Strategic partnerships have long been a major feature of the pharmaceutical industry. In-licensing, out-licensing, joint research, and codevelopment arrangements between and among bio-pharmaceutical companies, and with academic research institutions, abound. Approximately 33% of drugs in the pipelines of the top ten pharmaceutical companies were initially developed elsewhere, according to a 2014 WSJ article by Jonathan D. Rockoff. And according to Vantage’s recent alliance benchmarking study, over 80% of bio-pharma respondents report increased alliance activity compared to five years ago.
Many biotechnology firms have also been working with CROs under partnership arrangements for some time, and increasingly, large pharmaceutical companies are adopting the same model – though the inertia associated with a long history of internal clinical development, and substantial extant internal clinical development resources, make this transition slower and more difficult.
That said, the notion of “strategic partnerships” or “alliances” between sponsors and CROs remains somewhat controversial. Many believe that partnerships are the ideal relationship model for sponsors and CROs who need to work closely together to bring new medicines to market. Others are skeptical that a true “partnership” is even possible between companies with such different business models, in large part due to the different economic incentives under which they operate.
Use of Different CRO Relationship Models
In a survey Vantage Partners conducted last year in collaboration with Linking Leaders, 41% of bio-pharma respondents reported that strategic partnerships were the primary model they used to work with CROs. That is more than three times the number of companies that answered the same question in a benchmarking study Vantage conducted in 2012. (The number of respondents relying primarily on preferred provider agreements dropped slightly, while those reporting use of ad hoc trial agreements dropped by more than half.)
Taking a Step Back: What is a Strategic Partnership?
The ongoing debate about the value, or even viability, of strategic partnerships between sponsors and CROs is complicated by lack of shared terminology. In many cases, a partnership or alliance, as distinct from a more transactional arrangement, is associated with the scope of services provided by a CRO – and sometimes used as a synonym for a full-service model versus functional or other more limited outsourcing arrangements. Alternatively, the term partnership is often used to refer primarily to softer factors – in particular, to relationships with CROs characterized by a high degree of mutual trust and respect. Partnerships are thus understood not as a formal type of business arrangement, but are defined by the attitudes, mindset, and behaviors of individuals at the “partner” companies.
Figure 1. Use of different CRO relationship modelsThis latter notion of "partnership" upends the traditional “We're the sponsor, we know best and we will tell you the CRO what to do, how to do it” paradigm. It entails viewing and treating individuals at a CRO as extended team members of the sponsor organization, rather than viewing them with suspicion and micro-managing them. When problems occur (as they inevitably will during clinical development), this notion of partnership envisions both sides sitting down to engage in root-cause diagnosis of went wrong. Finger-pointing and arguing about who is to blame is replaced with a focus on how to fix the problem, get the study back on track, and prevent the problem from occurring in the future. But is this kind of seamless teamwork really possible between a company and a hired contractor? And is it enough to constitute a “strategic partnership” – or does it simply represent what should be the norm in any healthy relationship between a customer and supplier?
In my experience, the most meaningful definition of strategic partnership does not depend simply upon the specific scope of services involved, nor solely on soft factors. Instead, a strategic partnership can be seen to exist when companies work closely together to achieve one or more common objectives, and/or when they work actively to help each other achieve their respective objectives. This requires dismantling traditional ways of thinking about and managing simple service delivery relationships, and entails:
- Commitment to a sufficiently broad and long-term relationship to motivate investment (of time, effort, and/or capital) by partners in their relationship, specifically to drive continuous improvement and breakthrough innovation in business performance
- Close integration of planning and operations between partners (e.g., extensive sharing of information, extensive integration of processes, coordinated decision-making, etc.)
- Investment of time and effort specifically in joint planning to minimize the risk to both sides posed by such an interdependent relationship (notably the risks of supplier complacency and opportunistic behavior by either party)
Strategic Partnerships Between Bio- Pharmas Versus with CROs
It is worth acknowledging that there are significant differences between alliances between bio-pharmaceutical companies, and those with CROs, as summarized in Figure 2.
Figure 2. Differences between BD&L/Joint R&D Alliances and Sponsor-CRO partnershipsBased on the characteristics above, it is clear that successful strategic partnerships (whether between bio-pharma companies or with CROs) do indeed depend on a number of “soft” factors – though it is essential to view these pragmatically, as means to an end (measurable improvements in operational performance, and financial and strategic value), and not as ends in and of themselves. Strategic partnerships of any kind require:
- A high degree of trust between partners.
