ration with increased project productivity.

From the provider’s perspective, an insourcing relationship is

a prime opportunity to demonstrate the value that the provider

can bring to the relationship, In Darwinian fashion, providers

that can demonstrate real contributions and value create oppor-

tunities to cement and grow a relationship. T ose that do not

will see these relationships ending or being transferred to some-

one else. In this fashion, both the sponsor and the provider

evolve for the better of both.

Personnel and Project ManagementInside Outsourcing: For an insourced relationship, the em-

ployees of the contract service provider work at the facility of

the sponsor company. How is that arrangement managed in

terms of the project itself and the employees? In having both

sponsor company and contract service employees together at

one site, how does project management in an insourced rela-

tionship diff er from project management in a traditional out-

sourcing relationship?

Conway: As employees of AMRI, all HR, benefi ts, safety, and

other AMRI practices remain our responsibility. At the same

time as we institute our corporate practices, our insourced em-

ployees also are obligated to layer over that the work obliga-

tions and corporate practices of our host sponsor. In establish-

ing this insourcing relationship, AMRI has placed a senior

leader on site to serve as the team leader and liaison with spon-

sor leadership. T e team has been further partitioned into

groups or sections under the direction of experienced leaders

who function as project managers and group leaders. For sig-

nifi cant challenges, these team leaders can tap into the broader

AMRI leadership team as well as the sponsor’s managers.

Performance MetricsInside Outsourcing: What types of performance metrics are

used in an insourced relationship and how do they diff er from

metrics used in a traditional outsourcing model? Are diff erent

or additional measurements put into play?

Conway: Insourcing models enable a truly collaborative work

environment. For example, in traditional vendor–client rela-

tionships, the vendor scientists work at one site and the client at

another. With the insourcing model, a core group of AMRI sci-

entists will work alongside the customer’s scientists at the cus-

tomer facility allowing for constant communication, idea-shar-

ing, and problem-solving. T is ultimately creates a real-time

intellectual think tank with increased project productivity.

AMRI holds its scientists working at the customer site to the

same stringent standards that are the hallmark of our reputa-

tion of quality. In addition, as part of the establishment of the

insourcing collaboration, negotiators from both parties estab-

lished performance metrics and set expectations, unique to this

relationship, which are expected to be met.

Project Work for InsourcingInside Outsourcing: What type of projects lend themselves to

an insourcing model? Is it appropriate across the continuum of

PUBLIC POLICY PERSPECTIVES

THE LEXICON OF INSOURCING VERSUS OUTSOURCING

Although the term “insourc-

ing” generally refers to a

company bringing activities

back in-house as opposed to

“outsourcing” those activities to a

third-party providers, the terms

insourcing and outsourcing are

increasingly taking on a new

meaning in the lexicon of public

policy. In January 2012 President

Barack Obama and 19 business

leaders participated in the

Insourcing American Jobs Forum

at the White House, at which the

President issued his support for

insourcing as a way to stimulate

investment in US-based compa-

nies and employment and outlined

related initiatives. Several months

ago the President’s Council of

Advisors on Science and Technol-

ogy (PCAST) issued a report

calling for further investment in

advance science and technology,

establishing a national network of

manufacturing Innovation Insti-

tutes as public-private partner-

ships for innovation workforce-

training programs and other tax

regulatory energy and trade

policies encourage investment in

US manufacturing. “I want to be a

pioneer of insourcing,” said

Obama in Austin, Texas on July

17, 2012 of the PCAST report. On

the congressional level a so-called

insourcing bill was introduced. The

Bring Home Jobs Act {S.3364},

which would have laminated a tax

credit that allows companies to

deduct the costs associated with

moving personnel and equipment

overseas jobs back to the US, was

defeated in the US Senate. The

measure failed to advance on a

56-42 vote on July 19, 2012, with

60 votes needed to end debate on

the bill.


drug-development and manufacturing services or is the model

more suited to certain phases of development and related ac-

tivities? What are the key factors in deciding whether an in-

sourced model is appropriate?

