1. What, in your opinion, is currently the single largest trend with respect to strategic partnering?
SW: In my current work with a Chinese biopharmaceutical firm we see many companies that are seeking entry to the Chinese market place. These companies are primarily driven by the desire to increase their sales and distribution, through registration of their own products and through acquisition of companies that are developing and marketing products. The larger pharma companies seem to be driven by concern with their ability to expand sales coupled with diminishing returns from their internal research groups. Companies are looking for partners that have the ability to provide continuing expansion of product lines.
KS: Volume of work, in my opinion, is currently the single largest trend with respect to strategic partnering. As part of strategic partnership, both companies embrace a common culture or find a common ground to meet a shared goal. As the portfolio grows within the sponsor company, the needs and demands to meet sponsor’s desired goal surpasses the allocated time and budgeted cost for drug development. Cost and time are two important factors driven by the volume of work and hence needs to be carefully managed especially when developing a strategic partnership. Companies look for alliance partners to conduct more specialized duties that could be conducted externally and utilize the resources internally to perform activities that they are best in gaining competitive edge as part of the drug development process. Several business elements such as what needs to be achieved, how are they to be achieved, what resources should be implemented, elements of intellectual property, quality and timelines of deliverables, competition, hiring of employees, legal issues, technology transfer, exclusivity, and splitting of profits and expenses are some of the factors that drives the purpose of strategic partnership.
JM: Strategic partnering is being used increasingly to bridge functional gaps rather than handle functional overflow. In place of improving or developing internal resources to perform new or less used key operations, companies are redirecting resources to strengthen existing expertise and relying on strategic partners to provide well defined contributions by conducing these key operations that have been abandoned.
KG: The adoption of integrated and more strategic outsourcing relationships is the largest trend unfolding during the past several years. This trend, as it unfolds, brings with it a number of associated changes in the outsourcing landscape. At the Tufts Center for the Study of Drug Development (Tufts CSDD), we’re monitoring the outsourcing landscape and seeing it become more volatile and misshapen. Small and mid-sized contract research organizations (CROs) have largely been left behind while major CROs -- the only organizations with sufficient scale and diverse talent – service a growing number of integrated relationships. Some smaller and midsized CROs have looked to joint venture in order to scale up and jump on board in servicing integrated relationships of their own.
Sponsors have been pushing their preferred CROs to customize each integrated relationship. As a result, the largest CROs are beginning to shake up their infrastructure and move into more profitable service areas along the R&D continuum. At the same time, the implementation of integrated relationships during the past two years has been suboptimal prompting many sponsors to modify their governance practices and to rein in their collaborative control.
For industry insiders and observers alike, the next 18 months will be anything but smooth sailing: The landscape is changing rapidly and sponsor sourcing requirements are diverging from the operating needs and long-term strategies of the major CROs.
AS: In my mind, one of the largest trends we’ve observed in partnerships has been a significant shift towards risk-sharing in drug development. While it’s clear that offsetting the potential economic fallout of having a drug fail in the clinic is the main driver for this trend, we feel that it is only a small part of our broader effort to conduct cost-effective R&D. For example, we have made a significant effort to employ translational science strategies and the use of biomarkers to help weed out suboptimal compounds earlier in development. In particular, our translational science strategies create a seamless interplay between nonclinical and clinical development with the goal of delivering the highest quality therapeutics to the right clinical population, while reducing risk.
Another important trend has been a push to find early-stage partnerships with value generation, which has led us to academic institutions, such as our deal with the University of Michigan Medical School in which we are cooperating on studies that aim to translate discoveries in the lab into investigational therapies in oncology, heart disease, digestive disorders, and inflammatory disease. Another example is AstraZeneca’s deal with Peking University, which aims to pool scientific resources in the pharmaceutical and academic fields and additionally provide better medical care to patients with diabetes, obesity, and atherosclerotic cardiovascular diseases.
Lastly, peer-to-peer partnerships remain highly influential. Coupling high-quality molecules with scientific know-how is a recipe for success. Our recent deal with Amgen for five of its products in key respiratory, inflammatory, and autoimmune diseases, which we refer to as RIA, exemplifies our strategy to match the right development expertise with the right molecules. The deal married the resources of two established organizations, which helps to balance the risk beyond the finances to the responsibility of drug development and ultimately, sharing of profits. Our specialized expertise in the development of biologics and specifically those in RIA, as well as AstraZeneca’s global commercial footprint enabled us to enter into the agreement. Further, the deal positions MedImmune’s RIA pipeline as one of the strongest in the industry and we expect some significant medicines for unmet medical needs to come from this collaboration.
