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Lowest Cost Provider—or the Best Partner? BioPharma Sponsors and Contract Service Providers Debate the Value and Management of Strategic Partnerships

Posted By John W. DeWitt , Monday, September 22, 2014

Are strategic partnerships between biopharma sponsors and service providers an oxymoron? Or are partnerships with clinical research organizations (CROs) and contract manufacturers (CMOs) an idea whose time has come? John Barry, MBA, department head, vendor strategy management for Merck Research Laboratories, led a robust panel discussion exploring this topic on Thursday, Sept. 4, at the 2014 ASAP BioPharma Conference in Boston, Mass., USA.

 

Traditionally, sponsor’s relationships with service providers have been transactional vs. collaborative—and efforts to forge genuine partnerships directly confront the challenge that CROs and biopharma companies operate very differently.

 

“CROs don’t have an upside like pharma companies—they have fundamentally different business models,” noted panelist Joshua Schultz, corporate vice president, peri/post-approval services, Parexel International.  However, he argued, partnership represents a better way to work. “The transactional model—with very little alignment of incentives—is old school and not particularly efficient. If you can align incentives, even though there are different business models, you can work together effectively.”

 

Schultz noted that there’s been a “shift from purely transactional model, and we now have a wide variety of strategic approaches—it’s very different from seven to nine years ago.” He then answered the question Barry posed: “What is the asset that you mobilize the team around?”

 

The answer, Shultz explained, is “different in a partnership construct than an individual project.” Partnership is tied to corporate strategy. “It’s not just a project, but a much larger asset, a relationship, against which you can make incremental investments. ….  What’s the future opportunity and what investments can and should we make to ensure this is a robust relationship?”

 

Partnership is essential to the Cubist Pharmaceutical business model, according to panelist Mary Kachinsky, CPSM, CPM, the company’s senior director, strategic sourcing. 

 

“We’re a virtual company, everything is done externally – so our biggest relationships are with CMOs and CROs in this case,” she explained. “We’re a small company, four commercial products, and three in late stage development, working with global development and commercialization. Now we’re trying to review what our needs are. We went from a one-product company, made two acquisitions, and brought in new assets. When I joined Cubist in 2011, they … were hands off, ‘here’s my study, when you’re done come back to me,’ and there was very little oversight.” Cubist recognized the need for a different strategy and today takes a more hands-on approach to manage (but not micromanage) its service provider partnerships.

 

“It’s not about cost—yes, we want competitive rates, but I’d rather pay more if I have to for the quality.  I would rather pay more for the timeline, and I’d rather pay more for the expertise that the CRO will bring to me, because we may not have the expertise. We need expertise, quality, speed, and feel that it needs to be at a competitive rate so it’s a fair price to Cubist. We’re not looking for the lowest cost provider, but the best partner.”

 

Barry commented that today, “it strikes me that suppliers we have in our industry have a much better lens on what’s happening and our knowledge is getting a little bit stale. … Merck, not unlike other pharma companies, has publicly said that much of its value is outside the organization now and it depends on various types of collaborations.”

 

Barry then asked panelist Solomon Babani, CA-AM, global vice president of alliance management at Covance, to address the issue from a service provider perspective. “How do you create the partnering opportunities for a Covance?”  

 

“Last year at this conference, a point that came up is our ability to lead with alliance management,” Babani recalled. “A lot of folks commented that often alliance management is brought in late in the game. If you can’t come up with a book of business and show what’s coming forward, then CROs will be reluctant to come forward. But that’s wrong—you need to demonstrate the ability to lead with alliance management. Someone who can develop trust, build relationships, all the things you want in the relationship, should be involved from day one. The CRO needs to be willing to make the investment.”

 

And increasingly, he added, players of all sizes want to partner. “That’s a lot of the feedback I’ve gotten at Covance from biotechs—they’re looking for a relationship, not for something that’s very transactional.”

 

Audience member Christine Carberry, CSAP, asked panelists, “How do you deal with the challenge that business models are so different? How do you deal with the fact that the risks and rewards are different?”

 

Kachinsky answered, “Because we are small, we have to align with that CRO, determine the expectations. When I first went to Cubist, we didn’t spell out deliverables, it was just a cost plan. … now we’ve educated our clinical team to be much more specific about that deliverable. Having that clarity has begun to make a real difference for us. We have maybe 60 people on a clinical team, so you have to be aligned, you can’t have your finger on all the dikes.”  

 

Barry commented, “Merck isn’t interested in transferring medical or commercial risk to our suppliers—but we will transfer capacity management risks and economic risks.” Therefore, to achieve alignment, you need “to get a lot more specific in the risk discussion. What’s important to Merck is a well-controlled environment.”  

Tags:  2014 ASAP BioPharma Conference  Christine Carberry  Covance  John Barry  Joshua Schultz  Merck Research Laboratories  Parexel International  Solomon Babani 

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