Conway: Availability of facilities and technologies that the in-

sourcing scientists will need to access are key to the ability to

establish such a relationship. T e insourcing provider should

have the ability to carve out work functions and conduct activi-

ties unique to existing functions, as well as provide supplemen-

tal capabilities to strengthen service areas that may already be

in-house at some of these organizations. For example, a com-

pany may have synthetic chemists or biologists in-house, but

AMRI may add more through the insourcing model. T ese

groups would be separate, but not totally unique, in its core

function to the customer.

AMRI’s technical capabilities enable the company to custom

build an insourcing model depending on the specifi c and ever-

changing needs of any customer. T e insourcing model aff ords

our customers the ability to tap into experienced, highly trained

discovery, drug-product development and manufacturing

teams to help translate customer ideas to clinical candidates to

large-scale APIs both on the customer’s site and/or at any of

AMRI’s global locations.

Future of New Outsourcing ModelsInside Outsourcing: Traditional outsourcing models still

dominate external development and manufacturing activities,

but do you think insourcing models will become more common

in the industry? Why factors may infl uence greater adoption of

this model?

Conway: Pharmaceutical companies are adapting new strate-

gies and reorganizing their programs, facilities, and resources,

with many companies beginning to contemplate a greater reli-

ance on outsourcing. With substantial layoff s within Big Phar-

ma in the United States and Europe, many experienced discov-

ery and development scientists are taking positions in the CRO

industry. As a result, over time, the balance of expertise is be-

ginning to shift from customers to suppliers.

T e ability of providers to adapt and respond to industry

changes is going to play a vital role in improving the success

rate and outcomes at all stages of the drug-discovery and devel-

opment pipeline. T e ultimate factors in the adoption of this

model are going to be driven by: the needs of customers within

the industry, which includes the services being delivered on

time and to budget; the need for collaborative advice; the need

to ease the burdens of project management; and the need for

more fl exibility, adaptability, and quality. In addition, insourc-

ing can off er signifi cant cost savings compared with hiring per-

manent employees. As insourced scientists are AMRI employ-

ees, the administrative and benefi t costs and obligations accrue

to it. At the highest level, insourcing allows a customer to ramp

up insourced full-time equivalents (FTEs) at a rate competitive

with global external outsourced FTE costs and to use available

laboratory space that would otherwise sit idle while demon-

strating improved productivity that can be measured in pipe-

line candidates.

Inside Outsourcing: T e company is involved in another out-

sourcing model through its smartsourcing program. Can

you explain the program and how it fi ts into an insourcing/out-

sourcing model?

Conway: AMRI’s smartsourcing program is a new initiative

to address the evolving needs of the industry, which includes

insourcing and outsourcing. AMRI has examined the needs of

pharmaceutical and biopharmaceutical companies and itself

and has found that customers are looking for more supplier ac-

countability and more trust as well as a better balance of risk and

greater fl exibility. AMRI’s smartsourcing approach is a versa-

tile and strategic way of partnering that is a means of insourcing

or outsourcing, or a hybrid model of both. It encompasses the

broad range of technologies, capabilities, and global integration

that AMRI can bring to a relationship, allowing our customers

to customize an approach unique to its needs and budget. T e

company has used the rollout of its smartsourcing initiative

to showcase its improved performance and the customer expe-

rience that results from the close integration of global capabili-

ties across the spectrum of drug discovery and development.

◗ Patricia Van Arnum is Executive Editor, Pharmaceutical Technology

[email protected]

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SURVEY36

Matters

When it comes to size associations in the CRO outsourcing relationship a recent survey analyzing outsourcing strategies, practices, challenges, and outcomes in the selection of a CRO

concludes that size fi gures very much, indeed

BY JANICE HUTT

Size


Survey ResultsT e data from the 2011 survey suggest there is a close associa-

tion between the size of the sponsor company and the size of

the CRO selected to perform clinical trials. Most survey re-

spondents felt that large sponsor companies (i.e., annual reve-

nue > $1.5 billion) are best served by mid-sized to large CROs

(i.e., top 15 and top fi ve), whereas smaller sponsor companies

(i.e., annual revenue < $100 million) are best served by small to

mid-sized providers (i.e., top 15 CROs and below). T is percep-

tion is supported by an analysis of satisfaction rates by percent-

age of outsourcing spend allocated to the largest CROs. T e

size of the sponsors tends to go with the size of the providers.