JW: The single largest trend is the expansion of strategic partnering, not only by major biopharmaceutical companies but also mid-sized companies. At the same time, there is an emerging trend whereby any sizeable deal is being characterized in the marketplace as a “strategic partnership”. That can be dangerous. Some relationships are really geared toward supplier consolidation, aimed at reducing acquisition cost. With a sole focus on cost, they reduce the “partner’s” operating margins to such an extent that they cannot adequately reinvest in their own business and create incremental value for their new “partner”. The most successful partnerships recognize that it is not all about acquisition cost; both partners strive to truly change the business model by conducting the work differently focused on speed and quality delivery. If we look back five years from now and all we did was provide drug development services at a lower acquisition cost while the overall cost and time to develop new molecules continued to soar, then we would have failed miserably to develop true strategic partnerships and help the industry with its challenges.
2. How, in your mind, have companies shifted their strategic partnering philosophy post-recession?
KS: Companies have re-focused their effort in evaluating their needs and requirements as part of their strategic partnering philosophy in the post-recession time. Re-focusing on their short and long-term plans as well as future goals to implement and effectively utilize their resources has been the re-structuring tool at this time of crunch. Evolving new technologies intended to provide an effective means of output as well as the strategy of conducting day to day internal business under the so-called “more for less” concept has also been the centerpiece for various colleagues in the shifting paradigm of strategic partnering philosophy during post-recession time. Such changes on a smaller scale due to economic nature has, and for some companies, also developed into a benchmark of current working practice not only to take a conservative approach during these difficult times, but that has also readily transformed into a routine standard practice from lessons learned during recession into the post-recession times.
JM: The shift has been toward collaboration and away from fee for service and choosing the lowest bidder. As companies rely more on strategic partners to provide key services, they seek the long term value of a relationship with a strategic partner rather than simply accepting the lowest bid for short term economic value. Developing relationships with strategic partners creates value in many ways. The partner takes ownership in the process, they add creative input, and can be more flexible to meet changing project needs with shorter timelines.
KG: Most sponsors have now had several years under their belts to establish integrated outsourcing relationships. In that time, most sponsors believe they have not executed these strategies well. Interviews among, and anecdotal reports from, sponsor companies indicate a large number of implementation shortcomings including:
- Coordination and communication problems among local affiliates and lower level management -- parties who have had limited to no involvement in establishing integrated relationships – and CRO project teams;
- Failure to communicate the new outsourcing strategy to support functions resulting in confusion and inefficiency;
- Organization commitment to integrated relationships has waned as governance roles and responsibilities of personnel at varying levels in the sponsor organization have not been clearly defined or evenly supported;
- Realization that too much responsibility has been transferred to CRO personnel resulting in more strained relationships between sponsors and their valued investigative sites and subcontractors;
- Senior management at both sponsor and CRO companies has failed to adequately convey relationship expectations to study teams resulting in redundant activities and poor communication;
- Failure to communicate the rational for the new strategy throughout the enterprise forcing staff at the execution level to establish their own practices and processes resulting in inefficiency.
The results of a 2011 survey conducted by CenterWatch echoes these anecdotal reports on the challenges of implementation. Conducted between March and June, 134 respondents from CRO companies evaluated 52 FSP and alliance relationships and reported that sponsors were having major difficulties providing adequate oversight, clearly defining governance team roles and establishing efficient issue resolution processes.
Sponsors are now modifying and adjusting governance structures and collaborative processes and practices. A number of sponsors are exploring ways to empower internal staff at the execution-level, more actively manage communication and coordination processes and systems, and more effectively measure collaborative performance. Sponsors are also closely watching regulatory agency response to integrated sourcing relationships in anticipation of tighter scrutiny of clinical trial oversight and issue resolution. FDA and EMA have both signaled strong interest recently in understanding how integrated outsourcing relationships impact global clinical data quality and compliance.
AS: Following the economic downturn, there was a notable decrease in venture capital activities. Very few IPOs were being floated during this time, as The Street became more skeptical of start-ups going public. While VC activity slowed overall, the recession did help to spark collaboration among industry and academia.
JW: Philosophically, the companies most interested in pursuing new business models and creating incremental value through strategic partnering fall into two distinct categories – growth and trouble. Unfortunately, the vast majority of the major pharmaceutical companies are facing some sort of current or impending “trouble”. They are looking for strategic partners that can help them survive those turbulent times and thrive on the other side of that turbulence. That takes more than just addressing the acquisition cost. It requires a much more comprehensive solution for the total cost of outsourcing.
3. What country/region, in your opinion, is currently the most sought after with regards to strategic partnering and why?
