A SUPPLEMENT TO

:

INSIDE Outsourcing
Strategic Outsourcing
TRENDS.SURVEYS.ANALYSIS.

GUIDE TO

December 2012

Before you choose a CMO partner, we invite you to put us under the microscope.
30+ years of mammalian cell culture experience. 25 years of fill/finish experience. 50+ unique recombinant proteins including IgGs, IgMs, fusion & connective proteins, enzymes & cytokines. Laureate will partner with you from discovery to reality and every step in between. To learn more, visit us online at www.LBioS.com or call 609.919.3300.

www.LBioS.com

609.919. 3300

“Best Contract Manufacturing Organization”
Vaccine Industry Excellence Awards (2010-2012) Third Year in a Row

For more information, visit baxterbiopharmasolutions.com Visit us at: email: biopharmasolutions@baxter.com ICSE at Booth #10E25

Baxter and Galaxy are registered trademarks of Baxter International Inc.

920810-00 6/12

* 52 8 3
We’re more than just a magazine...

INSIDE Outsourcing
SALES Russ Pratt, VP of Sales & Group Publisher, Pharma Science Group rpatt@advanstar.com Wayne Blow, Publisher, Applied Clinical Trials wblow@advanstar.com Michael Tracey, Publisher, Pharmaceutical Technology and BioPharm International mtracey@advanstar.com EDITORIAL Marylyn Donahue, Editor, Inside Outsourcing Special Projects Editor, Pharmaceutical Executive mdonahue@advanstar.com William Looney, Editorial Director, Pharmaceutical Executive wlooney@advanstar.com Lisa Henderson, Editor in Chief, Applied Clinical Trials lhenderson@advanstar.com Angie Drakulich, Editorial Director, BioPharm International, Pharmaceutical Technology adrakulich@advanstar.com Adeline Siew, Editor, Pharmaceutical Technology Europe Peter Houston, Content Director phouston@advanstar.com CIRCULATION

#

ePT

The ePT weekly e-newsletter delivers critical information on recent contract awards, company mergers & acquisitions, and fresh news of interest to a highly desired community of pharmaceutical manufacturing professionals.

PT Sourcing and Management

The PT Sourcing and Management monthly e-newsletter is the authoritative source on sourcing and management within the pharmaceutical’s global supply chain.

Equipment & Processing Report

Equipment & Processing Report focuses on pharmaceutical manufacturing process and technology, providing manufacturing news, related regulatory issues, and current trends.

Mark Rosen, Circulation Director mrosen@advanstar.com

President, Chief Executive Officer Joseph Loggia Vice President, Finance & Chief Financial Officer Ted Alpert Executive Vice President, Corporate Development Eric I. Lisman Vice President, Electronic Media Group Mike Alic Vice President, Market Development Georgiann DeCenzo Vice President, Media Operations Francis Heid Vice President, Human Resources Nancy Nugent Vice President, General Counsel Ward D. Hewins Executive Vice President, Healthcare & Pharma/Science Ron Wall

PTE e-Alert

Pharmaceutical Technology Europe’s weekly electronic e-newsletter PTE e-Alert provides news, market developments, industry surveys and information on up and coming trade events.

Digital Magazine

PharmTech Digital provides readers around the world with authoritative peer-reviewed research and expert analyses in the areas of process development, manufacturing, formulation and drug delivery, API synthesis, analytical technology, packaging, IT, outsourcing, and regulatory compliance.

+ access to

web seminars

podcasts surveys

www.pharmtech.com

Get all this and more. Subscribe now at

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.
COVER IMAGE: GETTY IMAGES

Parenteral Contract Manufacturing Service of Hospira

Our comfort zone is global parenteral manufacturing
• Biologics • Highly Potent Drugs • Cytotoxics • • • • Betalactams Controlled Substances Sterile Compounding Single-Use Technology • Lyophilization • Global Regulatory Services • QP Release

Zagreb, Croatia

Chennai, India

Discover your comfort zone at one2onecmo.com
Get your custom report online or contact One 2 One. Call +1-224-212-2267 or +44 (0) 1926 835 554 or e-mail one2one@hospira.com

Your Parenteral Comfort Zone
Parenteral Contract Manufacturing Service of Hospira
P11-3517A-Jan., 12

6

TABLE OF CONTENTS

Contents
8 10 18 20 27
Introduction
Letter from the Publisher

28 32 32 40

ROU NDTA BLE

5 Key Leaders on The New Innovation
Thought leaders weigh on what’s new

L E A D S T O RY

Risk: The Peril and Promise
Operating risk and resource risk from sponsors to CROs being facilitated By Kenneth Getz
M A N UFA CT UR IN G

INSOU RCING

Lilly’s New Hybrid
A look at a very different insourcing relationship between Eli Lilly and its partner, AMRI By Patricia Van Arnum

Taking Measure
Inside Outsourcing’s annual report on the state of the biopharmaceutical industry By Eric Langer
C L I NI CA L T R IA LS

SU RVE Y

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

Making it Succeed: Optimization
Solving the common hurdles and challenges for conducting Phase II and Phase III studies. By Lisa Henderson
O U TL O O K COMMENTA RY

Strategic Partnership: The Emperor’s New Clothes
With all the talk, are strategic partnerships really partnerships, and are they strategic? By Andrew Parrett

Boom Time
Better-than-expected business performance for contract services industry into 2013 By Jim Miller

Full Service Contract Manufacturing …Clinical to Commercial …Multiple Dosage Forms …Regulatory Excellence

Ask us about our

LAB SERVICES:
Interphex, NYC Bio, Chicago

I almost lost her
Fifty years of marriage, three children, six grandchildren, and two great-grandchildren. We were finally getting to sit back and enjoy our golden years. It all flashed before me with a single, chilling image on a screen — my wife had a brain tumor. Thanks to her strong will and quality medical treatments, Mieko and I are back to doing what we love best — enjoying our family. We didn’t think about how the quality of Mieko’s medications helped speed her recovery, but Jubilant HollisterStier does.
Mieko is the mother of a JHS employee

Scan the barcode or visit jublHS.com to review a video about our organization

Now offering Laboratory Services as part of our extended outsourcing capabilities.
jublHS.com • info@jublHS.com • 800.655.5329 • locations in U.S.A., Canada and India

Solid Dosage • Non-Sterile Topicals & Liquids • Sterile Ophthalmics & Otics • Sterile Injectable Fill/Finish

8

INTRODUCTION

FROM THE PUBLISHER
New Models for a New World
n 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 different forms it takes from tactical to strategic relationships between 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 actively using single- and multi-functional partnerships under long-term alliance arrangements. Sponsors are seeking not only more efficient access to dedicated global capacity and talent, but also cost savings through partnerships with a select and reduced number of contract service providers. Tis has been a boom to the outsourcing industry. As Ken Getz points out in his fascinating story “Te Peril and Promise of Risk Imbalance” on page 10, the total global market for all contract services supporting prescription drug R&D is $90 billon to $105 billon, nearly five times larger than commonly cited. Te 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. Tey are being asked to

An Introduction

I

take on more responsibility to create and implement solutions far more innovative than have been traditionally generated and to weigh aggressive growth strategies that may redefine the scope of contract services traditionally offered. Whether or not outsourcers 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 pharmaceutical and biopharmaceutical outsourcing— we’re not in Kansas anymore. Inside Outsourcing, an annual publication, is delivered 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 staffs for their efforts. In addition, my appreciation goes to the Editor of Inside Outsourcing—Marylyn Donahue, Special Projects Editor, Pharmaceutical Executive. I would also like to thank Angie Drakulich, Editorial Director BioPharm International and Pharmaceutical Technology; Adeline Siew, Editor Pharmaceutical Technology Europe; Lisa Henderson, Editor In Chief, Applied Clinical Trials; and William Looney, Editorial Director, Pharmaceutical Executive. Enjoy the read.
— Russ Pratt
Vice President Sales & Group Publisher, Pharma Science Group

Choose Choice.
Sustained-Release Immediate-Release Taste Masking Lyophilization Aseptic Filling

Multi-Therapy

Solubilization

No other partner gives you more formulation options – royalty free.
Get access to the industry’s widest range of complex formulation technologies for small molecules and biologics, and benefit from expertise forged over thousands of projects. At Patheon, we’re not tied to any technology. That means science alone drives the development of an optimal formulation, and you’ll never pay us a royalty. Our commitment is to your success.