Survey data revealed that for 67% of the Big Pharma companies

surveyed, most of their outsourcing spend goes to the top fi ve

CROs. Seventy percent of small pharmaceutical companies dedi-

cate less than 10% of their outsourcing spend to the top fi ve CROs.

On the providers’ side, for most of the top fi ve CROs, the

majority of revenue comes from Big Pharma and less than 25%

derives from small sponsor companies. For most of the small,

full-service CROs surveyed, less than 25% of revenue derives

from Big Pharma, and most revenue derives from small bio-

technology and pharmaceutical companies.

RATIONAL SELECTION. Do sponsors associate with the

types of providers that will provide them with the best service?

SPONSORS: WHAT SIZE OF CLINICAL SERVICE PROVIDER DO YOU FEEL PROVIDES THE BEST SERVICE, OVERALL,

TO COMPANIES WITH A LEVEL OF OUTSOURCING EXPERIENCE SIMILAR TO THAT OF YOUR COMPANY?

■ Large, full-service CROs (Top five) ■ Medium-sized, full-service CROs (Top 15 but not Top 5)

■ Smaller CROs (beyond Top 15) or specialty providers ■ Mixed model ■ Don’t know/will depend

NOTE: PERCENTAGES MAY NOT ADD UP TO 100 BECAUSE OF ROUNDING.

Big Pharma

(Annual Revenue > $1.5 B)

Mid-Sized Company

(Annual Revenue of $100 M to $1.5 B))

Small, Revenue-Generating Company

(Annual Revenue < $100 M)))

Pre-Revenue Company

40%

24%

11% 32% 53%

7%

51%

64%

19%

21%

48% 3%

6%

7%

5%

5%

5%

SIZE ASSOCIATIONS IN THE CRO OUTSOURCING RELATIONSHIP

The Avoca Group conducted a survey in 2011 to examine how outsourcing strategies, practices, chal-

lenges, and outcomes differ by the size of the sponsor and the size of the provider when outsourcing

clinical research.1 The survey was conducted to determine whether there is a pattern whereby sponsor

companies of different sizes (i.e., small, medium, and large) choose to work with providers of different

sizes or type. And if so, was the association a rational one? That is, do sponsors select the types of pro-

viders that will provide them with the best service? The survey also addressed what this association means for

clinical service providers.

The survey was taken by a total of 193 respondents; 109 were sponsors representing a mix of small, medium,

and large-sized companies, and 84 were providers of varying sizes. The survey focused on a wide range of sizes

of sponsors and providers with respect to the following: provider selection; provider performance, overall and by

task, by both the size of the provider and the size of the sponsor; sponsor strengths and weaknesses in provider

engagement and management, by size of sponsor; and by specifi c CROs that perform particularly well for spon-

sors of different sizes.

38 SURVEY

Or is it only the perception of “right size” that drives sponsors

to select vendors of corresponding sizes?

T e reported rates of satisfaction among both the sponsors

and providers were examined, and they showed that respon-

dents from Big Pharma, medium-sized pharmaceutical compa-

nies, and small pharmaceutical companies were all most likely

to feel that they were best served by mid-sized CROs rather than

by the top fi ve CROs or smaller providers (see Figure 1). For their

part, clinical service providers felt that large pharmaceutical

companies are best served by the top 5 CROs (see Figure 2).

T e data show that even though sponsors of diff erent sizes gen-

erally select diff erent sets of providers, their satisfaction rates are

remarkably similar. Similarly, providers also are most likely to be

satisfi ed with relationships with like-sized pharmaceutical compa-

nies. T e data show:

Small and midsized sponsors that use the top fi ve CROs to

meet less than 25% of their outsourcing needs are generally

more satisfi ed than are small and mid-sized sponsors who

use the top fi ve CROs more liberally.

In contrast, large sponsors that use the top fi ve CROs to meet

at least 50% of their outsourcing needs are generally more sat-

isfi ed than are large sponsors that use the top fi ve CROs less.

T us, it does appear that the observed association is ratio-

nal. Sponsors are selecting the providers with whom they are

most satisfi ed.

Different Sizes, Different StrengthsReplies to survey questions indicate why the outsourcing deci-

sion is based on several factors.