SW: In Asia we see an increase in the activity of US and European companies looking at the growing markets of China, India and, to a lesser extent, South East Asia. However, recent large deals with Korean companies for manufacturing suggest that Korea and Japan are still strong players in strategic partnerships. Chinese firms have a high interest in connecting with multinational players as a way of strengthening their technical base, while US and EU firms have an eye on the market potential of the rapidly expanding Asian economies.
KS: I do think there are several countries within the developing world with growing economy that are most sought after with regards to strategic partnering. Many of these countries lie in the regions of South America, Asia/Southeast Asia and Eastern Eurasia. These regions provide not only new evolving technologies from booming economy but also produce efficient resources (technology, people) in a competitive environment that are most productive as a strategic partner. Growing economy usually provides more opportunities as the increased amounts of goods and services produced with time further fuels innovative ideas, new technologies, efficient work-force and work ethics, competitiveness within the workforce, and the willingness and drive to reach and achieve “out of box” mentality. These elements help transform opportunities into more focused area of expertise that are quite beneficial as part of being an alliance partner to a sponsor company; this in turn, allows the sponsor company to divert and invest resources internally which are more strategically focused towards some of the important phases of drug development process, hence providing an optimal environment for strategic partnering. In parallel, stable government, effective cost structure, ease of international business, good infrastructure, as well as free from language barrier are just as important in developing strong strategic partnership within these regions.
JM: I think it depends upon the product that the strategic partner provides. If the product is primarily information or starting materials and reagents, the distance between the company and the partner is less important, when key materials are transferred with tight project timelines, the distance can be more important. For services, such as salt and polymorph selection, Eastern Europe seems to be attracting a lot of attention. Scientists from that area gain experience working for Western European providers, learn how to create value and customer and relationships, then return home to apply their business acumen to start their own companies with lower overhead costs. For other services, many companies are looking locally, as a quality long term relationship that provides extra value is easier to maintain when the partner is within 3-4 time zones. Often, the local provider has its own value added relationship with a partner located in India or China; as long as communication is open and honest, this allows the company to leverage the expertise the strategic partner has developed in a lower cost market with little risk of trying to foster that relationship on their own.
KG: I believe that integrated, strategic outsourcing is country/ region agnostic. Sponsors are not selecting these relationships based on their geographic location. They’re looking for partners who offer expertise, scale and compatible culture to provide integrated, portfolio services under shared governance, systems and processes. Strategic, integrated partners become the general contractors who ultimately engage subcontracted service providers and study conduct providers operating in various parts of the world.
AS: Considering MedImmune’s global footprint and AstraZeneca’s strength in commercial marketing, in our minds, all regions are ripe for strategic partnerships. Saying that, we have grown our commercial presence in emerging markets and struck deals in areas like China. Last year we signed on with Shanghai Chest Hospital, one of the largest hospitals in China treating lung cancer patients. This multiyear research agreement allows researchers to build a richly annotated lung cancer database that includes patient characteristics, medical history, tumor phenotype information and molecular characterization of small and non-small cell lung cancer cases. Building on our focus on personalized medicine, this research will help create a better understanding of lung cancer at the molecular level, which will then help us to target the right patients in our R&D development and may lead to new therapeutic approaches.
China is an important part of AstraZeneca’s global R&D strategy to develop and deliver new treatments for diseases of high prevalence in Asia, such as lung cancer. Innovative partnerships with medical institutions such as Shanghai Chest Hospital will help us further to accelerate our efforts to meet patient needs in emerging markets.
JW: A key characteristic that biopharmaceutical companies are looking for in their partners is a global presence. They are looking to derive much of their incremental growth from emerging markets and they expect their strategic partners to be able to serve them in those emerging markets. There has been and will continue to be a significant amount of growth in Asia, Eastern Europe and South America. But “being there” is only part of the story. A strategic partner must be able to leverage their presence to reduce the time and cost of drug development while maintaining high quality standards and the financial resources to grow with their strategic partner over time.
4. If things progress as they have the past five years, what can we expect in the next five years, with respect to what companies are looking for in a strategic partner?
SW: The forecasts for market growth in India, China and other developing Asian markets suggest that domestic sales have substantial room for expansion over the next several years before slowing. These high rates of growth provide opportunities for companies with marketing strength to expand through collaboration with local firms that are expert in local development, registration and distribution.
