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Guide to Strategic Outsourcing (with Trends, Surveys and Analysis)
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INSIDEOutsourcingDecem
ber
2012
A SUPPLEMENT TO:
TRENDS.SURVEYS.ANALYSIS.
OutsourcingStrategic
GUIDE TO
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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
Contents
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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.
Enjoy the read.
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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
PHARMACEUTICAL FORMULATION DEVELOPMENT, CLINICAL TRIAL MATERIALS, ANALYTICAL METHOD DEVELOPMENT
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FORMULATING
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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.
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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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
INSIDEOutsourcing 19
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
INSIDEOutsourcing 21
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
INSIDEOutsourcing 27
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:
INSIDEOutsourcing 29
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
INSIDEOutsourcing 33
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.
INSIDEOutsourcing 35
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
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YOUR NEEDS ARE OUR PRIORITY
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
INSIDEOutsourcing 37
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%
INSIDEOutsourcing 39
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.
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…
INSIDEOutsourcing 41
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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