THE SPONSORS’ VIEW. T e reasons sponsors provided

to explain their choices of CROs make sense in light of the

strengths diff erent-sized providers bring to the table. Pharma-

ceutical executives summed up the diff erences as follows: “Large,

full-service CROs are best when a global footprint, infrastruc-

ture, and ‘deep’ experience are needed. T e Big Pharma and bio-

tech sponsors and big drug developers rely on the large, full-ser-

vice CROs if they’re doing a large, pivotal, Phase III clinical trial.”

Pharmaceutical executives feel that the big CRO has “been

there, done that” on projects of this size. With such large fi nan-

cial resources being dedicated to global trials, executives plan-

ning a Phase III trial feel more assured that a big CRO will give

them the required attention and a good team, and they may also

feel more comfortable with the fi nancial stability of a large CRO.

Full-service CROs have large capacity, the ability to risk-share,

and well-standardized procedures, including training and quali-

ty-control activities.

Executives feel that medium-sized CROs are best when it

comes to value and having less staff turnover than the larger

CROs. Medium-sized CROs also typically provide more fl exibili-

ty, quality personal service, and senior management involvement.

Smaller CROs, executives indicate, are best when it comes to

fl exibility, responsiveness, attention, and involvement of senior

management. T ey also tend to have lower turnover than is found

with larger CROs. Because they do not maintain a large infra-

structure, smaller CROs are more cost-eff ective. As one executive

from a small pharmaceutical company stated in the survey:

“Smaller CROs have better personnel assigned for small sponsor

companies. Big CROs tend to treat smaller customers worse.”

THE PROVIDERS’ VIEW. As noted previously, providers

also report that they are more satisfi ed when they work with

sponsors of corresponding size. Providers that felt that spon-

sors of diff erent sizes performed diff erently on these tasks most

often felt that Big Pharma sponsors performed best. Most felt

that Big Pharma sponsors were better than smaller sponsors at

specifying tasks to be performed, and all relevant assumptions,

in request for proposals. Providers, however, felt that smaller

PROVIDERS: WHAT SIZE OF CLINICAL SERVICE PROVIDER DO YOU FEEL PROVIDES THE BEST SERVICE,

OVERALL, TO SPONSOR COMPANIE?

■ Large, full-service CROs (Top five) ■ Medium-sized, full-service CROs (Top 15 but not Top 5) ■ Smaller CROs

(beyond Top 15) ■ Small specialty providers ■ A mix depending on the project ■ Individual Contractors

NOTE: PERCENTAGES MAY NOT ADD UP TO 100 BECAUSE OF ROUNDING.

Large Pharmaceutical

Companies

Small to Mid-sized

Sponsor Companies

61%

15% 41% 35%

22% 4%

1%1%

10%

SIZE ASSOCIATIONS IN THE CRO OUTSOURCING RELATIONSHIP

7%

3%


sponsors were better at considering CROs’ input and advice

during the bid stage.

A survey respondent from a large CRO explained it as fol-

lows: “T e big challenge [in working with smaller sponsors] is

dealing with a sponsor that has little or no concept of the com-

plexity, and thus the true cost of, clinical development.” Anoth-

er CRO executive noted: “When the small company requires us

to provide cross-functional services, we must utilize a greater

amount of project management resources to coordinate eff orts

between third-party fi rms. Also, smaller companies may re-

quire a greater amount of consultation for the drug-develop-

ment activities. T is may result in additional manpower spent

to plan programs and greater communication.”

“Effi ciency would improve overall if the smaller sponsors en-

gaged the CRO earlier in the process,” another provider said,

“so that we could be involved more strategically and could help

them in planning their needs.”

Smaller sponsors, however, were seen by most provider re-

spondents to perform just as well as did larger sponsors in cer-

tain areas as follows:

Establishing appropriate contracts with CROs

Respect of provider team members

Team leadership

Having reasonable expectations for the resources required

by CROs to complete tasks

Identifying the most suitable CROs to bid on projects

Evaluating bids from CROs

Adhering to own commitments

Communication.

