	Pharmaceutical manufacturers conduct more technology transfers now than ever before, yet technology transfer remains far from a core competency in the industry today, according to a recent survey conducted by Tunnell Consulting. Looking at the technology-transfer practices of executives at 10 global pharmaceutical companies, the study found that most companies undertake more than 10 technology transfers per year-whether from development to commercial manufacturing or from one manufacturing site to another-and some execute many more. Yet despite the frequency of transfers, the survey results showed the following problems:

		Corporate decision-makers make technology-transfer plans primarily on the basis of financial and marketing considerations, failing to take into account early enough in the decision-making process the effect that execution will have on the organization.

		Senior management significantly underestimates the need for resources and scheduling because its members lack sufficient first-hand knowledge and input from the organization regarding the organizational requirements for supporting technology transfers at the sending and receiving sites, as well as for the numerous support functions that are integral to the process.

		Once high-level decisions have been made, implementation is left in the hands of individual departments, functions, or sites with little, if any, high-level centralized oversight, control, or appropriate metrics.

		The lack of early and effective coordination between the sending and receiving sites, or between development and manufacturing, is further complicated by the absence of clearly defined roles and responsibilities for individuals and teams, lack of open communications, and poor visibility of timelines, progress, and results.

		The transfer runs into problems because a thorough and detailed assessment has not been conducted regarding the comparability between the sending and receiving sites' equipment, environments, and supply chains.

		The participating organizations fail to clearly identify, define, and agree upon which standards and procedures will be followed while conducting transfers, including assurance that all required documentation will be completed in an accurate, timely, and compliant manner.

		The organization fails to take into proper account the impact that technology transfers will have on functions, such as quality, regulatory, laboratory, and supply chain.

		Poor process understanding, coupled with incomplete documentation (i.e., codification) of all the required process parameters, results in attempts to transfer products and processes not under a sufficient and defensible level of control, leading to poor manufacturability at the receiving site.

	The adverse consequences of these common mistakes in the planning and implementation of technology transfer include budget and schedule overruns, disruption of both the sending and receiving organizations, compliance problems, excessive rejects and rework, slower time to market, and supply unreliability. In today's life-sciences business environment, companies can no longer afford such mistakes. They need a technology-transfer process that, like any process, is efficient, cost-effective, sustainable, and repeatable-a core competency that consistently produces maximum strategic impact. Although the components of such a comprehensive technology-transfer capability are many, they can be reduced to two essentials: an overarching technology-transfer framework and rigorous process understanding before transfer. Companies that achieve those two objectives will not only avoid the common mistakes in technology transfer, but also transform the process into a formidable competitive advantage.

Technology transfer encompasses a broad range of activities that must be properly managed for effective, efficient completion. It begins with the end: a definition of when transfer can be considered successful and complete. Technology transfer should be defined as complete when the process is operating in a reliable (i.e., predictable) manner within the established specifications at the receiving site. With this objective in view, an overall framework (see Figure 1) in which that goal can be achieved should include the following ideas.

An overall transfer-program-management process. 

This process includes a governance structure, the establishment of executive sponsorship, and the clear delineation of roles and responsibilities-including the roles of all support functions, such as quality or regulatory-for all transfers. This program-level process enables a company to manage its technology transfers as a portfolio, apply risk-management techniques to the portfolio as a whole, and optimize the return on investment.

A project-level management for the transfer of each product or process. 

This includes a "by design" set of requirements, activities, decision points, milestones, and best practices that ensure timely, well-documented transfer within budget and with minimal impact on product sales. At the project level, the framework encompasses the advances made during the past 25 years in process improvement and risk management and applies those advances to the technology-transfer process.

Gap and risk analysis at program and project levels. 

At the program level, the overall transfer capability should be determined (e.g., plant capabilities and capacities, project management capability, dedicated personnel, level of training, and understanding of regulatory and safety issues) with a view to determining organizational shortfalls and correcting them. At the project level, the project team should closely examine each product or group of products for shortfalls, especially the current state of product-related process understanding and the factors that will determine success at the receiving site, including manufacturing processes, documents, analytical methods, equipment, plant capabilities, and regulatory and safety issues.

