A Compelling Need to Usher in Alliances

Market conditions are ripe for the formation of alliances between sponsors and service providers. Facing a difficult global operating environment characterized by capacity constraints, rising portfolio demands, cost containment, and depressed revenue and profitability, biopharmaceutical companies are looking to extract consistently higher levels of efficiency and performance from their contract research organizations (CROs) and investigative sites.

Kenneth A. Getz

Alliances are no longer simply hopeful concepts; they are emerging structures whose impact on development performance is not yet known. They hold promise, however, in delivering higher levels of performance and efficiency, fewer management surprises, and cost reduction.

Several sponsors have been supporting alliances with their CROs for a number of years (e.g., Daiichi-Sankyo, Bristol Myers Squibb, Elan Pharmaceuticals). A growing number of biopharmaceutical companies now report that they are planning to include alliances among the various outsourcing relationships that they will support (e.g., Otsuka Pharmaceuticals, Merck-Wyeth).

At the present time, sponsor–CRO alliances with investigative sites are nascent. Only a small number of organizations (e.g., Sanofi-Aventis, Quintiles) have announced or have implemented plans and programs to support these alliance relationships.

Underlying attributes, drawing primarily from the more evolved sponsor–CRO alliances, offer insight into new ways that these relationships might operate and the support required to nurture them.

Good 'ol outsourcing

Traditionally, sponsors have contracted with their CROs on an ad hoc per project basis, driven by the need for personnel capacity to perform a given task or function. Under these transactional relationships, sponsors typically interact with a large number of service providers, including contract full-time staff and CRO staff.

Sponsors typically solicit a minimum of three bids and select the lowest bid-provider. In many instances, sponsors have established preferred lists of specialty and full-service CROs in order to expedite selection and contracting and to secure more favorable services pricing. Although cost control is a major goal of transactional relationships, frequently CROs must perform out-of-scope activity on their projects resulting in cost overruns.

Once CROs are selected, sponsors tend to micromanage the relationship in order to oversee the project team, and to ensure communication and coordination, and adherence to the sponsor's own standard operating procedures. Middle managers typically serve as the primary parties involved in outsourcing planning and governance.

Functional tasks outsourced in transactional relationships are typically those that are performed once the development plan and protocol are completed. Recently, a number of drug development companies (e.g., Wyeth, Amgen, Lilly) have supported broad functional outsourcing. These relationships give greater responsibility for an entire function to a single CRO, but that outsourced function still must be integrated with the rest of the sponsor's development activities. For this reason, full functional outsourcing appears to be an interim or "bridge" step toward a "true" alliance.

Sponsor–CRO alliances

Alliances between sponsors and CROs begin with a detailed and honest assessment of the sponsor's core competencies in order to determine what functions are performed best in-house versus those that can be best undertaken by a CRO. Most experienced CROs have managed a much higher volume of activity in many areas of clinical research than have many of the sponsors with which they partner.

The goal of alliances is to build a team of internal and external resources to perform complementary competencies in order to take full advantage of the expertise and operating efficiency that each member brings to the table. Under alliances, sponsors look to retain senior-level expertise, but they reduce the number of internal staff involved in those functions deemed most suitable for outsourcing and they reduce the amount of project oversight, thereby promoting higher levels of autonomy and accountability.

The identification and selection of alliance partners is a critical success factor and is based on many criteria, including CRO-company expertise, capacity, positioning, and culture. Once a sponsor has determined the scope of work that will be undertaken, and has selected a partner CRO, the companies together constitute a senior-level committee.

The executives on the committee, from both sponsor and CRO companies, get together periodically (once or twice annually) to review prospectively the portfolio of projects on which they will partner.

Governance in alliances is a shared responsibility. The sponsor and the CRO rely on a set of Coordination Operating Procedures (COPs) to ensure that each party's own respective SOPs is consistent, integrated, and compatible. When there are conflicts to resolve, they are addressed by the senior level committee. This approach affords the CRO greater autonomy to leverage its expertise, operating practices, and efficiencies.

Under alliance relationships, sponsors tend to work with only a few full-service CROs who assume the responsibility of managing niche and specialty service CROs. As a result, the sponsor devotes little time to managing and coordinating a disparate collection of contract service providers.

Sponsor/CRO–site alliances

Attributes of sponsor/CRO–site alliances are analogous to those described in sponsor–CRO alliances. Instead of having to select many individual investigative sites based on each study's requirements every time clinical testing is about to begin, a select number of investigative sites are identified and engaged, in advance, based on the needs of the sponsors or CRO's portfolio of clinical trials. Selection of investigative sites will be intensive, but it will lead to the establishment of long-term recurring sponsor/CRO–site alliances.

In alliance relationships, sponsors and CROs do away with ad hoc budgets and contracts. Instead, each year investigative sites renew a longer-term contract and negotiate a budget based on the portfolio of expected annual clinical studies. In order to ensure that sites allocate the best resources for alliance-based projects, sponsors and CROs will likely need to guarantee a certain amount of annual work.

Whereas most communication between sponsors/CROs and investigative sites can be sporadic, in alliance relationships it is critical that communication be seamless, bi-directional, and integrated. Eclinical technology solutions are critical infrastructure elements supporting sponsor/CRO–site alliances.

Another critical infrastructure element that sponsors and CROs must provide their alliance partners is centralized, proactive support resources to assist their investigative sites in patient recruitment and retention activity, regulatory compliance (e.g., filings, reporting) and operational efficiency (e.g., financial controls, facility management). Traditionally, sponsors and CROs have provided support to their investigative sites in a reactive and fragmented fashion.

Similar to sponsor–CRO alliances, governance and conflict resolution between sponsors/CROs and sites is a shared responsibility where both parties contribute dedicated and senior staff to oversee the portfolio of projects.

Implications

Sponsors expect to always be managing a mix of relationship structures that includes alliances and task-oriented, project-based relationships. However, sponsors anticipate that alliances will become far more prevalent during the next three to five years.

Although alliances will not likely result in lowest bid providers, in theory, efficiencies gained in study start-up, ongoing project communication and close-out; minimization of out-of-scope costs; and centrally supported performance improvements should far surpass short-term cost savings.

Service providers striving to establish alliances will need to possess a strong willingness to share the economic risk of supporting fewer sponsors and the operational risk of accepting greater accountability and responsiveness for communicating and resolving problems. With higher assumed risk comes higher upside for service providers, which may include performance and commercialization incentives.

Alliances will also need to establish operating policies to support greater transparency and open communication and dedicated staff familiar with and motivated to make alliances work. Lastly, they will require integrated and compatible communication, management, and support systems.

For those service providers who are not suited to enter—or choose not to enter—alliances, there are strategic opportunities to meet the specialization needs of these emerging relationship structures.

Alliance fever is here. It represents a positive step in the evolution of more effective collaborations facilitated by the current economic climate.

Kenneth A. Getz MBA, is a Senior Research Fellow at the Tufts CSDD and Chairman of CISCRP, both in Boston, MA, email: kenneth.getz@tufts.edu