Sourcing 2015: projecting Sponsor-CRO Relationships of the Future

Ken Getz, Tufts CSDDkenneth.getz@tufts.edu

Dave Zuckerman, CISdave@rx-business.com

April 2009

The Traditional Sponsor-CRO Relationship

Agenda

• Brief overview of today’s operating environment driving demand for outsourcing

• Evolving sponsor-CRO collaborative structures

• Looking to 2015• Insights from R&D –intensive analogs• Implications for biopharma sponsor-CRO relationships

Operating Conditions Driving Demand for Outsourcing

• Productivity declining and low success rates

• Rising costs and inefficiency

• Increasing volume and scope of development activity• Globalization

• Capacity limitations

• Tightening access to capital

• Growing underutilization of infrastructure and assets

Driving Vertical IntegrationDriving Vertical Integration

Preclinical Phase I Phase II-III

Percent of total spending on outsourcing

15% 23.2% 34%

Past 3-yr annual growth in outsourcing spending

10.2% 17.6% 14.9%

How long has pharma been outsourcing?

1-5 years 5-7 years for ‘services’; 15 yrs for facilities

20 years

Drivers of outsourcing Capacity needs,

expertise

Regulatory reform, capacity needs

Globalization, capacity needs

Driving New Relationship Structures

Transactional, Tactical

Strategic, Partnerships

IJ

H

G

F

DA

E

B

C

Large

Small

Mid- Size

Source: Tufts CSDD 2008 Study

What Constitutes a Strategic Partnership?What Constitutes a Strategic Partnership?

• Limited, select number of providers based on competency (not capacity)

• Long-term commitments - minimum of 3-years

• Integrated teams, responsibility, accountability

• Periodic portfolio (not project-task) review

• Shared governance responsibility

• Senior and middle-management committees

• Use of coordination SOPs

Competencies are Shiftingfrom Internal to External

QA &QA &RegulatoryRegulatory

AffairsAffairs

Planning & Planning & DesignDesign

ProjectProjectManagementManagement

DataDataManagementManagement

Externally-Externally-BasedBased

Internally-Internally-BasedBased

CompetencyCompetency

Implementing Partnership RelationshipsImplementing Partnership Relationships

• Organization-wide commitment

• In-depth assessment of core competencies best performed either in-house or by providers

• Definition of partnership elements• Goals; duration; staff credentials and availability; funding mechanism;

expected workload; transition-of-work strategy; governance and conflict resolution policies

• Select providers• Rapid centralization of provider management to single partner• Gradual consolidation of tasks and function

• Allow time and commitment to nurture and maintain partnership• 3-5 years• Constant attention to collaboration; governance; problem resolution

Source: Zuckerman, 2008

Collaborative Work Description

• Different from traditional Request for Proposal– Emphasize:

• “How do you operate & collaborate?” • “How well do our cultures align?”

– De-emphasize:• “What can you provide?”• “What are your technical capabilities?”

• Key elements of a Collaborative Work Description:– Leadership & Governance– Customer Focus & Collaboration– Strategic & Project Planning– Workforce Management & Retention– Process Management– Performance Results

Source: Zuckerman, 2008

Outsourcing fails due to relationship problems, not capabilities

Insights from R&D –intensive analogs• Movie Industry

• Decentralized development• No GC, just a director capable of sharing a common vision

and motivating a highly decentralized yet coordinated set of collaborations

• Long-term collaborations between “duos”

• Financial Services• Established fewer, more strategic global partnerships

supported by Integrated, standardized global IT data sharing and communication

Analog Insights (continued)

• Aerospace• Focus on development risk reduction• Cost-plus risk-sharing, not risk shifting

• Google• Flexible, open innovation infrastructure for third party

collaborations and team-oriented integration

• Pixar• “Technology inspires art… art then challenges the

technology” – continuous relationship improvements

Implications for Outsourcing 2015Primary Characteristics

• Integrated structure– Processes– Coordinated team approach– Shared governance

• Technology integration• Joint planning• “Accountability” contracting

– Risk minimization– Risk sharing– Alignment of incentives– Pricing transparency

What will disappear?• “Risk based” contracting

– Pure cost-plus fee has sponsor absorbing all risk– Fixed pricing shifts risk to CRO

• Ultra competitive landscape– Reduced selection & startup costs– Elimination of redundant oversight

• Conflict resolution– Shared risk/conflict planning and mitigation

• Scope changes• Slow execution

– Faster startup– Resources available when needed– Accurate planning

Role of the Niche Provider

• Third party participant in large Alliance– Sub to alliance CRO– Sub to Sponsor for specialty planning

• Alliance partner for small biotech• Status quo provider for Sponsors unwilling to develop an Alliance

2015 Partnership Alliance Characteristics2015 Partnership Alliance Characteristics• CRO becomes a true, trusted development partner

• One – three selected providers handling all ‘non-core’ competencies

• Long-term commitments - minimum of 3-years

• Completely new pricing and compensation approach

• Joint portfolio review & forecasting

• Senior and middle-management committees and shared governance responsibility

• Use of coordination SOPs

• Integrated systems and processes

The Traditional Sponsor-CRO Relationship

Future Sponsor-CRO Partnership