Pharma outsourcing: CROs, CMOs and external collaboration
pharmafile | July 2, 2015 | Feature | Manufacturing and Production, Research and Development | CMOs, R&D, clinical trials, collaboration, cros, outsourcing
Thirty years ago pharma companies seemed to use external contractors as a sort of fire brigade, to be called in when an emergency was happening, or about to happen.
Happily, pharma’s practices have changed greatly since then, such that outsourcing is now an integral part of planning. One aspect of this shift is the proliferation of specialist contractors and consultancies, covering the full range of functions needed to bring a drug to market and beyond. Here I want to look at some of these changes, focussing on contract research organisations (CROs) and contract manufacturing organisations (CMOs).
Back in those dark days of knee-jerk contracting, it used to be said that a contractor must be more efficient than their client, or the business would not be viable.
The logic went like this: across the board, sponsors were not going to pay more than it would cost to do the work in-house. The only way the contractor could make a profit was to make savings, by doing things better than the sponsor could. If this had any validity then, I’m sure it has little now. Pharma companies then had very little idea of their in-house costs.
Having carried out many analyses of clinical project management practices, I have found that most companies didn’t even try to track the staff effort they were expending. As this is usually the largest component of project cost, it meant that budgets were commonly guesswork. Staff cost was simply treated as an overhead, not tied to any project. Hence benchmarking a project using in-house data was never going to be robust.
But now, with the contracting and outsourcing industry much larger and more mature, budgets will be created based on historical costs from previously outsourced projects, or from external benchmarking data repositories. Again the latter will comprise mostly data from outsourced projects. So the budgeting exercise is one of informed estimating for the development plan, and then inviting quotations and negotiating with contractors.
Contracts lack innovation
My impression is that most of the CRO industry settled down years ago in terms of business practices, to the extent that it has become largely formulaic. In a recent piece in Pharmafocus I bemoaned the lack of innovation in contract structure.
Most contracts are not really collaborative, as they are built up from units of work with standard costs and cycle times. They can be used more as a weapon to beat the other side with, than as an agreement towards common goals. The CRO will constantly monitor the project for out of scope work, so as to hit the sponsor with change orders.
The sponsor will monitor the project to ensure that each and every unit of work has been completed, and berate the CRO for late or incomplete tasks. This scenario generates a culture of suspicion rather than trust, and creates more work for both sides. It’s often not appreciated how much effort is required for all this monitoring and chasing.
It’s widely accepted that all contracts are vulnerable to change, partly because R&D is exploratory and not everything can be forecast. The CRO welcomes change as a way of increasing income. This conflicts with the sponsor’s objective of minimising change and containing costs. Both accept that it’s inevitable, the sponsor with weary resignation in my experience. One would expect there to be widespread willingness to explore more effective types of partnership; although innovation is to be found, it’s relatively uncommon.
Andy Black has 10 years of experience in CRO management and advising pharma companies. He mostly sees traditional item of service contracts, albeit often incentivised with penalties and bonuses. Despite a certain noise level about sponsor-CRO partnerships, sharing of risks and benefits is not as common as it sounds. Out of this rather grey landscape shine a few beacons of hope.
Black points to Avillion as an example of a late-stage drug development company which pushes the collaboration concept further than most. They have recently partnered with Pfizer to conduct a global Phase III trial of Bosulif (bosutinib) for chronic myelogenous leukaemia (CML). The main innovation is that Avillion will fund the trial in return for milestone payments when marketing approval is achieved. Pfizer will retain all commercialisation rights to Bosulif.
Obviously this model can only work if there is a funding source, and Avillion is backed by Abingworth, Clarus Ventures and Royalty Pharma. But this is without major investment in staff and infrastructure; the company still uses CROs to deliver the study.
Because of their special expertise is in operational excellence and finance; the business model relieves the sponsor of strain on their profit and loss account. Significantly, Avillion takes the full clinical and regulatory risk. It is the most extreme form of an outcomes-based contract that I have seen so far, and is worth watching, even though Avillion is not a CRO.
CROs and risks
The problem of project change, including scope creep, is a major reason for the negative image enjoyed by the CRO industry in some quarters. Black identifies a gap which sponsors need to fill, in that they rarely try to engage CROs in writing development plans and protocols.
This can lead to objectives being agreed which are not deliverable. Clearly, if both parties have bought in to the targets with full understanding, there will be more leverage to get studies back on track when slippage is foreseen. In my experience it’s too easy for the contractor to say ‘It’s not our fault, we didn’t know about that’.
Yet there is evidence of major CROs moving away from this level of involvement. Quintiles separated from its investment arm NovaQuest in 2010, which now seems to operate more closely to the Avillion model.
Quintiles may now be putting more effort into advisory services, where it accepts risks associated with its forecasts of outcomes in return for financial benefits.
The sponsor-CRO alliance partner model is a well-worn path now, but Black again detects some erosion here. For example Pfizer and Merck have backed away from it, bringing some functions back in house.
The problem is that even the largest CROs are still much smaller than the largest pharma companies, and still don’t offer every possible service. However alliances still arise, for example Biogen, which has selected Quintiles.
But this isn’t an exclusive deal, and Biogen is free to use other CROs. A survey in 2014 revealed a possible trend away from single partner alliances; sponsors seem to want the flexibility to select the best partner for a particular job, while building close relationships with a shortlist of contractors.
However this was a common model 20 years ago, when pharma companies set up ‘preferred provider’ deals. This was very frustrating for younger CROs, who could not break through this ‘mega-CRO club’ barrier. Many of the lessons learned in contract research can be applied to contract manufacturing. Wellspring Pharma Services identifies a lack of clarity in three main areas: timelines, budgets, and roles.
Sound familiar? They do to me. For the last of these, quality is a major component, especially relating to regulatory compliance. A breach here could be fatal to a project. It’s vital that every quality step has a clearly identified responsible person.
Stepping outside the familiar
CMOs are widely engaged to support clinical trials, and the whole supply chain can be very complex. There are multiple hand-over points between functions. For example, when a trial overruns, who is responsible for monitoring expiry dates and ordering new stock in good time?
Don’t laugh; I have known sponsors to drop the ball here, and not that long ago either. I have even seen a supply chain contract that didn’t define one key function at all, and referred to a subsidiary contract that was never actually written.
Perhaps one of the more surprising changes in the CMO arena has been the failure to move inexorably eastwards.
That was predictable as sponsors saw how India and China could offer high volume human resources and lower costs. What they have found is that quality has slipped, partly because of less rigorous inspection regimes in these countries. Hence there seems to have been a retrenchment back to the familiarity of North America and Europe. I might speculate that cultural issues also played a part; collaborating with people of different traditions and cultures is harder work.
Overall, any kind of client-contractor relationship must be underpinned by the competence of both parties. Freelance consultant Dave Talbot says that the most common cause of project failure is “wishful thinking by the client”.
No matter how dictatorial a sponsor may be, in the long run there is far less pain from challenging their assumptions at the outset, than there will be from committing to unrealistic expectations.
And Kent Hill, a recently-retired freelance consultant, agrees. He cites an unrealistic protocol with selection criteria that mitigates against adequate patient accrual. The message I get from these comments is that time invested in up-front discussion between the parties is always well spent.
It’s a perennial failing in the pharma industry that sponsors are very keen on getting projects started as soon as possible, probably to encourage the shareholders, and spend less time on planning than other high technology industries do. The other benefit of external collaboration is team-building – whatever the project – and should not be underestimated. People get things done, not systems.
The June 2015 issue of Pharmafocus referred to The Avillion Group. We would like to point out the company is called Avillion, and apologise for the error.
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