Based on the gap analysis, a detailed strategy document must be developed to include all gaps, the means to fill those gaps, and a description of the overall transfer strategy with measures for success. One of those key measures of success will be knowledge transfer. Will the organization be left with experienced personnel who can repeat the process rapidly, consistently, and at lower cost than before?

Technology transfer should be assessed, defined, designed, and managed from a comprehensive value perspective to capture the full benefits of the transfer. Metrics that translate into value could include, but are not limited to, the following: meeting budget, meeting timelines, the validation success rate, the number of FDA observations during preapproval inspection, the regulatory-submission approval rate, labor hours by job title, labor costs (internal and external), capital, expense, and potential effects on sales.

	An overarching framework composed of those features not only creates the conditions necessary for a successful transfer from a technical point of view, but also ensures that the organization reaps the full business benefits of transfers.

	The success of any particular technology transfer depends upon process understanding, or the ability to predict accurately the future performance of a process. It requires complete, methodical, and systematic capture and codification of all process data and information leading to a high level of assurance regarding site-to-site process equivalency. In the case of transfer from development to commercial manufacturing, the goal of process equivalency is complicated by the issues of scale-up-what works in the laboratory may not work in the plant.

To forestall such problems, development and commercial teams should interact early in the process of development. This involvement of manufacturing personnel during development enables development staff to understand scale-up limitations and design appropriate experiments, thus saving time. Conversely, the involvement of development personnel on scale-up teams leads to better management of knowledge transfer. Working together, development and manufacturing personnel can continue to build a broader understanding of what is and is not practical for commercial manufacturing. The result is more intelligent and efficient development activity and a flattening of the learning curve as products move from development to pilot to commercial operations (see Figure 2).

	Unfortunately, in many companies, such interaction does not begin until after successful Phase III trials, in the belief that it is too costly before that stage of development because so many drugs fail. But these same companies then find themselves with little time for achieving sufficient process understanding for successful scale-up. As a result, a process that is less than robust is transferred to manufacturing and encounters time-consuming problems that delay the product's launch. Thus the penny-wise and dollar-foolish refusal to engage manufacturing with development sooner often results in missed revenue, regulatory issues, and nagging production problems that continue to crop up and incur otherwise avoidable costs. In fact, a number of companies that have learned this lesson the hard way are now applying the tools of process understanding much earlier in development to ensure efficient manufacturability later.

	The following three elements help achieve this all-important process understanding:

		Using quality-by-design (QbD) techniques and identifying critical process parameters (CPPs), which are those process parameters that must be maintained within critical limits to achieve the desired quality outcome.

		Identifying drivers of variation and of interactions in critical processes

		Understanding the right process-control strategies.

	QbD establishes a product's design space, which comprises the multivariate relationships that encompass combinations of product design, manufacturing-process design, manufacturing-process parameters, and raw-material quality that ensure suitable quality and performance. By establishing design space in the initial development of a product, the organization gets a head start toward successful transfer to manufacturing. CPPs will have been identified, as well as the drivers of variation and interactions in critical processes. The organization will know how the process will behave under various multivariate conditions, such as are likely to occur at commercial scale.

	The goal for products that weren't developed through QbD and are being transferred from one site to another is, in effect, to achieve a similar level of process understanding retroactively. For example, a product may have been put into production at the initial site without sufficient process characterization before validation, and some of the CPPs might not have been identified. To fill in those blanks, it is advisable to begin by developing qualitative process understanding through focus-group interviews, process maps, and document review. It is also necessary to conduct basic quantitative characterization of the process, using statistical tools such as control charts and CpKs (a statistical measurement of process capability) to provide a quantitative assessment of whether a process parameter is capable of meeting its specification limits. Advanced statistical tools, such as regression analysis and design of experiments (DoE) can help establish the causal relationships and understand interactions between a finished product's release parameters and other in-process parameters and raw-material characteristics.