Choose choice – choose Patheon.
Visit www.patheon.com Call +1 866-PATHEON Email doingbusiness@patheon.com
©Patheon Inc. All rights reserved. Published 11/12 PATH0214R2

10

LEAD STORY

Peril and Promise
OF RISK IMBALANCE
Risk 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

the transfer of operating risk and resource risk from pharmaceutical companies to contract service providers. In response, CROs — most notably the market leaders — have taken on substantially more fixed costs and assumed more autonomy and accountability in servicing large and highly valued integrated and strategic partnerships. Te transfer of higher levels of risk is pushing CROs to experiment with, and implement, novel and innovative approaches to improve the speed, efficiency and effectiveness of a variety of functions. Te jury is still out on whether sponsors can be patient enough to allow these novel approaches to pan out.

The Run-Up of Unbalanced Risk
Nearly all of the large sponsor companies (e.g., major and some mid-sized pharmaceutical and biotechnology companies) have adopted and are actively using single- and multi-functional partnerships under long-term alliance arrangements. Trough these integrated relationships, sponsors are seeking not only more efficient access to dedicated 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 performance and cost and by reducing the amount of oversight through shared governance, coordinated communication and issue resolution, operating processes and systems. Sponsors who have entered into integrated partnerships also look to benefit from strategic insight into and engagement in future portfolio needs. Te largest CROs — those uniquely positioned to provide the breadth and depth of capacity that sponsor portfolios require — have been the primary recipients 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

I

t 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 operating procedures, internal processes, practices and systems. Tese same critics may soon come to see CROs in a different light. Te growing sophistication of clinical development outsourcing has facilitated

relationships. Among the top 10 largest CROs, 71% of their reported revenue comes from functional service and integrated alliances, and 29% from transactional relationships. In contrast, the majority (60%) of revenue for niche and mid-size CROs comes from transactional service relationships. Smaller pharmaceutical and biotechnology companies continue to primarily use transactional relationship outsourcing – often under preferred arrangements — to augment capacity for a specific project-related task. Greater autonomy in managing large and highly valued integrated partnerships 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-functional 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 offer. CROs that have entered into integrated relationships have had to increase their own operating capacity, infrastructure, and capabilities in order to service the unique demands of each partnership. Customization cannot be scaled. It demands more infrastructure and management, eats into the CRO’s ability to operate efficiently, and squeezes CRO company profitability.

Motivation and Patience
Market leading CROs covet these integrated, strategic relationships for their value and for their continuity with, and deep access to, the largest and most active pharmaceutical and biotechnology companies. Next-tier CROs have also looked to get in on the game by scaling capacity and capabilities through mergers and acquisitions (e.g., INC, Inventiv). An overwhelming majority of CRO professionals (80%) expect sponsor-use of integrated alliances to continue to significantly increase during the next

12

LEAD STORY

UNBALANCED OPPORTUNITY AND RISK IN CONTRACT CLINICAL SERVICES OUTSOURCING
TYPE OF RELATIONSHIP
Transactional (full, niche) services Transactional (full, niche) services Integrated alliance services
SOURCE: CenterWatch, 2012; (N=40 CRO companies)

15 LARGEST CROS 29% 33% 39%

MIDSIZE/NICHE CROS 59% 19% 22%

three-to-five years according to that same 2011 CenterWatch study noted earlier. Te capital markets affirm 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 integrated alliance, CROs are hard-pressed to lose them. Te termination of a single alliance will no doubt be highly disruptive to a major CRO’s financial and operating stability. Major CROs are highly motivated to ensure that they deliver on the promise of efficiency and cost savings. But sponsors are impatient for results. Many are looking for quantifiable improvement despite the fact that the majority of these relationships have only had a few years to take hold and that sponsors have had limited experience designing, executing and supporting integrated 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 recognize that implementation of their integrated alliances has not been optimal. Anecdotal reports highlight a number of implementation shortcomings including failure to engage and coordinate corporate outsourcing strategies among local affiliates and support functions; Failure to clearly define governance roles and responsibilities of personnel at varying levels in the organization; and strained relationships resulting from failure to set

expectations among investigative sites and subcontractors. A 2012 report by Booz & Company based on interviews with top 20 pharmaceutical companies had similar findings. 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 mechanisms and without aligning their outsourcing and corporate strategies. Outsourcing insiders and analysts may recall that the earliest reports on the impact of integrated alliance relationships were glowing: Pfizer and Eli Lilly, two of the earliest adopters, reported that their three-year-old relationships had delivered significant cost savings, cycle-time improvements and fewer contract delays. Eli Lilly, for example, reported 20% cost savings on data management and monitoring and a 93% improvement in monthly patient enrollment volume. Pfizer reported saving $20 million in a single year through consolidating management of its vendors from 150 to 17; a 26% reduction in enrollment cycle time and an 80% reduction in the number of contracts delayed by more than 120 days. In 2010, based on a review of 89 functional 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 relationships. 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 integrated 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, Te Avoca Group, a New Jerseybased consulting firm, found that one out of five (22%) sponsors had discontinued a strategic alliance largely due to poor performance and quality. Te detailed survey 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 alliances had failed to reduce the level of internal resources dedicated to oversight and coordination and another third reported mixed results; and 17% of sponsors said that their alliances had failed to generate operating efficiencies. And another 40% said that operating efficiencies were only being met some of the time. Most sponsor companies are tweaking their integrated relationships to address their shortcomings. Sponsors are modifying and adjusting governance structures, collaborative processes and practices. Many are exploring ways to empower internal staff at the executionlevel, more actively manage communication and coordination processes and systems, and more effectively measure collaborative performance. Some sponsors are also closely watching regulatory agency oversight of integrated outsourcing in anticipation of tighter scrutiny of

14

LEAD STORY

S T R U C T UR AL LA NDS CAP E CH ANGE

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 fixed costs • Divestiture and/or expansion into higher margin service areas • Focus on more control over performance and efficiency • Differentiation through novel partnerships

clinical trial management and issue resolution. FDA and EMA have both signaled strong interest recently in understanding how integrated outsourcing relationships impact global clinical data quality and compliance. But although integrated strategic alliances 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, invariably it is the CRO partner who must bear the burden of the risk of failure.

Taking Risk by the Horns
Top CROs are not resting on their laurels. Tey have been very active in executing initiatives to mitigate operating and resource risk. Many are consolidating assets, subcontracting non-core capabilities that are a drain on their profitability, and turning to the private equity markets to adjust their business mix and correct their performance out of the public investment community’s line of sight.

Te largest CROs are also aggressively pursuing new and innovative initiatives to wring out higher levels of speed and efficiency. During the past 12 months, top CROs have introduced a number of e-clinical solutions designed to simplify and optimize data and project management and to coordinate disparate technologies. Perceptive Informatic’s (Parexel) launch of the MyTRIALS platform and Icon’s launch of ICONIK are two such examples. Investigative site performance and patient recruitment and retention are two areas receiving considerable attention lately. Te study conduct arena is arguably one of the most highly inefficient and unpredictable. It is also an area to which the success of integrated partnerships is most measured. Te 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 accountable. Various investigative site performance optimization solutions have been

launched recently including Covance’s Xcellerate methodology and Icon’s Firecrest Clinical. Quintiles has been highly active building up its global Partner Sites and Prime Sites programs to establish more structured and supported relationships with 1,000 research centers and 16 major hospitals respectively. Other major CROs have also been actively establishing relationships with investigative sites around the world with the primary goals of improving control over site performance and success. Te ties between pharmaceutical and biotechnology companies and the research professional and patient communities are highly regulated and must be kept at sufficient distance. CROs have far greater latitude to establish closer relationships with these stakeholders. To name but a few notable initiatives designed to improve patient recruitment success and gain access to patient data: Quintiles’ 2012 launch of its Digital Patient Unit marks the culmination of the company’s efforts to establish online interactive patient communities that bridge health care and clinical research. PPD launched PatientView in 2011 connecting patients with research and health

scale-up seamless. Turns out we also make it painless.
— KRISTI GARRETT

We make

F ORMULATING C RITICAL C OMPOUNDS A ND scaling them up through CTM I, II, III and commercial manufacturing isn’t necessarily simple. But it doesn’t have to be painful, either. At Metrics, our teambased approach ensures a smooth process from start to finish. More collaboration. Fewer headaches. Better outcomes.