Research found other important benefi ts that were cited by

CROs with respect to small to mid-sized biotechnology and

pharmaceutical companies. “Small to mid-sized biotechnology

companies are less diffi cult to manage because typically...you

are working directly with key decision makers, and there is no

middle-man communication, which streamlines productivity,”

one provider noted. “T ere is more fl exibility with process and

approach,” stated another. An appropriate level of management

and less bureaucracy than with large pharmaceutical compa-

nies were also noted.

Size Does MatterAvoca’s data certainly suggest that there is a feeling in this indus-

try that size does matter. It is important to consider what is at

play behind the issue of size in organizations, such as the belief

that infrastructure and training at a large global CRO are better,

especially in emerging markets.

T ere are already concerns about having trained staff in these

parts of the world and investigators who really understand the

clinical trials. T e large CROs have invested in these regions,

and they have hired big teams, and have a big global footprint

and an infrastructure already in place. So if Big Pharma is look-

ing for a strategic partnership, they tend to pick from the top

fi ve CROs. Big sponsors are consolidating their relationships

and creating strategic relationships.

On the surface, it might appear that the small- to mid-sized

CROs would have a diffi cult time competing against the larger

CROs. Yet, according to the survey, many pharmaceutical ex-

ecutives stated that on a day-to-day, project-team basis, the

small to mid-sized CROs provide better service because they’re

able to be fl exible and provide better teams. T is explains why

respondents from Big Pharma, medium-sized pharmaceutical

companies, and small, revenue-generating pharmaceutical

companies were all most likely to feel best served by mid-sized

CROs as opposed to the top fi ve CROs or smaller providers.

For a mid-sized CRO, this is great news, because while the

top pharmaceutical sponsors are spending most of their money

in the top-sized CROs, it does not mean they necessarily feel

the biggest CROs are the best service providers. And that per-

ception creates opportunity for the smaller CRO, which does

specialty work in its realm of expertise with any size company.

INVESTING IN THE RELATIONSHIP. No matter what size

organizations work with each other, it is going to come down to

being clear about expectations, building trust, and taking time

to invest in the relationships so that no matter what size the

organizations are, they are optimal relationships and outcomes.

As long as the organizations have the resources and capabilities

to be able to run the trial, success depends on the relationship

that sponsor companies and providers build with each other. If

the relationship between the two partners is strong, the trials

are going to run better—no matter what size organizations are

working together on a given project.

BIDIRECTIONAL, MUTUAL RESPECT. It is important

that there be a continued shift in Big Pharma’s relationship with

CROs toward one that demonstrates respect for the fellow profes-

sionals they are working with on a given project. T e attitude that

“you are my vendor—do as I say” has been moving toward “we

should have respect for each other.” More sponsor organizations

are examining themselves and asking if their team is doing its best

to foster these mutually respectful relationships with clinical ser-

vice providers. T ey are acknowledging that it is crucial to pro-

vide training on how to manage eff ectively, and respectfully, the

CROs and to collaborate to build trust and transparency.

ConclusionT ere is a diff erence among sponsor companies and CROs on

which companies contracts with each other, and there is a dif-

ference in perceptions about capabilities, resources, infrastruc-

ture, and expertise. Despite these diff erences, they share com-

mon interests for safety and effi ciency, and the drug is likely to

be tested in clinical trials globally, making the CRO-sponsor

relationship adaptable to companies of varying sizes.

◗ Janice Hutt is chief operating offi cer of The Avoca Group. janice.

[email protected]

REFERENCE: 1. Avoca Group, State of Clinical Outsourcing Survey (Princeton, NJ, 2011).

40 COMMENTARY

In Hans Christian Andersen’s story,

“T e Emperor’s New Clothes,” two

tailors promise their leader a suit that

is invisible to anyone unfi t for offi ce.

Everybody goes along with it: the Em-

peror not wanting to appear incompe-

tent, the people not daring to challenge

him. In clinical trial outsourcing we are

witnessing a similar phenomenon, except

that our Emperor is the pharmaceutical

executive, our tailors are the large CROs

and our invisible suit is strategic partner-

ing. In the children’s story, of course, it

takes the foolhardy eff rontery of a young

boy to expose the truth. I’d like to cast

myself in that boy’s role for this article.

