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Greater product value and innovation accomplished with sponsor-service relationships.
A significant trend in the biopharmaceutical industry has been the evolution in the nature of outsourcing and the business relationships between sponsors and service providers.
Until recently, the majority of these relationships were based on project-by-project outsourcing models. While they produced significant savings, these transaction-based approaches are reaching the limit of their capacity to reduce costs and increase operational efficiency.
Faced with continuing financial and competitive pressures, many biopharmaceutical companies are embracing strategic partnerships, designed to deliver greater benefits throughout the development life cycle.
The more forward-looking the sponsor-service provider relationship, the more strategic attributes it is likely to contain. Service providers have migrated from dominant tactical outsourcing through a series of constructs:
These strategic partnerships involve longer-term relationships focusing on areas of product development where the most valuable improvements can be achieved, including project oversight cost reductions and time savings. Achieving those savings requires a new, long-term, partnership paradigm characterized by deeper, more complex relationships.
Under such a strategic development partnership, a service provider would deliver a broad array of services or focus on a particular development function or geography. This strategic partnership model helps biopharmaceutical companies greatly increase operational efficiency by focusing their internal resources on the highest priorities—such as discovery research and product marketing—while relying on their partners for a broad array of specialized knowledge and infrastructure, such as in-depth therapeutic-area expertise, clinical trial experience, global patient and investigator resources, and regulatory knowledge.
The strategic mix of internal and external resources is even more efficient longer term because the commitment between partners allows savings to increase and accrue over time. The long-term commitment also allows for investments in data integration, standardized protocols, study start-up procedures, document templates, and other efficiencies that can dramatically reduce clinical study times—an area where even modest improvements can save millions of dollars.
In one strategic partnership, Parexel worked with a sponsor on a mutual commitment of resources to develop best practices, optimize technology utilization, and implement data standards. Communication pathways were clearly defined as part of a carefully constructed governance model that oversees the partnership. The partnership was characterized by flexibility and innovation in finding the most efficient ways to work together. In another case, using a creative and collaborative approach with the client, Parexel was able to outperform the CMR industry benchmark by 35 percent on study start-up and by 75 percent in subject recruitment. Cycle times were reduced by working together on design and utilizing proprietary study start up and patient recruitment tools. Costs were reduced by minimizing oversight and aligning technologies. The cost benefits were shared and cycle time reductions exceeded expectations.
Stronger strategic development partnerships will fuel the transformation of outsourcing to an outcome-based approach, with shared risks and rewards.
Sponsors will increasingly give their strategic development partners more freedom to provide desired results using the best available resources. If the service provider can deliver results within the required time frame, budget, and quality, the sponsor will not have to be intimately involved in the details of particular services. Without the need to manage those services on a day-to-day basis, biopharmaceutical companies will be able to significantly reduce their overhead costs and concentrate their resources on other priorities, like basic innovation research, product acquisitions, or market expansion.
The growing emphasis on outcome-based partnerships will also change the economic foundation of the relationships between biopharmaceutical companies and service companies, with contracts increasingly based on fixed-price models. This is a logical outgrowth of the trend toward long-term partnerships, with biopharmaceutical companies contracting for a specific result and the service provider having the flexibility to decide how best to produce that result within the contracted price and deadline. Inherent in this approach is the concept that the service provider would benefit financially if the project can be completed quicker and more cost-effectively—but also risk reduced profitability if the project takes longer or costs more to complete. The investments required for service companies to achieve greater efficiency throughout the development process with investments that benefit both parties are only possible if there is a multi-year commitment that includes the sharing of rewards as well as risks.
As biopharmaceutical companies have evolved toward broader strategic partnerships, service providers have also evolved to meet the industry's growing demand for global reach.
These needs have accelerated due to the globalization of clinical research, driven in part by requirements to access larger patient populations, reduce expenses of conducting studies, and reach new emerging end-markets, such as in the Asia/Pacific region.
Larger, more complex global development programs have required service providers to have greater size and global scope to provide the services their partners need. Service providers with worldwide infrastructures and local regulatory and clinical expertise have demonstrated that global development strategies can bring sponsors significant cost and time efficiencies to the entire clinical trial process, while also providing high quality clinical data for faster regulatory approval of new therapies in these growing markets.
In addition to the globalization of development, supporting the movement toward strategic partnering and outcomes-based outsourcing have been key advances in technologies to facilitate trials.
An improvement process has been created over time, with globalization fueling technology innovation and further technology progress providing the ability to conduct trials in more countries.
Technologies to facilitate global trials clearly reduce associated time and cost. Strategic partnering has accelerated a growing convergence trend that is blurring the distinction between "technology" and "service" companies, as providers expand their capabilities to meet the needs of sponsors.
The depth of this convergence is not easily achieved overnight. In fact, as an example, in 1998, Parexel created an advanced technologies group, and in 2000 founded Perceptive Informatics, a leading eClinical solutions provider, following the acquisition of ClinPhone in 2008. That early emphasis on advanced technologies helped Parexel to continue to bring greater efficiency to clinical trials for its clients.
The next stages of achieving operational effectiveness requiring advanced technology combined with clinical expertise and global resources, have brought about the use of the term eCRO. eCROs can provide a broad range of clinical development services that are fully enabled by technology. It is important for sponsors to be able to access an integrated, advanced platform of eClinical technologies combined with clinical experience and a global infrastructure to reduce the time and cost of clinical development.
The biopharma industry appears to be undergoing fundamental changes with the era of the single-minded quest for blockbuster drugs waning.
The emerging paradigm is focused more on therapies that address specific disease areas. Commercial success will ultimately depend on moving a larger number of compounds through the discovery and clinical development gates into the market. It takes a different kind of R&D strategy to make this all work.
With this shift to the niche-buster model, large biopharmaceutical companies have significantly increased their investment in small companies as a means of diversifying and expanding their pipelines. Some industry analysts estimate that small companies own as much as 60 percent of the intellectual property that is currently under development today. This transfer is expected to drive additional outsourcing demand going forward, as the small biopharma companies have no option but to outsource many of the activities they need to get done.
Compared with the functional, transactional, and preferred provider types of outsourcing that have prevailed in our industry to this day, strategic relationships are a better fit for the emerging niche-buster R&D paradigm.
The new strategic partnership model will continue to place significant burden on service providers to build and maintain the vast array of expert resources necessary to tackle wide-ranging development responsibilities.
The changing nature of biopharmaceutical development should accelerate the recognition among key development stakeholders—sponsors, regulators, patients, the medical community, and healthcare payers—that the service industry has the ability to take on this burden and assemble the resources necessary to manage complex development programs on a global scale, with a high level of efficiency and quality.
Service providers will continue to bring more innovation to study design and execution. Evolving strategic partnerships will continue to lead to new operating procedures and best practices that leverage expertise, advanced technology, and global capabilities. The result will be greater innovation and accelerated development times that will bring novel therapies more quickly to patients in need around the world.
Editor's Note: This article was adapted from an article that appeared in the November 2010 supplement Inside Outsourcing, produced by Advanstar Communications.
Josef von Rickenbach is Chairman and CEO, Parexel International, 195 West Street, Waltham, MA.