PHARMACEUTICAL FORMULATION DEVELOPMENT, CLINICAL TRIAL MATERIALS, ANALYTICAL METHOD DEVELOPMENT & VALIDATION, STABILITY SERVICES, RAW MATERIAL TESTING, TRACE METALS ANALYSIS, MICROBIOLOGY 1240 Sugg Parkway / Greenville, NC 27834 / 252-752-3800 / www.metricsinc.com

16

LEAD STORY

US C ON T R A CT R& D S ER VI CE P R OV IDER M AR KE T S EGMEN TS
ESTIMATED US TOTAL MARKET SIZE 2011: $32.9 - $39.5 BILLION

Applied Research Other

9%

25% 21%
Non-Clinical Research

29%

16%
Clinical Research

CMC

care professionals and enabling study volunteers to more actively manage their medical information. Te list of innovative solutions implemented by CROs during the past twenty months are impressive and greatly exceed the space allowed here. Te key takeaway is that top CROs are uniquely motivated in the current operating environment to pursue novel approaches — that leverage manpower, enrich performance data and online communities and to help streamline and optimize development performance.. CROs are stepping up their management of resource risk in other ways. Last year’s CenterWatch Report Card study showed that management of CRO staff performance has been steadily improving. In the study, investigative site ratings of CRO staff professionalism, preparedness 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 workload, but work fewer hours than do those employed by sponsor companies.

Structural Change in the Broader Market
In their efforts to mitigate elevated levels of operating and resource risk inherent in strategic, integrated relationships, major CROs will turn their attention to new strategic growth opportunities that will boost company profitability. Many will turn to service areas falling outside preclinical and clinical development as part of a broader strategy to offer end-to-end (i.e., from discovery through approval) outsourcing solutions. Te current global contract R&D landscape is certainly ripe for consolidation. A recent Tufts CSDD study finds that pharmaceutical and biotechnology company 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 market in this initial study due to the laborintensive nature of analyzing a large, fragmented market predominantly made up of small, privately held organizations and independent consultants. Data on more

than 4,500 companies across five primary market segments — Applied Research, Non-Clinical Research (which includes pre-clinical), Clinical Research, Chemistry Manufacturing and Controls (CMC) and Staffing-Consulting-Management (Other) services — was analyzed. Te results of this 2012 study found that the largest segments are CMC and Non-Clinical – 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. Te Applied 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. Te results of this study suggest that worldwide, the total global market for all contract services supporting prescription drug R&D is $90 billion to $105 billion, nearly five times larger than commonly cited figures. Tis huge, fragmented and remarkably diverse market may hold promise for CROs looking to merge capabilities and infrastructure where appropriate through backward and forward integration. Te intense pressure to achieve higher levels of clinical development speed and efficiency at lower cost has never been greater. Dynamics of the current outsourcing environment, specifically the shift toward strategic integrated alliances and the transfer of operating and resource risk, are pushing CROs out of their comfort zone and beyond the confines of their clients’ operating philosophies and practices to create and implement solutions far more innovative than have been traditionally generated and to weigh aggressive growth strategies that may redefine the scope of contract services traditionally offered. Hopefully these novel strategies and approaches will be given sufficient 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. getz@tufts.edu.

Are your bioassays misbehaving?

If your cell-based potency assays are taking you for a wild ride, choose the only Lab that delivers your precious cargo safely, every time. For all your cGMP Biologics Stability and Release Testing, Lancaster Laboratories succeeds where others fail.

As the #1 choice among BioPharm International Readers for customer service, meeting deadlines and price, not only will we get you there, you are going to enjoy the ride.
• • • •

Greater than 95% success rate on assay transfers + 25% or better RSD on all assays More experienced PhDs than any other lab Largest breadth of services and facility capacity for cGMP biologics stability and release in the industry

Visit www.LancasterLabsPharm.com

Global Bio/Pharmaceutical Services
Stability Testing and Storage Method Development & Validation Final Product Release Testing Raw Materials Testing Residual & Impurities Testing Facility & Process Validation Microbiology Biochemistry Viral Clearance & Viral Safety Cell Bank Manufacturing Molecular and Cell Biology Mycoplasma Testing

18

TAKING MEASURE
MANUFACTURING

BY ERIC LANGER

BIOPHARM OUTSOURCING
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.
ompanies must make difficult strategic decisions about commercial manufacture earlier in product development, especially since planning is becoming increasingly more involved and extensive as outsourcing becomes 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 supplies, process development, R&D, assay services, fill–finish, or other activities.1

C

Tere 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 process development and 8.8% did in R&D. An equal number of respondents (9.4%) reported outsourcing manufacturing activities to domestic and nondomestic service providers. (see Figure 1)

Outsourcing Budgets Flat
Te survey showed clear evidence that budgets are bouncing back in all areas in 2012, except outsourced manufacturing. Te uptick in areas other than outsourcing represents a change from two years ago when budgets decreased in areas ranging from production, hiring new scientific staff, and new facility construction. Te survey also separately asked respondents to indicate how their outsourcing in R&D and manufacturing will change during 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). Tese increases are more heavily distributed on key outsourcing areas (see Figure 2) rather than broadly seen as increases across all operations.

Cost Cutting Not a Factor
Te BioPlan survey, which included responses from 302 representatives from biopharmaceutical companies and CMOs in 29 countries, evaluated 23 key outsourcing areas in biomanufacturing.1 Te study showed that companies are incorporating outsourcing as a manufacturing strategy rather than as an ad-hoc method of adding flexible capacity or to simply eliminate overhead costs associated with lower value production activities. Data also show a spike in the percentage of biopharmaceutical companies projecting outsourcing of analytical testing, validation services, and fill–finish activities. Te BioPlan study further evaluated how companies are addressing cost issues in biopharmaceutical manufacturing. Te survey identified activities biomanufacturers undertake to reduce costs. Te study showed that outsourcing activities ranked in the bottom quarter of measured factors to reduce costs although outsourcing increased slightly for certain functions as a strategy for cost-containment during the past 12 months (see Figure 1).

Projections
Te survey evaluated 24 different areas associated with outsourced 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 analytical testing/bioassays. BioPlan believes much of this increase relates to product characterization, including for biosimilars.

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 significantly more fill–finish 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 release, and toxicity testing. Some recent decreases in predictions for outsourcing growth are in: downstream production operations, testing/ product characterization, media optimization, upstream production operations, regulatory services, upstream process development, and testing cell-line stability.

GAUGING BIOP HA RM OU TS OU RCI NG
OUTSOURCING ACTIONS TAKEN BY BIOMANUFACTURERS TO REDUCE COSTS AT FACILITIES DURING THE PAST 12 MONTHS.
Outsourced Jobs in Manufacturing Outsourced Jobs in Process Development Outsourced Jobs in R&D Outsourced Manufacturing Activities to Domestic Service Providers Outsourced Manufacturing Activities to Nondomestic Service Providers (Offshoring)

14.4% 11.8% 13.3% 13.2% 8.8% 9.0% 9.4% 7.1% 5.7% 9.4%

Looking ahead

■ 2012

■ 2011

SOURCE: BIOPLAN ASSOCIATES

Te biopharmaceutical industry continues to focus on productivity, efficiency, getting more out of existing internal resources, and maximizing performance from their provider relationships. Although outsourcing can improve overall efficiency and reduce costs, the management of relationships continues to be challenging and necessitates CMO/CRO flexibility to meet clients’ shifting needs. Data from this study shows that CMOs are expanding their manufacturing competence through the use of novel technologies, single-use/disposable bioreactors, and other differentiated

bioprocessing services. Improved services are resulting in increased adaptability, lower costs, faster turnaround, and higher yields, thereby offering more choice for biopharmaceutical companies. 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 Associates and a member of BioPharm International’s editorial advisory board, elanger@bioplanassociates.com.