KS: In the coming years, companies will be looking for alliance partners that can provide expertise as well as undertake an active role within various stages of stakeholder’s roles/responsibilities in the process of drug development. Sponsor companies are constantly looking for opportunities to cut back on cost and expedite on timelines prior to launching approved drugs into the market. As the drug development process becomes more strategically focused on identifying what components should be conducted in-house compared to by its partner, the demands for those specific areas of expertise may not meet the challenges of in-house capability, thus the need for such specialization from a strategic partner. On the other hand, potential alliance partners are continuously updating their systems and processes as well as integrating innovative ideas to be within the radar of challenges that sponsors are facing. I do believe that as time progresses, further refinement on specific tools and resources will continue on both sides in this evolving environment of change.
JM: Companies will continue to forge long term relationships with key partners that supply high value research and information. As companies become more comfortable with these strategic partner relationships, the companies will invest internally to capitalize on their key technologies that proved a competitive edge. Likewise, many CRO’s will likely focus on their respective expertise to develop a reputation as a high quality supplier to fit with the needs of the companies. The company that does everything well but is not an expert at any one area will still have a niche, but only if they can provide an overall high quality long term relationship with an appropriate company, such as a small biotech. The all in one shop will have to provide support across all phases of drug development without necessarily be asked. They must offer services such as interpretation of toxicology and pharmacodynamics / drug metabolism, establishing and maintaining a relationship with the FDA, and process development with analytical support as well as any other guidance an inexperienced biotech may need. Simple fee for service contracts will be used more often for very simple projects.
KG: We can expect really profound structural change: On one side are small and mid-tier CROs servicing primarily niche and full-service transactional relationships. The top mid-tier and market leading CROs are concentrating on large pharmaceutical and biotechnology companies to obtain and establish more integrated relationships. Mid-tier CROs appear poised to continue to consolidate the outsourcing market in order to supplement their capacity and capabilities. Market leading CROs will continue to pursue higher margin businesses, to expand their portfolio of service offerings, and to increase their client base of integrated relationships.
Although FSP and integrated strategic alliances offer the largest CROs continuity, upfront planning, and stability during periods of global economic growth, these same relationships can be more volatile as portfolio-wide delays and cancellations stress CRO operations.
Large CROs that had established a diverse client base now face increasing client concentration under integrated relationships. Client concentration will present higher levels of volatility that must be managed carefully and nimbly—perhaps through more variable operating models.
All CROs must manage their profitability as sponsors demand lower pricing. Larger CROs managing portfolios of FSP and integrated alliances also face the difficult challenge of running up fixed infrastructure costs to service client customization requirements. Ultimately, these CROs will be forced to shed fixed costs and underutilized assets and to establish more flexible, integrated relationships with traditional and non-traditional parties. Private equity will continue to play a key role in supporting this movement.
Many sponsors may find it hard to accept alliances with large CROs who are structured more like virtual general contractors than primary service providers. Other sponsors will be very receptive to more open, virtual innovation models offering flexible access to diverse, global talent; shorter cycle times; and higher levels of efficiency.
AS: Looking back over the past five years, there has been a reduction in money allocated to innovation, due to the economic downturn and its residual effects on VC activity. If this trend was to continue, we could be left with a significant lack of new, innovative medicines in 8-10 years.
To remedy this trend, it is critical to put good capital to work to keep good science moving forward. Funding innovation sets the stage for the development of novel therapies that bring new medicines to patients in need. AstraZeneca has recognized this need and acted upon it by committing an additional $100 million to its venture capital arm, MedImmune Ventures. This contribution increases the total capital under management by the VC fund to $400 million and expands investment activities globally and across therapy areas. The MedImmune Ventures strategy combines its commitment to advance science and technology in the life science industry while generating financial returns expected of top-tier venture capital funds.
JW: A number of strategic partnerships have been disproportionately focused on acquisition cost with relatively little attention given to changing the business model and addressing the overall cost challenges. Biopharmaceutical companies are going to look for more out of their strategic partners. It will no longer be acceptable to simply offer the lowest price. The pendulum will swing back to the middle whereby true strategic partners offer a broad portfolio of services across the drug development continuum. Further growth and consolidation in the CRO industry will enhance scale benefits and financial stability, and enable investment in systems, geographies and capabilities. Strategic partnerships of the future will encompass more than simply conducting the work and generating data. True strategic partners will play a much more active role in the development of protocols, contributing significant scientific, medical and regulatory input. This will have a profound impact on the depth and value derived from strategic partnerships of the future.
5. What recent improvements/methods have been implemented in streamlining the process of finding the right strategic partner?
SW: One of the difficulties in Asia is the plethora of technical conferences that are run by for-profit groups with little technical expertise. The result is many meetings that are a jumble of topics without drawing the key local players. A foreign firm may not be able to rely on the typical model of attending conferences in order to identify relevant partners. Fortunately, the universe of potential partners is small enough that direct contact is a viable option.
