BioNJ’s CEO Summit, held October 3-4, in Bridgewater, NJ, brought together industry executives from major pharma and biopharma firms to share insights across a range of life sciences topics from financing strategies for growth to outsourcing and IPOs. A panel discussion, Inside Outsourcing, addressed key drivers for outsourcing, strategic models, outsourcing concerns, and industry trends.
Participants included: John Barry, global head of Vendor Management for Development, Merck & Co.; Sally Macaluso vice president, Janssen R&D Procurement, Johnson & Johnson; Ralph Marcello, principal at Deloitte; Raymond Hill, president, inVentiv Health Clinical; and John Watson, corporate senior vice president, president, Strategic Partnering and chief commercial officer, Covance.
Heads of R&D acknowledge that productivity has been declining the past five years or so, making opportunities to become more efficient essential. Panelists discussed the main reasons sponsors seek out CRO service providers, the most common of which is capacity and capability. There are more than 1000 CROs globally and the top 10 comprise 50% of the $20 billion market. These organizations have both capacity and capability, and are aggressively moving into innovative areas.
The key driver for outsourcing, according to Ms. Macaluso of J&J, is to support the general foundation of the company, which is to provide valuable medicines to patients. “J&J seeks service providers that make the company better, mainly to supplement capacity, complement internal capabilities, and reduce costs,” she commented.
Mr. Barry of Merck added, “Merck has a hybrid strategy; to supplement capacity as well as scale, especially with development moving east. When leveraging strategic relationships, Merck seeks to gain an intellectual partner.”
So-called “strategic” partnerships are on the rise, but according to the panel, the characteristics of these relationships remain tactical in nature. With costs increasing, sponsors partner with suppliers to share the workload in an effort to reduce costs and development time. The panel maintained that it’s risk-sharing, not risk-shifting. Panelists agreed these relationships will continue to increase in the next five years and, in order for them to work, will require setting goals at the onset.
Mr. Watson of Covance emphasized the need to be able to draw a straight line to objectives, from goal to completion. Covance has built models to help small and startup biopharma companies with molecule development program strategies — not just mid–to–large biopharma. As part of this program for partnerships models, Covance may discount clinical trials in return for commercialization success. According to Mr. Watson, “Covance was part of 40 INDs on behalf of clients last year and is set to nearly double that number this year.”
According to Ms. Macaluso of J&J, the parties involved must have the same objectives, along with trust and transparency. She noted that the word strategic is over-used in the industry and that there are fewer “strategic” models than one might think. She also noted that while the sponsor wants the CRO to have just as much incentive for success, the sponsor doesn’t want to see CROs as competition.
According to the panel, alignment of objectives is crucial to delivering outcomes. The metrics for success include tactical measures such as cost per hour and cycle time. With patient recruitment, for example, shaving off time is a critical component for CROs, and this is where a partnership can make a tangible difference.
If the parties are willing to share risk, panelists agreed, they’ll get better outcomes. But the industry has been hesitant to think of partners in that way. Sponsors are looking for commercial success, while CROs seek development execution success; according to the panel, it takes multiple decision makers looking to achieve their respective goals. Mr. Barry at Merck agreed that supplying decision rights to the right people at the right time is imperative in order to advance a program.
Quality and Tracking Metrics
Oversight is a main outsourcing concern for biopharma. In order for the partnership to work, the right balance must be achieved. To address these concerns, according to the panel, the parties must be clear on objectives, the alignment of incentives, and consider costs/time savings.
According to the panelists, biopharma firms and CROs don’t start out with the same amount of risk in partnerships. The panelists’ perspective is that CROs have the luxury of being efficient and having resources consistently available, whereas pharma companies have their portfolio on the line. In a partnership, missing something through lack of oversight is a risk just as spending too much time and oversight can create failure.
According to Mr. Barry at Merck, “The danger in outsourcing is oversight. Getting the balance can become a pitfall. Too much oversight is not cost effective and is a danger to watch out for. Redundancy ends up being hidden costs.”
Ms. Macaluso at J&J added, “With only a 7-10% probability of development success, there will be many challenges. Think of it like a marriage and invest in the relationship; many strategic partners don’t. Set expectations and measures. Pick the right partner.”
The Future of Pharma/Biopharma
So where is the industry going and what can we expect down the road? According to the Inside Outsourcing panel, the biopharma industry is going to continue to go more virtual and the pharma industry will look very different in 10 years. As an example, senior executives from pharma companies going to biopharma companies never build infrastructure because they know the burden. The focus now is on scientists and innovation, and we’re going to see more and more academic alliances.
For more about BioNJ’s CEO Summit, visit: www.bionj.org