SELECT OUTSOURCING ACTIVITIES PROJECTED TO BE DONE AT SIGNIFICANTLY HIGHER LEVELS
Analytical Testing (Including Other Bioassays)

18.3% 16.2% 22.1% 23.8% 26.2% 23.1% 24.8% 13.5% 12.4% 18.5%

35.4%

Validation Services

32.3%

Fill-Finish Operations

API Biologics Manufacturing

Cell-Line Development

15.4% 17.3% 12.4%
SOURCE: BIOPLAN ASSOCIATES

■ 2012

■ 2011

■ 2010

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

20

INSIGHT DATA

Succeed
CLINICAL STUDY OPTIMIZATION
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 ecently, Applied Clinical Trials surveyed its audience to determine the current challenges in clinical trials. Te survey asked questions about regulatory and market considerations, upcoming trends, study start-up challenges, and protocol design and development. Tese results, culled and prioritized, point to insights on clinical study optimization. As is well documented, the cost to develop a drug is between $300 million to $800 million. Phase I-IV clinical research accounts for 35% to 40% of a drug’s development and each day a clinical trial is delayed can cost a pharmaceutical 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 engage properly with its outsourcing partner so that efficiencies 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 increase 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 percentage could increase to more than 60%. Its model currently anticipates a 10% increase in penetration from 2010

Making it
Clinical Sourcing

R

through 2015. What this all means is that pharma is more than ever relying on CROs and service providers in its clinical research. Study optimization then becomes key.

Clinical research accounts for 16% of the total US contract R&D service provider market. Approximately 154,000 people are employed 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, acquisitions and consolidation continue, the use of contract service providers as integral and integrated sourcing providers will similarly 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 specific areas of clinical trials do you utilize your sourcing model (see Chart 2). Tere 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, “Te adoption of functional service provider (FSP) and alliance relationships has evolved lopsidedly. Only the largest CROs are capable of providing the depth of capacity that sponsors require to support their portfolios. Te vast majority of newly established FSP and alliance models have been awarded to the top 10 largest CROs. According to investment banking firm Fairmont Partners, the market for integrated alliances

INSIDEOutsourcing

21

rests largely with the top five largest CROs. Tese leading companies have entered 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 relationships. Based on aggregated data from the top 10 largest CROs, one-third of revenue comes from functional service provider relationships; 39% from integrated alliances; and 29% from transactional relationships. In contrast, niche and midsize CROs earn nearly 60% of their revenue from transactional service relationships. Specifically, to FSPs, Getz notes that the larger CROs managing many FSP and integrated alliances need to watch their bottom lines. Te danger is “running up fixed infrastructure costs to service client customization requirements.” A later article, appearing in the July issue of Applied Clinical Trials, titled “Navigating Beyond the Plateau” takes on the FSP model and how it should best be structured. Te 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 relationships. With the increased use of outsourcing, the task of managing this rela-

Elements of the Core FSP
Relationship

Strategic

“Horizon Scanning” Value and Innovation Lead Metrics Project/Risk Management Lag Metrics Quality Complete Resourcing Plan Skill Requirements = Customer Expectations Resourcing Metrics Account Management/IT Support Best Practice/Lessons Learned Training/SMEs Learn/Teach the Customer’s Way
SOURCE: QUINTILES

Operational Delivery

Resourcing

Support

tionship and providing oversight has also increased. For 61% of the respondents, the oversight has increased or dramatically increased over the last two years.

Regulatory Top of Mind
Regulatory issues, by virtue of the fact that this is a highly-regulated industry, also rank high among clinical trial professional’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 regulation, or as in the case of social media, no FDA guidance or regulation. Te 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

WHAT IS THE PREDOMINANT FORM OF SOURCING YOUR COMPANY USES?
Strategic Alliances Niche or Specialized CRO Work

IN WHAT SPECIFIC AREAS DO YOU UTILIZE YOUR SOURCING MODEL?
Data Management Full-Service CRO/All Areas Biostatistics 4%

5%

9%
Preferred Provider

22% 26% 17% 15%
Internal Capacity Pharmacology 2% 22% 42% Monitoring

11%
Clinical Trial Supplies 4%

13%

Functional Service Providers

Transactional Relationships

Core Laboratories Subject Medical Writing Recruitment 4% 2%

22

INSIGHT DATA

WHAT ONE CURRENT REGULATORY ISSUE KEEPS YOU AWAKE AT NIGHT?
Electronic Submissions (eCTD) Getting a Warning from FDA Social Media Getting Timely IND Approval

WHICH FACTORS DOES YOUR COMPANY CONSIDER THE TOP CAUSE OF STUDY DELAYS?
Regulatory Authorities Approval Patient Recruitment Ethics Committee Approval

7%

5% 21%

11%

4% 5% 4% 15%

Availability of Study Drug Investigator Selection

23%

41%

33% 5%
Changes in EU Pharmacovigilanc Managing Sunshine Act Requirements

7%

Registering the Clinical Trial in all the Countries/ Registries Required

20%

Protocol Design

Contract Negotiations with Clinical Sites

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 clinicaltrials.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 “Te data we have been getting is difficult to understand 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, “Te Clinical Trials.gov Results Database—Update and Key Issues” was published 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 enterprise; selective publication of study results and correspondence levels between registered and published outcome measures. 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. Tis 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 ClinicalTrials.gov. Specifically, as noted above, trials that aren’t currently required to be registered. And the major issue that TEST aims at is to expand the clinical trial registry data bank – ClinicalTrials.gov – with stronger reporting requirements, and require 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 additional countries have voluntary requirements, with strong incentives to register, such as ethics committee approval. And most of the registries require only protocol information, not the study results. Tere are third-party software vendors who do offer 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 regulatory burden. As noted by the other issues, 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 monitoring guidance, investigator compliance, and IRB paperwork management.

Study Start-up
Study 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. Tat was broken down into the following: Patient recruitment, 32% of costs; supplier fees, 25%; site recruitment, 14%; CTMS technology, 12% and site retention at 8%. Tis list is not complete. Tere are also IRB costs, CRO costs, monitoring visits accounted for 36% of the CRO costs for a global 14-country 220 site, 1,670 subject 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. Te most cited reasons for bottlenecks in clinical trial negotiation— long turnaround at the clinical site; lack of sense of urgency; difficult communication; and lengthy budget negotiations. So, before the trial starts, there’s already a considerable outlay.

24

INSIGHT DATA

WHAT GLOBAL REGION CONSISTENTLY MEETS OR EXCEEDS YOUR TARGET ENROLLMENTS?
None Asia Pacific

AT WHAT POINT WOULD YOU USE EXTERNAL RECRUITMENT AND RETENTION AGENCY TO HELP YOU AHIEVE YOUR TARGET ENROLLMENTS?
Would Not Use an Outside Recruitment Agency Would Involve Them Before the Study/Park of Study Start-Up

16%

21%

27%
Eastern Europe

22%

8%

Latin America Involve 4% Them After the Enrollment Has Failed to Meet Post-Year Milestones

45%

8%
Western Europe

25%

18% 6%
Involve Them After the Trial Has Launched

North America

Involve Them After Enrollment Falls Behind Within a Year

Following is an examination of the top three causes of study start-up delays, as noted by the survey; patient recruitment, contract negotiation, and protocol design and timelines.

Patient Recruitment
Sixty-five 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. Conflicting data from Tufts rates Asia-Pac first in enrollment, Latin America second, which contrasted to our results of North America first, followed by Asia-Pac and Eastern Europe. Te survey asked respondents at what point they would use an external recruitment 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 apparently, this same group is generally not opposed to outsourcing services. Tey do lean toward full-service CRO sourcing, as well as monitoring.

gotiation period for a clinical trial agreement is between six and 12 weeks. Earlier this year, Applied Clinical Trials and a Danish legal firm conducted a more in-depth survey specifically addressing clinical trial agreements. In that survey, we found that the most often cited reasons for bottlenecks in the clinical trial negotiation process was long turnaround at the clinical site; lack of sense of urgency at the site; difficult communication between different parties involved, and lengthy budget negotiations. Taking that a step further, if sites are located in a country known to have troublesome site negotiations, then this survey noted that 30% of the respondents would not choose to contract with sites in that country. Tose countries perceived as difficult to negotiate contracts were the US, France, Spain, Italy, Russia and Poland.