- Individual and organizational competencies for managing differences between partners, and for managing inevitable disagreement and conflict.
- Governance structures and mechanisms that enable effective coordination of many activities across multiple functions at both partners – in recognition that the challenge of building and maintaining alignment across internal functions and stakeholders within each organization is often greater than doing so with the partner.
- Formal and informal incentives that motivate each partner to prioritize maximization of long-term value over short-term gains.
What are the Benefits of Forming Strategic Partnerships with CROs?
There’s nothing wrong with engaging CROs simply to augment internal staff during peaks of clinical development activity. Far better to do that with clearly aligned expectations on both sides, than to declare a relationship to be a partnership without clearly defining how each side will benefit, and what each sides needs to commit to and invest to ensure success.
At the same time, the reality is that arms-length, transactional arrangements militate against investment, and thus limit the potential for continuous improvement, innovation, and learning with and from CROs. Consider these telling statistics from the Tufts Center for the Study of Drug Development: More than half of all protocols require at least one amendment (with later stage trials having the highest average number of amendments). One-third of all amendments are avoidable. Each amendment adds approximately two months and $500,000 to a clinical trial. Or consider the enormous costs associated with slow study start-ups, which then delay completion of trials, and ultimately slow time to market.
These and other clinical development challenges require innovative solutions of the kind that strategic partnerships between sponsors and CROs can and should be designed to deliver. Indeed, according to Vantage’s benchmarking research, sponsors with the lowest incidence of delayed and/or over budget trials were more than four times as likely to report that their CROs had delivered innovation compared to sponsors with the highest incidence of delayed and/or over budget trials. The key enablers of such innovation included: jointly and concretely defined innovation goals, a high degree of information sharing, a willingness to invest (time, effort, resources), a tolerance for failure, and a high degree of respect for different ideas and perspectives.
Figure 3 indicates both the value that strategic partnerships can deliver, as well as the reality that in many cases, such collaborative relationships continue to under-deliver on their potential.
Figure 3. Potential Value Realized by Bio-Pharma Companies from Relationships with CROsThe Danger of Unrealistic Expectations
There are many reasons that strategic partnerships between sponsors and CROs fail to deliver on their potential value, but failure is almost always rooted in hazily defined, inconsistent, and unrealistic expectations – on both sides. Over the past 15 years, I have had countless conversations with senior executives and clinical study teams at sponsors during which individuals expressed profound disappointment with CROs for engaging in rational, self-interested behavior. “All CROs are mercenaries; they’re only motivated by making money” is a verbatim quote that I have heard multiple times. Digging into the specific circumstances giving rise to such frustrations almost always reveals an unrealistic, and unexamined, expectation, namely, that a strategic partnership with a CRO means that the CRO will be single-mindedly focused on nothing but a sponsor’s success.
But no partnership is sustainable if it rests on an expectation that either side will repeatedly sacrifice its own interests for the good of its partner. Any CRO that did so wouldn't be in business for very long. Moreover, CROs have multiple customers – and likely more than one strategic sponsor partnership. Indeed, the very benefits that sponsors desire from CRO partners depend on the economic efficiencies, and learning, that CROs can offer specifically because they work with multiple sponsors. Moreover, just like their bio-pharma customers, CROs have an obligation to deliver profits to shareholders (private equity investors, etc.).
Sponsors and CROs entering into a partnership need to do a better job of talking about their expectations of one another and making sure those expectations are realistic. They also need to re-think the incentives (financial, and otherwise) and constraints that encourage short-term or opportunistic behavior. They then need to design and implement different systems and incentives that enable new ways of working together.
Key Success Factors for Sponsor-CRO Partnerships
Where to Start
Developing a truly strategic partnership typically requires sponsors and CROs to fundamentally change deeply engrained patterns of thinking and behavior. This is not easy, nor does it happen overnight. Bumps along the way are inevitable. Meanwhile, designating a relationship a “strategic partnership” raises expectations on both sides. The result is often significant frustration and damaged trust, which quickly lead to breakdowns in collaboration and in operational performance, ultimately leading to missed opportunities to bring more medicines to market sooner, and thus improve or save the lives of millions of patients.
Figure 4. Sponsor-CRO Doom LoopsNot surprisingly, sponsors generally see a lack of expected partnering behavior on the part of CROs as more frequent and/or more problematic than at their own companies. Likewise, CROs perceive more blameworthy behavior on the part of their sponsors than their sponsors perceive in themselves. Moreover, as human beings, we tend to assume that we cannot change aspects of our own behavior until those around us change theirs. There is some truth to this, and indeed partnerships need to be a two-way street. So what to do about the common and debilitating feedback loop shown in Figure 4? The short answer is that both sides need to recognize the logical structure of this dilemma, and jointly plan actions each will take to break the cycle.