KS: Finding the right strategic partner could vary from one company’s need to another as this would depend on the gaps that needs to be filled as well as the goal of the sponsor company’s short and long-term vision. Several trade shows and annual conferences have been utilized as a tool to gather information in the process of finding the right strategic partner. Marketing efforts within various magazines as well as presentations to key stakeholders within the sponsor companies have further implemented in streamlining the process of finding the right strategic partner.
JM: I have found that many potential strategic partners are providing both improved quality and quantity of information at their websites. Initial screening for potential partners via websites saves an enormous amount of time and can be done anywhere and anytime one is with their computer and internet access. Once initial contact has been made, many potential suppliers are willing to share prepared power point presentations which include greater detailed information, pertinent statistics and relevant case studies. This wealth of data makes it easier to narrow down the potential strategic partner, but it will never replace the face to face meeting and the site visit to confirm your choice of a partner.
KG: In our research at Tufts CSDD, we’re not seeing the process of finding the right strategic partner move through a refinement phase ultimately entering institutional long-term memory. Perhaps it is too early for companies to be applying and refining their initial experiences? Most sponsors remain committed to working with the preferred partners identified as part of their original implementation of a strategic partnering initiative. Within the next several years we will likely see companies develop more formal, streamlined processes to find the right strategic partners.
AS: The fundamental approaches remain the same. Exposure is key and speaking at or attending the right conferences is key. We’ve ramped up our efforts to be more visible with MedImmune Ventures recently participating in the BioTrinity conference in the UK to offer perspectives on shifts in early-stage corporate VC investing.
AstraZeneca has recently rolled out a business development initiative known as project Artemis, which is all about re-defining the relationship between business development and R&D. Each innovative medicines unit at AZ not only has a BD team, but also a dedicated group of scientists focused on seeking external opportunities.
JW: The process from the sponsor side has essentially remained the same with heavy involvement by their procurement and sourcing groups. It is still a relatively lengthy and cumbersome process that could use additional refinement.
6. Does social media have a place in strategic partnering and why?
SW: Specific targeted media sites such as LinkedIn with its specialty groups provide useful forums for people to meet each other and identify connections for initiating discussion. Whether social media can also be used effectively for sharing information and identifying prospects remains to be seen. There is no real substitute for personal meetings.
KS: Social media has already become part of almost any area we interface with. It is rather a strong tool that if utilized appropriately, benefits could outweigh risks and vice-versa, if utilized ineffectively, risks could outweigh benefits. Strategic partnering is a challenging combination between two entities and caution should continuously be utilized to ensure appropriate confidentiality is maintained prior to becoming a strategic partner as well the same while engaging in a post-strategic partnership.
JM: There have been attempts to utilize social media for exchanging information in an effort to make connections between suppliers and customers, but since any useful connections would be conducted in another venue after initial contact on social media, it is unclear to me whether or not it has been useful for those who are out there. Personally, the lack of source authentication would compel me to not to seek strategic partners via social media, I have used social media to increase my awareness of webinars and other events, but these come from companies that already have a valid reputation.
KG: Absolutely. Any and all secure and compliant solutions that contribute to more rapid and efficient communication and information-sharing have a place. Social media has the potential to touch all aspects of R&D partnering. Some of the ways it will be put to use – e.g., continuous dialogue between project and scientific teams; reaching and accessing a variety of communities to recruit and engage volunteers and talent; early uses of crowdsourcing for input into protocol design and data analysis – are already being piloted. Many uses for social media, to my knowledge, have not yet been explored including strategic partnering with investigative sites to establish remote clinical trial participation, and more open yet secure data collection and data sharing.
As strategic partnerships extend horizontally into the continuum of R&D functions, the uses and benefits of social media become more valuable. As ever more fragmented, dispersed and autonomous internal and external teams interact, social media becomes a more important collaboration medium.
AS: At this time, social media is not sufficiently advanced to have a place in partnering. Granted, over time, following particular companies on Twitter may offer another forum for discussion, but as for now, social media has not yet developed to a point that it plays a significant role in strategic partnering.
JW: Online solutions that enable better and faster exchange of information, collaborative work processes and informatics capabilities, all play a major role in strategic partnering. Secure portals that enable timely updates, data exchange and reporting, are one example of this type of partnership-focused tool set. However, because of the proprietary and confidential nature of strategic partnerships, public social media tools play a limited role.
The strength of social media tools is their ability to create communities, and to encourage dialogue and information exchange. Social media can aid in the engagement of investigators, volunteers and patients involved with clinical trials. It will continue to expand as another tool set to help deliver timely and cost effective recruitment. As a whole, the industry is increasing our skill in leveraging the power of social media.