Protocol Design and Timelines
Medidata 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. Tese results found that approximately 25% of all clinical trial procedures 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

Contract Negotiation
Contract negotiations with clinical sites, was cited by 20% of the respondents as a delay to study start-up. Te average ne-

efficacy of the drug or therapy in question. Further, non-core procedures represent roughly 20% of a clinical trial’s budget—an estimated $1 million in noncore procedure costs per clinical study. However, the total burden of the clinical trial increases with data management, 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 supported study endpoints or safety objectives as an improvement to protocol development; identifying eligibility criteria and potential populations would also help. More and more in the budgeting process, medical teams are being asked to examine protocols as a budget item as well as a scientific item. Tey are hoping that the teams can address the burden of protocols in an objective way. Not to impede the regulatory or the science, but include what is necessary and ultimately, cost effective. As this survey noted, clinical study optimization is an area ripe for attention by both the sponsor and outsourced provider community. Please visit appliedclinicaltrialsonline.com to search for more articles related to this topic. ◗ Lisa Henderson is Editor in Chief of
Applied Clinical Trials

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

Dow Pharmaceutical Sciences

Our Focus Your Success

www.dowpharmsci.com
707.793.2600 Petaluma, California

26

Boom

OUTLOOK

BY JIM MILLER
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 firmer pricing, which is up slightly from last year. We would expect to see firmer pricing in a strong market. We did not see any major changes in the way that bio/pharma companies are managing their portfolios of service providers. Among bio/pharma company respondents, one-quarter indicated they have reduced the number of vendors they work with, while the same number indicated 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 either actively sourcing services from India or China, or are actively looking for vendors from those countries. Tat is up only slightly from 2011, but it continues a slowbut-steady trend toward getting Asian companies into their vendor mix. Only one-third of respondents indicated that they have no plans to source from emerging market vendors, but that is down from 50% just three years ago.

TIME
CROs and CMOs have Cause to Celebrate. New survey show strong growth for service providers and promises to continue into 2013.

T

he 2012 edition of the PharmSource–Pharmaceutical Technology 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. Contract service providers clearly have been enjoying the 2012 spending boom. However, the survey, administrated in June 2012, indicates the industry remains aggressive 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 contract 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. Onequarter of bio/pharma respondents indicated that spending on contract services has been flat for the year, while only 12% said their spending has been down. All segments of the bio/pharma industry appear to be contributing to the strong performance. Mid-size and specialty pharma, which has typically been the best performing of the major customer segments, have again been leading

the way, with 25% of service provider respondents putting them first. However, the other major segments are close behind, with global and small bio/pharma companies each getting 20% of responses and generic-drug companies getting 18%.

Rising Expenditures Drive Outsourcing
Te overall strength in the services market 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 manufacturing budgets. Despite the improved market conditions, most CROs and CMOs aren’t taking anything for granted and remain aggressive in seeking new business. Over half of bio/pharma company respon-

Risk Factors
Despite the generally rosy contract services environment, risks to CROs and CMOs remain. One is the continuing wide gap between clients and services providers in the perception of CRO/CMO performance. Clients still give service providers substantially lower grades for technical and operational capabilities, project management and customer service than service 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

INSIDEOutsourcing

27

HOW WILL YOUR CONTRACT-SERVICES SPENDING CHANGE THIS YEAR?
Increase > 20% Increase 10 – 20% Increase < 10% Decrease Stay the Same
0% 5% 10% 15% 20%
■ 2011

25%

30%

35%

40%

■ 2009

■ 2010

■ 2012

believe that service providers have not been as mindful of the need to invest in their “soft” capabilities like project management and customer service as they have been of investing in their manufacturing 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 potential 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 preferred 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 PharmSource–Pharmaceutical Technology survey suggests that the impact of these risk factors is not likely to be felt in the near future. Overall, 71% of bio/pharma respondents expect contract services spending to grow in 2013, with 47% expecting spending to jump by 10% or more. Tat 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 predicting a spending decrease, which is up sharply from last year’s 6% although still in line with 2009 and 2010.

should look forward to next year with greater confidence than they did 2012. Still, there are reasons to remain cautious. For one, funding of R&D for early stage companies remains somewhat tenuous, especially in a difficult global financial environment. And while reported spending by global bio/pharma companies continues to grow, we suspect more of it is going into licensing and partnering deals rather than directly into new development candidates. Service provider concerns regarding supplier consolidation are also warranted. Te vendor base for CMC services is difficult 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 mostly staffing and enterprise-level information technology. However, as bio/pharma companies get comfortable with the outsourcing models they are developing on the clinical side, we expect they will adapt those models to CMC as well; certain services like clinical packaging and analytical services are already in that process.

Conclusion
Economic and financial imperatives in the bio/pharma industry still favor outsourcing, especially in R&D. Still, as the PharmSource–Pharmaceutical Technology Outsourcing Survey has shown over the years, contract service providers are continually challenged to demonstrate that they can out-perform internal capabilities and deliver on promises of cost and time savings. Tey 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 effort. 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

What it Means
Most contract services vendors went into 2012 with muted expectations: nearly 50% of CRO/CMO survey respondents have found the year to be better than expected, and only 14% have found it worse. With bio/pharma respondents indicating continued spending growth in 2013, they

28

5PLAYERS
KEY
ON THE NEW INNOVATION
The growing sophistication of clinical development outsourcing has facilitated the transfer of operating risk and resource risk from pharmaceutical companies to CROs and CMOs. Most notably the market leaders have taken on substantially more fixed costs and assumed more autonomy and accountability in servicing large and highly valued integrated strategic partnerships. What does this mean for the sponsors and also for the contract research and manufacturing organizations? What are the advantages and the drawbacks of such relationships? And will sponsor companies 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 following is what they had to say:

ROUNDTABLE

INSIDEOutsourcing

29

HUGE OPPORTUNITIES

Gregg Brandyberry
CEO, WILDFIRE COMMERCE AND SENIOR ADVISOR, A.T. KEARNEY PROCROCUREMENT AND ANALYTIC SOLUTIONS

E

veryone has the best intentions whether it is Big Pharma, CRO’s, CMO’s or Tier 1 suppliers within the pharmaceutical supply chain. Tey all desire to be innovative, fast, efficient and effective because they know, for the most part, that today’s novel drug discovery is hardly moving the needle when it comes to getting new drugs to market. While the market is flooded with new drug extensions, it is not with new products. So, as Big Pharma continues the perennial wait for the new pipeline, they continue to cut costs by rationalizing supply networks, becoming leaner in all aspects of their businesses, and by outsourcing more and more of their drug discovery, research and manufacturing. As the CRO’s, CMO’s and Tier 1’s become ever more important so does the necessity for them to be increasingly innovative, fast, efficient and effective. Truly 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 become nimble, agile, flexible and all the other attributes needed to be both efficient and effective. Personally I’m rooting for the pharmaceutical supply chain to enter a new golden era. Many of today’s problems were the result of Big Pharma getting too large and too complex over the past two decades. Stagnant new product discovery and approvals drove the need for mergers and acquisitions. Mergers then drove synergies while leveraging a larger existing product portfolio, and acquisitions to buy late stage pipelines and the potential of additional profitable discovery. Unfortunately, in many cases, the majority company swallowed the acquired and stifled the innovation that made them desirable in the first place. Te challenges and opportunities now are huge for the CRO’s, CMO’s and critical Tier 1’s. Let’s just hope that as they grow they don’t repeat the painful lessons of the past giants.
VALIDATION

STEVE WALFISH
ics, putting them together into a single product, and having that product go forward 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 efficient in method validation and test methods. Trough the ICH Q2 (analytical validation) document and similar guidance documents, we have a scientific and technological advantage as an industry—that is, consistency of methods across the global landscape.
DESIGN THINKING

Steve Walfish
PRESIDENT, STATISTICAL OUTSOURCING SERVICES he biggest advantage that the biotech industry has—and is seeing— in the area of validation is the ability 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 getting efficiencies across the board, and this is crucial for us as an industry because, 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-

T

Rick Sax,
GLOBAL HEAD, CENTER FOR INTEGRATED DRUG DEVELOPMENT, QUINTILES or most biopharmaceutical companies today, the primary barrier to success is that the cost of developing a new medical entity is too high relative to the probability of achieving a successful market entry. One of the most promising approaches biopharma can employ to combat current challenges is to embrace a culture of design thinking. Quintiles leverages its planning and design experts and a facilitated interactive computer-assisted design environment called SEMIO to help its partners enhance and refine design thinking.