Strategic partnership deals are the

fashion in our space, with numerous

public announcements in recent years.1

And there have been a number of re-

views and commentaries on the trend,

most of which conclude that strategic

partnerships are benefi cial to the spon-

sor companies implementing them.1,2,5 A

good summary of the popular view has

been provided by industry observer Ken-

neth Getz, who says: “Partnerships hold

promise in establishing long lasting rela-

tionships that benefi t from strategic in-

sight into and engagement in future port-

folio needs. Under these relationships,

sponsors partner with fewer CROs. T ey

gain the assurance of dedicated global ca-

pacity and expertise under shared gover-

nance, coordinated communication and

issue resolution and integrated operating

processes and systems.”2

My italics there highlight the elements

Getz associates with strategic partner-

ships and these recur throughout the lit-

erature, along with others such as econo-

mies of scale, risk sharing and trust. But

what value is associated with each of

these features? Are the benefi ts real?

Where is the evidence?

T e British mathematician and phi-

losopher Bertrand Russell once said:

“Never let yourself be diverted either by

what you wish to believe, or by what you

think would have benefi cent social ef-

fects if it were believed. But look only,

and solely, at what are the facts.”3

T is is a useful approach to take when

examining strategic partnerships be-

cause, although the vision of collabora-

tive sponsor-CRO alliances—that is,

we’re all in it together—might sound ap-

pealingly noble, facts demonstrating

real added value are hard to fi nd and

reasons to doubt are many. You will

rarely hear common-sense objections to

strategic partnership features. In the de-

bate, facts are ignored in favor of righ-

teous platitudes.

Just examine the literature. T e main

benefi t said to arise from strategic part-

nerships is the promise of savings. How-

ever, the only company that appears to

have put their name to a fi gure on this is

Eli Lilly (20% on data management &

monitoring)5 and in that case there is no

detail provided around how the saving

was achieved or measured. Meanwhile,

there is evidence that savings are not ma-

terialising in the partnership space, with

BY ANDREW PARRETT

PARTNERSHIPSSTRATEGIC

THE EMPEROR’S NEW CLOTHES?

For a different POV we turn to Andrew Parrett who argues that strategic

partnerships are neither strategic nor partnerships. And furthermore, they

don’t add value to clinical trial outsourcing. Here’s why…


last year’s RW Baird Survey suggesting CRO costs have in-

creased, particularly for large pharma where the majority of the

strategic partnership deals have been created.6

In a nutshell there are two big problems with strategic part-

nerships in our industry. T e fi rst is that they are not strategic

and the second is that they are not partnerships.

What Does ‘Strategic’ Mean?T e concept of strategic purchasing can be traced back to a

seminal paper by Peter Kraljic published in Harvard Business

Review in 1983.7 Kraljic explained how suppliers can be classi-

fi ed in terms of their cost and the risk they present of failing to

supply (perhaps failing to recruit patients).

When assessing suppliers we calculate what the supply fail-

ure risk is versus cost, which gives us a defi nition of value. Now,

if awarding an entire portfolio, it is reasonable to position small

CROs at point A representing low cost but high risk, while the

larger, better established CROs might occupy point B repre-

senting high cost with lower risk. Of course the place any

buyer would like to be is at point C, but that isn’t very

realistic. Instead the goal might be to get to point D

and the message is that it may be better to do

that by investing in mitigating the risk of a

low cost provider than by negotiating dis-

counts with an established one.

T e investment to support a provider is

a real strategic approach. Procurement

professionals call it ‘supplier development’

and it is clear to see how such a philosophy

might lend itself more readily to engaging

cheaper, riskier, smaller providers. In

our industry, however, we have

made it a pre-requisite of stra-

tegic partnerships that the

provider is large and global.

Kenneth Getz observes:

“Small and mid-sized CROs

have largely been left behind

while major CROs — the only organiza-

tions with suffi cient scale and diverse talent — service a grow-

ing number of integrated relationships.”2

T is prevailing attitude reduces the science of procurement

to mere shopping and is very reminiscent of the old phrase “no-

body ever got fi red for hiring IBM.” Strategic purchasing should

be about mitigating supply failure risk, but in our space nobody

ever talks about that in the same breath as strategic partnering.