Joint Business Plans
Given the significant asymmetries in business model, risk tolerance, and economic incentives between sponsors and CROs contemplating a strategic partnership, it is essential that both sides work together to define a joint business plan. Such a plan should span multiple years, and clearly define common goals for the partnership, as well as document distinct goals of each partner that they seek to achieve through the relationship. As part of creating such a plan, partners should carefully consider risks and barriers to success, and plan how to overcome them. Finally, such a plan should specify the major commitments and investments each side is making to ensure the goals of both partners are met.
Multi-Level, Joint Governance
Strategic partnerships between sponsors and CROs require robust governance structures and mechanisms to ensure that: important decisions that need to be made are identified and effectively framed; optimal decisions are made by the right people, with access to relevant and accurate data; that accountability exists to ensure important decisions are effectively implemented; that problems can be quickly identified and escalated to the right parties for efficient and effective resolution, and that lessons learned across individual studies (not only within a given therapeutic area or region, but across) are effectively identified and disseminated. Joint governance should link effective oversight at the individual study level up to global program management (including with alignment with the sponsor’s commercial strategy).
Mechanisms to Increase Transparency
According to our research, most CROs report having no more insight into the plans of their strategic partners than their transactional customers. Yet of those sponsors that report outsourced studies are faster and more cost effective than those conducted in house trials, 67% reporting a high degree of transparency with CROs. Conversely, of those sponsors that report that outsourced clinical trials are slower and more expensive than those conducted in-house, nearly half (42%) report providing CROs with very limited visibility into their development pipelines and future plans. When CROs are given insight into the plans of their strategic partners, they are able to reduce study start-up time, staff individual study teams with an optimal mix of expertise and experience, decide for when and where to increase staff, and plan for when and where to invest in new assets and capabilities.
Two-Way Scorecards
In a cross-industry study conducted by Vantage Partners over the past three years, companies that reported realizing the most value from their suppliers were five times more likely than bottom performers to use balanced, two-way scorecards with suppliers. Such scorecards are likewise critical in the specific context of sponsor-CRO partnerships. According to our research, sponsors that employ two-way, balanced scorecards are twice as likely (compared to sponsors that do not) to report that trials conducted with CROs are faster and more cost effective than those done in-house.
Unlike traditional vendor scorecards, “two-way” scorecards provide an opportunity for CROs to provide feedback to the sponsor, and/ or involve both sides evaluating their joint performance together. A “balanced” scorecard should combine both operational and strategic KPIs, as well as both leading and lagging indicators. For example, trailing metrics like the number of adverse findings in audits, variance of study costs to original budget, and total cost-per-patient-enrolled, should be combined with forward-looking measures such as progress against upcoming milestones and soft metrics about the level of trust between partners.
All this being said, as William Bruce Cameron once noted - in a memorable formulation often attributed to Einstein - “Not everything that counts can be counted, and not everything that can be counted counts.” KPIs cannot take the place of conversations between business partners – though they can catalyze conversations (so that critical issues are addressed in a timely fashion), and ground conversations in a common fact-base. In other words, KPIs are not an end in and of themselves. They need to be used within a collaborative continuous improvement process that enables effective problem identification and diagnosis, and that produces concrete plans to drive measurable improvement in clinical development.
Joint Training
In a partnership, joint training of sponsor and CRO staff enables better aligned understanding of how work will be done (training on SOPs, on roles and responsibilities, etc.) as well as a common vocabulary and toolkit for how colleagues will interact with one another (training on collaborative problem-solving, joint decision-making, and conflict management). Such training should also be designed to address change management challenges. On the CRO side, individuals accustomed to taking close direction from sponsors must become comfortable taking on greater responsibility for delivering results (versus simply executing tasks). On the sponsor side, individuals who once were responsible for execution or who were accustomed to operating as shadow team members must become comfortable with a collaborative oversight role – focused on helping CRO staff be effective, rather than micromanaging them.
Conclusion
Partnerships with CROs can indeed deliver substantial benefits. But strategic partnerships that are worthy of the name require significant investment of time and effort to build and maintain. By jointly confronting and exploring barriers to success, and aligning around the magnitude of change and investment required, sponsors and CROs can maximize their odds of success.
Figure 5. Characteristics of Most Versus Least Successful Partnerships