F

GREGG BRANDYBERRY

30

ROUNDTABLE

understanding risk and objectively addressing potential biases that may occur in decisions. Information is power, and a structured approach to integrating and using it is even more powerful. Trough application of design thinking, we’re finding it can help partners innovate in developing drugs but also utilize the power of information to increase the probability of success.
INVEST IN TECHNICAL CAPABILITIES

not the products they sell. Tough this is not easy, the best organizations are able to do it through a commitment to customer service, technical expertise, and a commitment to innovation.
NEED FOR DISRUPTIVE CHANGES

Uwe Gottschalk

Dave Backer
RICK SA X

In contrast to the traditional biopharma design paradigm, design thinking is performed in a structured manner that first defines the research question well, integrates all available information, and then engages in prototyping the process of developing and testing different scenarios and time-cost-risk tradeoffs before crystallizing the final design decision. Tis process can be summarized as Define, Integrate, Prototype, and Crystallize. Design skills should be embedded within biopharma, allowing good design practice to sit at the heart of drug development. 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 value. Each step provides better information,

DAVE BACKER

DIRECTOR MARKETING AND BUSINESS DEVELOPMENT, SAFC uccessful CMOs and CROs must be innovative to succeed in this market. Taking an innovative approach allows CROs and CMOs to increase the value of the relationship through solutions aligned with changing market and/or customer needs. Tis innovation can take many forms, including utilization of new technologies, processes, or even facility design. One specific example of taking the non-traditional 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 final product. Just a few years ago, this would have been an unheard of combination, but today there are a number 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, companies were manufacturing a single product per plant, but now most new facilities (particularly with CMOs) are designed to be flexible and multi-product. In short, a willingness to continue to invest 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). Customer intimate organizations define themselves by the problems they solve,

S

VICE PRESIDENT, PURIFICATION TECHNOLOGIES, SARTORIUS STEDIM BIOTECH GMBH he CMO sector has always been very innovative, and that is because we obtain a clear benefit from flexible concepts. We have seen some interesting developments, including also the appearance of single-use technologies that has had a big impact, especially in the sector of contract biomanufacturing.

T

UWE GOTTSCHALK
For the next 25 years, I personally want to see more disruptive types of changes, not just more of the same. Not only operational 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 processing to keep pace with fermentation and to deliver final 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 requirements for the perfect conditions that we now have in fermentation.

Get up to speed fast on USP <790> (visual Inspection) and Sub-Visible Particulate Matter.
Call us to eliminate confusion of test methods and Regulatory Compliance/Submissions/ Responses. Learn from our 30 years of particulate experience.
PARTICULATE MATTER INJECTABLE DRUG PRODUCTS and COMPONENTS/INGREDIENTS Particulate matter testing per USP, ISO, JP, EMEA, ASTM and FDA Guidance. OOS Investigations for stability samples using orthogonal methods to characterize the root cause. Intrinsic vs extrinsic particulate evaluations.

VISUAL STANDARDS FOR (USP<790> QUALIFICATION (Challenge Sets) – SERVICES USP<790> is now in the compendia. Don’t wait until the new USP <1790> is released to understand challenge sets.

PARTICULATE MATTER - MEDICAL DEVICES Sheath, imaging and most any type of catheter, pacing leads, defibrillators, pacemakers. Ophthalmic administration devices, including solutions testing in simulated use.

PARTICLE IDENTIFICATION/ CHARACTERIZATION WHAT IS THE PARTICLE? WHERE DID IT COME FROM? HOW DO WE ELIMINATE IT. Our particle ID group has over 30 years of experience with individual particle ID in a wide variety of pharma and medical device products including extractables.

Micro Measurement Labs, Inc.
Wheeling, Illinois 60090 USA • 847-459-6540 e-mail: lab@mmlabs.com • www.mmlabs.com

32

INSOURCING

BY PATRICIA VAN ARNUM

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

New Hybrid

Lilly’s

INSIDEOutsourcing

33

The practice of outsourcing development and manufacturing services is not new in the pharmaceutical 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 functions back in-house to perform internally with in-house staffing and resources, a hybrid of insourcing and outsourcing can also be employed. Such is the case with an insourcing relationship between Eli Lilly and the contract research and manufacturing organization AMRI for chemistry services. CHRISTOPHER CONWAY, vice-president of business development with AMRI, recently discussed the partnership with Inside Outsourcing.

Basis of the Relationship
Inside 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 nature of the partnership in terms of the resources (staffing, expertise, services) that AMRI is providing and the related infrastructure and support that Eli Lilly is providing as part of the partnership? Conway: In November 2011, AMRI entered into a six-year collaboration with Eli Lilly based on an AMRI insourcing model. 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 logistics, legal ramifications, human resources needs, information technology and infrastructure demands, and finances 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 support Eli Lilly’s drug-discovery programs. Tis 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. Te remaining employees are new hires, the majority of which are being recruited from Indiana and surrounding states.

Comparison with Traditional Outsourcing Models
Inside Outsourcing: How does an “insourced” relationship differ from a traditional “outsourced” relationship? What are the advantages of such a relationship compared with a traditional outsourcing relationship?

Conway: An insourcing relationship has the potential to accelerate a customer’s drug-discovery, drug-product development, or manufacturing efforts by maximizing the real-time exchange of scientific information and the resulting ability to rapidly adjust research priorities in response to breaking results. Working closely together, AMRI’s scientists can rapidly adapt to changing project needs, leading to faster turnaround response times and yielding reduced cycle times in lead-optimization programs. Co-location brings such benefits in sharp contrast to having synthesis support at a remote location in Asia, for example. An insourcing relationship is an ideal option when the sponsor may have significant unoccupied laboratory facilities and equipment available because of prior downsizing initiatives. Tese are already paid for or are being depreciated anyway, and utilization of an insourcing opportunity derives the most value from these assets. Customers/sponsors can take advantage of AMRI’s intellectual capital because the insourced scientists still have access when needed to AMRI’s global network of knowledge and experienced 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 increases the flexibility of these resources while also relieving the burden of HR support, recruiting, and providing employee benefits, 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-

&

34

INSOURCING

PUB L I C PO L ICY PE RS PECT I VES T HE L E X I C O N OF IN S OU RC IN G VER SUS O U T SO U RC ING

A

lthough the term “insourcing” 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 companies and employment and outlined related initiatives. Several months ago the President’s Council of Advisors on Science and Technology (PCAST) issued a report calling for further investment in advance science and technology, establishing a national network of manufacturing Innovation Institutes as public-private partnerships for innovation workforcetraining 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.

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. Tis close proximity allows for constant communication, idea sharing, and joint problem-solving, ultimately creating a real-time collaboration 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 opportunities to cement and grow a relationship. Tose that do not will see these relationships ending or being transferred to someone else. In this fashion, both the sponsor and the provider evolve for the better of both.

ing this insourcing relationship, AMRI has placed a senior leader on site to serve as the team leader and liaison with sponsor leadership. Te team has been further partitioned into groups or sections under the direction of experienced leaders who function as project managers and group leaders. For significant challenges, these team leaders can tap into the broader AMRI leadership team as well as the sponsor’s managers.

Performance Metrics

Personnel and Project Management
Inside Outsourcing: For an insourced relationship, the employees 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 relationship differ from project management in a traditional outsourcing relationship? Conway: As employees of AMRI, all HR, benefits, safety, and other AMRI practices remain our responsibility. At the same time as we institute our corporate practices, our insourced employees also are obligated to layer over that the work obligations and corporate practices of our host sponsor. In establish-

Inside Outsourcing: What types of performance metrics are used in an insourced relationship and how do they differ from metrics used in a traditional outsourcing model? Are different or additional measurements put into play? Conway: Insourcing models enable a truly collaborative work environment. For example, in traditional vendor–client relationships, the vendor scientists work at one site and the client at another. With the insourcing model, a core group of AMRI scientists will work alongside the customer’s scientists at the customer facility allowing for constant communication, idea-sharing, and problem-solving. Tis 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 reputation of quality. In addition, as part of the establishment of the insourcing collaboration, negotiators from both parties established performance metrics and set expectations, unique to this relationship, which are expected to be met.