T e single biggest risk of supply failure — not recruiting pa-

tients — is never mentioned. T e focus instead is on discounts

and, for me, it’s depressing that such tactical, point-of-contract

saving-mechanisms are constantly being touted as strategic so-

lutions when frankly they are not.

However, due to the $125 billion patent cliff our industry

faces, pharmaceutical executives are desperate to focus on sav-

ings — immediate savings — that can only be reported through

tactical means. So pharma talks strategic, but acts tactically and

nobody can blame the big CROs for making some money out of

the situation. So it’s like the Emperor’s New Clothes. It wasn’t

the fault of the tailors. T e Emperor brought his predicament

entirely upon himself.

Partnerships and the Risk Dynamic In the Journal of Clinical Research Best Practices, Ronald Waife

writes: “[T]here is nothing to be gained by characterizing ser-

vice providers as partners… the criticism of a pay-for-service

relationship in favour of something somehow more lofty is mis-

placed and misleading.”8

True partners are defi ned as such because they share inter-

ests, risks and profi ts. However, in Waife’s analysis, sponsor

risks and profi ts are high, while CRO risks and profi ts are more

modest. But on this detail I tend to disagree, because my obser-

vation for the subset of CROs who have cornered the strategic

partnership market is that they actually generate

profi ts (as a percentage of earnings) compara-

ble to those of their clients.

Just consider the market. Private equity

companies have been scrambling to get into

the CRO business over the last 8 years,

with 14 formerly public CROs having

moved into private ownership.9 Such

investors don’t go hunting acquisitions

in industries where profi ts are modest

and, all the while, strategic partnering

is where they most want to be. T e

acquisition activity associated

with this has driven a consolida-

tion of CROs and economists

tell us that as the number of

suppliers decreases so prices

rise in the pursuit of profi t.10

T is is especially true in the

supplier base for strategic partner-

ships because, remember, we have

made it a pre-requisite of strategic partner-

ships that the provider is large and global. And

this has limited our options, with one analyst claiming that the

six largest CROs now account for 50% total clinical CRO reve-

nues.11 T is means a market that economists describe as ‘oli-

gopoly’, characterized by, among other features, high profi ts for

the suppliers.10

It would be OK for the CRO side of the partnership to enjoy

high profi ts if they shared the risk but, as Waife points out, this

is where the partnership concept really breaks down:

“T e CRO’s risk in non-performance is mostly one of tar-

nished reputation… [but] responsibility for failure is usually

obscure… [and] sponsors are notoriously loathe to pursue pen-

alties. If there is a sanction it would most likely be loss of work.

But … sponsors routinely continue to give work to service pro-

viders who have failed them.”8

Put simply, risk sharing does not exist between customer and

42 COMMENTARY

service provider… and you cannot have a

partnership without shared risk. Waife

and I espouse the same solution for this

dilemma: accept that the risk is always

with the client, who should therefore take

responsibility for managing the risk.

And taking responsibility for risk

means the sponsor needs to be in charge;

be the boss, not a partner. T is is no se-

mantic point. Partnerships create gover-

nance hierarchies built around issue es-

calation and nannying project teams,

often placing CRO personnel in commit-

tees where they are equal or senior to

sponsor personnel. T is blurs the dis-

tinction between customer and service

provider and harms delivery. We should

tear down traditional governance and re-

place it with a lean system where pharma

focuses on risk and quality management

and the CRO gets on with delivering its

services.

Waife concludes: “[Why] not just pay

your CRO for competent work without

all the ‘partnership’ trappings? Look at

any recent press release announcing a

new sponsor-CRO partnership. Every

single service or advantage listed… can

be purchased… from that CRO… with-

out a partnership agreement.”8

Waife might as well say that partner-

ships in our space are like lipstick on a

pig. You can dress up service delivery as

something more beautiful, but it’s still

service delivery. Any suggestion the

sponsor might benefi t by subscribing to

the partnership fantasy is groundless in

fact and potentially dangerous.

