The Emerging Landscape of Clinical Development Alliances

John D. Barry Michael W. Young

Vice President, Alliance & Sales Management Vice President, Alliance Management Group

Clinical Development Industry

• CRO – Contract Research Organizations−Outsource clinical services for life sciences

companies (principally pharmaceuticals)−Approximately 1200 in the world ranging from

1 person to 20,000+ professionals−Over 72,000 people employed in 2010−Conducted more than 11,500 clinical trials,

involving two million research participants in 114 countries in 2010

−Contributed to the development of all of the top 20 selling prescription medicines

−Involved in the development of at least 33 of 38 new medicines approved for use last year in the United States and Europe

Drivers for Outsource Development Alliances

• The Recession and Continued Economic Pressure• Big Pharma / Biotech downsizing

− Approximately 20,000 layoffs in R&D personnel since 2008*− Represents over 10% of total R&D Headcount employed by top

30 pharma and biotech companies worldwide

• Market Forces− Capacity constraints− Rising workload− Increased Regulatory requirements− Increased safety and QA concerns− Rising workload inside Pharma− Decelerating revenue growth− Intense capital market pressures

• Need for Greater Efficiencies and Speed to Target− Reducing costs and outperforming competition

*Wall Street Journal

Taking Orders• Transactional• Tactical execution• Managing inputs• Accommodating issues• Many interfaces• Diffuse accountability

Traditional State

Strategy

Life Sciences Company

CRO

Execution

Evolving State

Partnering• Trust & relationship• Strategic plan & execution• Managing outcomes• Proposing solutions• Single peer to peer points of contact• Empowered authority• Reduce need for internal oversight

Strategy

Life SciencesCompany

CRO

Execution

Industry Transition in Progress

Transactional State*

APPROACH• Ad hoc, per project basis• Driven by insufficient internal personnel or expertise• Sponsors interact with large numbers of service providers• Traditional service providers only engaged for a single project

PROCESS• Sponsors solicit multiple bids for prescribed work• Select lowest bidder (or combination of perceived best deal)• Sponsor commits significant resources for oversight• Some Sponsors have established “preferred providers” to

expedite selection and contracting• Sponsors “resort to micromanaging the relationship”• Middle-manager focus for planning and governance

*Tufts Center for the Study of Drug Development 2009

Partner-Based Alliance State*

APPROACH• Departure from Transactional State focuses on mutual

investment and mutual reward• Foundation lies in honest assessment of Sponsor core

competencies and acknowledgment of what will be done better, faster, cheaper by the outsource provider

• Commitment to invest in and implement structures and policies to support an alliance relationship

• A visible senior management commitment to the goals of the stated alliance

• Not project work: Shift from CAPACITY-based outsourcing to COMPETENCY-based outsourcing

*Tufts Center for the Study of Drug Development 2009

Partner-Based Alliance State*

PROCESS• Sponsor shifts to Partner• Provides significantly more transparency to oncoming pipeline• Incorporates planning and scientific expertise of CRO• Dramatically reduces out of scope costs and improves quality

of work delivered• Governance and operating procedures are a shared

responsibility• Affords both partners the chance to optimize core

sompetencies• Dramatically reduces Partner oversight requirements lowering

resource needs and overhead• “Nearly all functional tasks can be outsourced in partner-based

relationships”• Real time, cost, and productivity gains can be realized

*Tufts Center for the Study of Drug Development 2009

Degrees of Separation

CRO / Sponsor relationships:• range from simple customer/vendor transactions

to true outsourcing partnerships• individual relationships vary over time.

Degrees of interdependence between companies

Acquisition

Merger

Joint

Venture

Strategic

Alliance

Franchise

AllianceJoint

Team

Relationship

Outsourcing

Partnership

Out / In

License

Customer /

Vendor

Transactions

Need for

Alliance Management

Adapted from: “Managing Alliances for Business Results”, Weise, et.al. 2006

CRO Allia

nces

Partnership Model Options

• Transactional Model − Project by project outsourcing. − No further commitment from provider or customer.

• Functional Service Provider Model− Provider commits resources to the model but functional

management remains with customer− Generally includes an inputs based contract where an input is

an FTE• Enterprise Solution

− Creates a productivity based model that encourages the provider to innovate

− Generally includes an outputs based contract that pays for productivity

− Some examples:• Asset based – device/drug or TA – able to plan and deliver:

− on core team− program efficiencies for subsequent studies− process improvements pertinent to that asset

• Wider strategic alliance – able to build on all elements above, developing greater insights, influence and efficiency

Four Pillars of a Successful Partnership

• Each partner adds their core competencies

• A dedicated organization• Cultural alignment• Therapeutic expertise• Value proposition & shared risk

PPD Alliance Culture

• to resource to our client’s needs• to assure client objectives are met rather

than simply aligned with PPD abilities• to keep the goals of the stated Alliance

first• to be constantly looking for win-win

opportunities• to provide valued transparency• to constantly seek meaningful

communication

Objectives of Enterprise Solutions

• Achieve goal alignment between partners• Foster innovative behaviors• Connect financial rewards with enhanced

delivery• Leverage economies of scale• Eliminate redundant competencies• Create competency synergies between

partners

Enterprise Solution versus FSP

• Enterprise Solution− Creates a productivity based model that encourages the provider to innovate (contract commitments; supplier processes and systems, etc.)

− Generally includes an outputs based contract that pays for productivity− Typically provides full function sourcing with no like resources maintained by Sponsor

• Functional Service Provider Model− An agency or staff augmentation model where a portion, but not all roles are provided by a single supplier

− Provider commits resources to the model but functional management remains with customer

− Generally includes an inputs based contract where an input is an FTE