Project Work for Insourcing

Inside Outsourcing: What type of projects lend themselves to an insourcing model? Is it appropriate across the continuum of

INSIDEOutsourcing

35

drug-development and manufacturing services or is the model more suited to certain phases of development and related activities? What are the key factors in deciding whether an insourced model is appropriate? Conway: Availability of facilities and technologies that the insourcing scientists will need to access are key to the ability to establish such a relationship. Te insourcing provider should have the ability to carve out work functions and conduct activities unique to existing functions, as well as provide supplemental capabilities to strengthen service areas that may already be in-house at some of these organizations. For example, a company may have synthetic chemists or biologists in-house, but AMRI may add more through the insourcing model. Tese 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 specific and everchanging needs of any customer. Te insourcing model affords 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.

strating improved productivity that can be measured in pipeline candidates. Inside Outsourcing: Te company is involved in another outsourcing model through its smartsourcing program. Can you explain the program and how it fits into an insourcing/outsourcing 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 accountability and more trust as well as a better balance of risk and greater flexibility. AMRI’s smartsourcing approach is a versatile 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. Te company has used the rollout of its smartsourcing initiative to showcase its improved performance and the customer experience that results from the close integration of global capabilities across the spectrum of drug discovery and development. ◗ Patricia Van Arnum is Executive Editor, Pharmaceutical Technology
pvanarnum@advanstar.com

Inside 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 influence greater adoption of this model? Conway: Pharmaceutical companies are adapting new strategies and reorganizing their programs, facilities, and resources, with many companies beginning to contemplate a greater reliance on outsourcing. With substantial layoffs within Big Pharma in the United States and Europe, many experienced discovery and development scientists are taking positions in the CRO industry. As a result, over time, the balance of expertise is beginning to shift from customers to suppliers. Te 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 development pipeline. Te 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 flexibility, adaptability, and quality. In addition, insourcing can offer significant cost savings compared with hiring permanent employees. As insourced scientists are AMRI employees, the administrative and benefit 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-

Future of New Outsourcing Models

Partner with experts in emulsions, suspensions, and solutions
For small or big volume, turnkey projects

YOUR NEEDS ARE OUR PRIORITY
¥ Product Development ¥ Technology Transfer ¥ Commercial Manufacturing & Packaging ¥ Product & Process Validation ¥ Analytical Chemistry ¥ Microbiology ¥ Test Method Development & Validation ¥ ICH Stability ¥ FDA, Canadian & European Compliant Facilities

Your Key Partner in Contract Manufacturing

Call 1.800.465.5820 to discuss your challenges and our creative solutions.

11 065 L.-H. Lafontaine Blvd. Montreal (Quebec) Canada H1J 224 (514)353-4683 (fax) www.therapex.com Therapex® is a trademark of E-Z-EM Canada Inc.

Size Matters
36
SURVEY

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 figures very much, indeed
BY JANICE HUTT

INSIDEOutsourcing

37

T

he Avoca Group conducted a survey in 2011 to examine how outsourcing strategies, practices, challenges, 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 providers 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 specific CROs that perform particularly well for sponsors of different sizes.

Survey Results
Te data from the 2011 survey suggest there is a close association between the size of the sponsor company and the size of the CRO selected to perform clinical trials. Most survey respondents felt that large sponsor companies (i.e., annual revenue > $1.5 billion) are best served by mid-sized to large CROs (i.e., top 15 and top five), 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). Tis perception is supported by an analysis of satisfaction rates by percentage of outsourcing spend allocated to the largest CROs. Te 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 five CROs. Seventy percent of small pharmaceutical companies dedicate less than 10% of their outsourcing spend to the top five CROs. On the providers’ side, for most of the top five 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 biotechnology and pharmaceutical companies.

RATIONAL SELECTION. Do sponsors associate with the types of providers that will provide them with the best service?

SI ZE ASS OCI AT IONS IN THE CR O OU TSO U RC ING RELAT IO NSHIP
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?

Big Pharma (Annual Revenue > $1.5 B)

40%

48%

Mid-Sized Company (Annual Revenue of $100 M to $1.5 B))

24%

51%

19%

7%

64%

21%

Pre-Revenue Company

11%

32%

53%

■ 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.

5%

7%

Small, Revenue-Generating Company (Annual Revenue < $100 M)))

6%

5% 5% 3%

38

SURVEY

S I Z E AS S OCI ATION S IN THE CR O O UT SO U RC ING RELAT IO NSHIP
PROVIDERS: WHAT SIZE OF CLINICAL SERVICE PROVIDER DO YOU FEEL PROVIDES THE BEST SERVICE, OVERALL, TO SPONSOR COMPANIE?

1% 61% 22% 10% 4%
Large Pharmaceutical Companies

1%

Small to Mid-sized Sponsor Companies

15%

41%

35%

7% 3%

■ 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.

Or is it only the perception of “right size” that drives sponsors to select vendors of corresponding sizes? Te reported rates of satisfaction among both the sponsors and providers were examined, and they showed that respondents from Big Pharma, medium-sized pharmaceutical companies, and small pharmaceutical companies were all most likely to feel that they were best served by mid-sized CROs rather than by the top five 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). Te data show that even though sponsors of different sizes generally select different sets of providers, their satisfaction rates are remarkably similar. Similarly, providers also are most likely to be satisfied with relationships with like-sized pharmaceutical companies. Te data show: Small and midsized sponsors that use the top five CROs to meet less than 25% of their outsourcing needs are generally more satisfied than are small and mid-sized sponsors who use the top five CROs more liberally. In contrast, large sponsors that use the top five CROs to meet at least 50% of their outsourcing needs are generally more satisfied than are large sponsors that use the top five CROs less. Tus, it does appear that the observed association is rational. Sponsors are selecting the providers with whom they are most satisfied.

full-service CROs are best when a global footprint, infrastructure, and ‘deep’ experience are needed. Te Big Pharma and biotech sponsors and big drug developers rely on the large, full-service 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 financial resources being dedicated to global trials, executives planning 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 financial stability of a large CRO. Full-service CROs have large capacity, the ability to risk-share, and well-standardized procedures, including training and quality-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 flexibility, quality personal service, and senior management involvement. Smaller CROs, executives indicate, are best when it comes to flexibility, responsiveness, attention, and involvement of senior management. Tey also tend to have lower turnover than is found with larger CROs. Because they do not maintain a large infrastructure, smaller CROs are more cost-effective. 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.”

Different Sizes, Different Strengths
Replies to survey questions indicate why the outsourcing decision is based on several factors.

THE SPONSORS’ VIEW. Te reasons sponsors provided
to explain their choices of CROs make sense in light of the strengths different-sized providers bring to the table. Pharmaceutical executives summed up the differences as follows: “Large,

THE PROVIDERS’ VIEW. As noted previously, providers also report that they are more satisfied when they work with sponsors of corresponding size. Providers that felt that sponsors of different sizes performed differently 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

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 follows: “Te big challenge [in working with smaller sponsors] is dealing with a sponsor that has little or no concept of the complexity, and thus the true cost of, clinical development.” Another 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 efforts between third-party firms. Also, smaller companies may require a greater amount of consultation for the drug-development activities. Tis may result in additional manpower spent to plan programs and greater communication.” “Efficiency would improve overall if the smaller sponsors engaged 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 respondents to perform just as well as did larger sponsors in certain 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 benefits that were cited by CROs with respect to small to mid-sized biotechnology and pharmaceutical companies. “Small to mid-sized biotechnology companies are less difficult 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. “Tere is more flexibility with process and approach,” stated another. An appropriate level of management and less bureaucracy than with large pharmaceutical companies were also noted.

and creating strategic relationships. On the surface, it might appear that the small- to mid-sized CROs would have a difficult time competing against the larger CROs. Yet, according to the survey, many pharmaceutical executives 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 flexible and provide better teams. Tis 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 five 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 perception 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 professionals they are working with on a given project. Te 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 service providers. Tey are acknowledging that it is crucial to provide training on how to manage effectively, and respectfully, the CROs and to collaborate to build trust and transparency.