ConclusionIn summary, strategic purchasing is

something buyers do to mitigate the risk

of supply failure, a risk that, fundamen-

tally, cannot be shared because service

providers have diff erent interests to their

sponsors. Meanwhile, a partnership de-

scribes a particular type of relationship

where risks are genuinely shared because

interests are shared. Put together there-

fore, the two concepts represent an oxy-

moron that logically cannot be fi t for

purpose and provides a classic example

of how an appealing idea can become

popular despite practically zero evidence

in support of claimed benefi ts.

It has probably not escaped your no-

tice that should (as would seem likely)

the risk/cost profiles of CROs de-

scribed earlier vary significantly be-

tween trials (so that, for a given trial, a

cheaper CRO may also sometimes be

less risky) then a policy of radically

limiting one’s supplier base will impact

the possibility of achieving best value

from one trial to another. Thorough

study of this dynamic — considering

total cost of ownership in order to fully

understand the pros and cons of limit-

ing one’s options — is therefore essen-

tial for any sponsor considering its

sourcing strategy. Taking such an evi-

dence-based approach is well rehearsed

in the procurement profession, where

it is called ‘value analysis’. However, to

my knowledge, no such analysis has

ever been undertaken prior to imple-

menting a preferred provider policy for

clinical trial outsourcing.

Adoption of procurement best prac-

tice is what has been missing in clinical

trial outsourcing as pharmaceutical ex-

ecutives have preferred a wild goose

chase for the utopian dream of partner-

ing with service providers. I would add

that when sponsors accept that they

alone own their risk — that they cannot

share it via misconceived partnerships —

then they can justly demand full trans-

parency and slim profi t margins from

CROs who, ring-fenced from risk, will

have no excuse not to comply. Perhaps

only then will sponsors secure the ulti-

mate prize of reducing real costs rather

than recognizing imaginary savings…

and subscribing to the myth of the Em-

peror’s New Clothes.

Aeras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Baxter Healthcare Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Biomanufacturing Training and Education Center . . . . . . .23

Catalent Pharma Solutions . . . . . . . . . . . . . . . . . . . . . . . . .44

Dow Pharmaceutical Sciences . . . . . . . . . . . . . . . . . . . . . .25

Eurofi ns Lancaster Laboratories Inc . . . . . . . . . . . . . . . . . .17

Hospira One 2 One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Jubilant Hollister Stier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Laureate Biopharmaceutical Services Inc . . . . . . . . . . . . . . .2

Metrics Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Micro Measurement Laboratories . . . . . . . . . . . . . . . . . . .31

Patheon Pharmaceutical Svc Inc . . . . . . . . . . . . . . . . . . . . . .9

Pierre Fabre Medicament Production . . . . . . . . . . . . . . . .13

Therapex Ezem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

INDEX OF ADVERTISERS

REFERENCE: 1. Graham Hughes, Contract Research Annual Review 2011, The Complete Picture of the Contract Research Market, Biopharm Knowledge Publications 2011. 2.

Kenneth Getz, “Profound Shifts in Outsourcing Landscape”, 10–15, Inside Outsourcing, A Supplement to Applied Clinical Trials, November 2011. 3. Bertrand Russell, BBC

Interview, 1959. 4. Prof. John Seddon, “Why do we believe in economy of scale?” White paper, July 2010. 5. Karyn Korieth, “Integrated CRO alliances growing but poorly

executed,” 1, 12–16, CenterWatch Vol 18, issue 09, September 2011. 6. Nick Taylor, “CRO prices increasing, survey fi nds,” www.outsourcing-pharma.com, 29th September,

2011. 7. Peter Kraljic, “Purchasing must become supply management,” Harvard Business Review, September 1983. 8. Ronald S. Waife, “Partnership Heresy,” Journal of

Clinical Research Best Practices, Vol. 8, No 1, January 2012. 9. Paul Richter, Jina Ventures, speaking at 8th Annual PCMG Conference, June 2012. 10. Hunt & Morgan, “The

Comparative Advantage Theory of Competition,” Journal of Marketing, 1–15, Vol 59, April 1995. 11. Jim Miller, President PharmSource Information Services Inc, Feb 2011.

◗ Andrew Parrett is Chairman of the Phar-

maceutical Contract Management Group,

the world’s largest professional body for

pharmaceutical company employees en-

gaged at the sponsor-vendor interface.

He can be contacted at andrew.parrett@

btinternet.com

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