Size Does Matter
Avoca’s data certainly suggest that there is a feeling in this industry 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. Tere are already concerns about having trained staff in these parts of the world and investigators who really understand the clinical trials. Te 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 looking for a strategic partnership, they tend to pick from the top five CROs. Big sponsors are consolidating their relationships
REFERENCE: 1. Avoca Group, State of Clinical Outsourcing Survey (Princeton, NJ, 2011).

Conclusion
Tere is a difference among sponsor companies and CROs on which companies contracts with each other, and there is a difference in perceptions about capabilities, resources, infrastructure, and expertise. Despite these differences, they share common interests for safety and efficiency, 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 officer of The Avoca Group. janice.
hutt@theavocagroup.com

40

COMMENTARY

BY ANDREW PARRETT

PARTNERSHIPS
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…

STRATEGIC
I
n Hans Christian Andersen’s story, “Te Emperor’s New Clothes,” two tailors promise their leader a suit that is invisible to anyone unfit for office. Everybody goes along with it: the Emperor not wanting to appear incompetent, 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 partnering. In the children’s story, of course, it takes the foolhardy effrontery 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 reviews and commentaries on the trend, most of which conclude that strategic partnerships are beneficial to the sponsor companies implementing them.1,2,5 A good summary of the popular view has been provided by industry observer Kenneth Getz, who says: “Partnerships hold promise in establishing long lasting relationships that benefit from strategic insight into and engagement in future portfolio needs. Under these relationships, sponsors partner with fewer CROs. Tey gain the assurance of dedicated global capacity and expertise under shared governance, coordinated communication and issue resolution and integrated operating processes and systems.”2 My italics there highlight the elements Getz associates with strategic partnerships and these recur throughout the literature, along with others such as economies of scale, risk sharing and trust. But what value is associated with each of these features? Are the benefits real? Where is the evidence? Te British mathematician and philosopher Bertrand Russell once said: “Never let yourself be diverted either by what you wish to believe, or by what you think would have beneficent social effects if it were believed. But look only, and solely, at what are the facts.”3 Tis is a useful approach to take when examining strategic partnerships because, although the vision of collaborative sponsor-CRO alliances—that is, we’re all in it together—might sound appealingly noble, facts demonstrating real added value are hard to find and reasons to doubt are many. You will rarely hear common-sense objections to strategic partnership features. In the debate, facts are ignored in favor of righteous platitudes. Just examine the literature. Te main benefit said to arise from strategic partnerships is the promise of savings. However, the only company that appears to have put their name to a figure 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 materialising in the partnership space, with

INSIDEOutsourcing

41

last year’s RW Baird Survey suggesting CRO costs have increased, 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 partnerships in our industry. Te first is that they are not strategic and the second is that they are not partnerships.

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. Te 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 service providers as partners… the criticism of a pay-for-service relationship in favour of something somehow more lofty is misplaced and misleading.”8 True partners are defined as such because they share interests, risks and profits. However, in Waife’s analysis, sponsor risks and profits are high, while CRO risks and profits are more modest. But on this detail I tend to disagree, because my observation for the subset of CROs who have cornered the strategic partnership market is that they actually generate profits (as a percentage of earnings) comparable 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 profits are modest and, all the while, strategic partnering is where they most want to be. Te acquisition activity associated with this has driven a consolidation of CROs and economists tell us that as the number of suppliers decreases so prices rise in the pursuit of profit.10 Tis is especially true in the supplier base for strategic partnerships because, remember, we have made it a pre-requisite of strategic partnerships 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 revenues.11 Tis means a market that economists describe as ‘oligopoly’, characterized by, among other features, high profits for the suppliers.10 It would be OK for the CRO side of the partnership to enjoy high profits if they shared the risk but, as Waife points out, this is where the partnership concept really breaks down: “Te CRO’s risk in non-performance is mostly one of tarnished reputation… [but] responsibility for failure is usually obscure… [and] sponsors are notoriously loathe to pursue penalties. If there is a sanction it would most likely be loss of work. But … sponsors routinely continue to give work to service providers who have failed them.”8 Put simply, risk sharing does not exist between customer and

What Does ‘Strategic’ Mean?
Te 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 classified 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 failure risk is versus cost, which gives us a definition 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 representing 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 discounts with an established one. Te 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 strategic 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 organizations with sufficient scale and diverse talent — service a growing number of integrated relationships.”2 Tis prevailing attitude reduces the science of procurement to mere shopping and is very reminiscent of the old phrase “nobody ever got fired 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. Te single biggest risk of supply failure — not recruiting patients — is never mentioned. Te 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 solutions when frankly they are not. However, due to the $125 billion patent cliff our industry faces, pharmaceutical executives are desperate to focus on savings — immediate savings — that can only be reported through

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. Tis is no semantic point. Partnerships create governance hierarchies built around issue escalation and nannying project teams, often placing CRO personnel in committees where they are equal or senior to sponsor personnel. Tis blurs the distinction between customer and service provider and harms delivery. We should tear down traditional governance and replace 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… without a partnership agreement.”8 Waife might as well say that partnerships 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 benefit by subscribing to the partnership fantasy is groundless in fact and potentially dangerous.

Conclusion
In summary, strategic purchasing is something buyers do to mitigate the risk of supply failure, a risk that, fundamentally, cannot be shared because service providers have different interests to their sponsors. Meanwhile, a partnership describes a particular type of relationship where risks are genuinely shared because interests are shared. Put together therefore, the two concepts represent an oxymoron that logically cannot be fit for purpose and provides a classic example of how an appealing idea can become popular despite practically zero evidence in support of claimed benefits. It has probably not escaped your notice that should (as would seem likely) the risk/cost profiles of CROs described earlier vary significantly between 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 limiting one’s options — is therefore essential for any sponsor considering its

sourcing strategy. Taking such an evidence-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 implementing a preferred provider policy for clinical trial outsourcing. Adoption of procurement best practice is what has been missing in clinical trial outsourcing as pharmaceutical executives have preferred a wild goose chase for the utopian dream of partnering 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 transparency and slim profit margins from CROs who, ring-fenced from risk, will have no excuse not to comply. Perhaps only then will sponsors secure the ultimate prize of reducing real costs rather than recognizing imaginary savings… and subscribing to the myth of the Emperor’s New Clothes.

◗ Andrew Parrett is Chairman of the Pharmaceutical Contract Management Group, the world’s largest professional body for pharmaceutical company employees engaged at the sponsor-vendor interface. He can be contacted at andrew.parrett@ btinternet.com

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 finds,” 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.

INDEX OF ADVERTISERS
Aeras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Baxter Healthcare Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Biomanufacturing Training and Education Center . . . . . . .23 Catalent Pharma Solutions . . . . . . . . . . . . . . . . . . . . . . . . .44 Dow Pharmaceutical Sciences . . . . . . . . . . . . . . . . . . . . . .25 Eurofins 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

global manufacturing solutions. reliably supplied.
A leader in the manufacturing and packaging of oral, parenteral, and inhaled dose forms, we have the expertise and a global supply network to get your products to market quickly and reliably.
LEADING CLINICAL TRIAL SUPPLY
We help get your products to market faster with reliable clinical manufacturing, packaging, and logistics from a global industry leader.

EXPERT ASEPTIC MANUFACTURING
Our mastery of aseptic manufacturing and diverse range of delivery technologies, including blow/ fill/seal and pre-filled syringes, make us uniquely suited to support your complex products.

UNMATCHED MANUFACTURING EXPERTISE
From softgel and Vegicaps‰ capsules to complex capsules and inhalers, we manufacture or package over 100 billion doses globally every year under the highest cGMP quality standards in the industry.

INTEGRATED SOLUTIONS, IMPROVED RESULTS
With our tailored integrated solutions, we can accelerate and create efficiencies throughout your supply chain from drug delivery to packaging to supply.

© 2011 Catalent Pharma Solutions. All rights reserved.

Every supply chain has a challenge. We have a solution.

+1 888 SOLUTION (765 8846)
Email: solutions@catalent.com Visit: www.catalent.com

DEVELOPMENT

DELIVERY

SUPPLY

Sign up to vote on this title
UsefulNot useful