	The level of process understanding necessary for successful transfer has been achieved when the impact of changes in critical process inputs can be predicted. Process-control problems that might occur in scale-up or site-to-site transfer can thereby be anticipated and preempted. Furthermore, process understanding means that all critical sources of potential variability (and interactions) have been identified and explained, and product specifications are based on understanding of sources of variation and process capability. With this understanding, it is possible to make sure that the transferred process will operate at the center of the multivariate relationships-the operating sweet spot where process predictability and robustness are found.

	Process robustness is a critical success factor for right-first-time transfers that minimize impact on the supply chain. Benefits of these on-time, on-budget transfers include the following items:

		High-quality products with few to no defects, loss, or rework

		Reduced operational and compliance risk

		Higher product development-to-launch success rates

	Together, a carefully constructed technology-transfer framework and greater process understanding will not only help an organization achieve these benefits, but also make sure that it can be done time and time again.

* is a principal and pharmaceutical sector head, and 

is a managing consultant and project manager, both at Tunnell Consulting, 900 East Eighth Avenue, Suite 106, King of Prussia, PA 19406, tel. 610.337.0820, schmidt@tunnellconsulting.com.

	*To whom all correspondence should be addressed.

Articles

The authors highlight the need for a technology-transfer process that is efficient, cost-effective, and repeatable, stressing the importance of process understanding. Read this and other preferred organization articles in this special issue.

Keys to Executing a Successful Technology Transfer

Emerging markets are an important source of strategic growth for pharmaceutical companies. As companies expand, they must consider not only how to position themselves in specific product markets, but also how they should align their sourcing, procurement, purchasing, and related supply-management groups. Recent activity from the pharmaceutical majors shows the greater importance and their positioning in emerging markets. Also, a pharmaceutical benchmarking analysis reveals the growing role of supply-management organizations in emerging markets, and another survey shows the rising role of China and India in overall economic innovation.  

The pharmaceutical industry's focus on emerging market stems from strong growth projections, which outpace overall pharmaceutical industry growth. In 2011, the value of the global pharmaceutical market is expected to grow 5–7% to $880 billion, according to October 2010 estimates by IMS Health, improving from 2010 industry growth of 4-5%. Seventeen so-called pharmerging countries, as defined by IMS, are forecast to grow at a 15–17% rate in 2011, to $170–180 billion. China's pharmaceutical market, which is predicted to grow 25–27% to more than $50 billion in 2011, is currently the world's third-largest pharmaceutical market.  

Other market estimates are equally bullish. The overall market for therapeutic drugs in emerging markets in 2009 was $131.4 billion and $145.8 billion in 2010, according to a January 2011 analysis by the market research firm BCC Research. The countries and regions included in this analysis are Latin America, China, Eastern Europe, the Middle East, South Korea, India, Russia, and South Africa. These markets are expected to collectively increase at a compound annual growth rate (CAGR) of 8% between 2010 and 2015 to reach $214.2 billion. The Eastern European market was estimated at $32.2 billion in 2010, an increase of 13.4% from 2009. CAGR of 13.4% is estimated through 2015, when the market is expected to reach $55 billion. Russia's pharmaceutical market was estimated at $6.5 billion in 2009 and $7.4 billion in 2010. CAGR of 7.1% is estimated through 2015, when the market is expected to reach $10.5 billion. 

Lured by the potential and the need to strengthen their positions in emerging markets, the pharmaceutical majors are investing in development and manufacturing in emerging markets through several strategies. In some instance, they are making greenfield investments, and in other instances, they are partnering with domestically domiciled firms to access local markets, particularly for established products. A review of recent activity reflects those trends.  

For example, in November 2010, Novartis signed a memorandum of understanding with the city of St. Petersburg, Russia, confirming its intent to build a new full-scale pharmaceutical manufacturing plant there. The investment is part of an overall $500-million commitment in local infrastructure and collaborative healthcare initiatives in Russia planned by Novartis for a five-year period. Once completed and approved for commercial production, the facility will produce both branded generic drugs and pharmaceuticals. Construction is scheduled to start in 2011, and the plant is expected to produce approximately 1.5 billion units per year. 

In parallel with establishing a manufacturing facility in Russia, Novartis said it plans to continue to expand its investment in research and development (R&D) and public healthcare collaborations with the Russian government. These activities include collaborations with universities and emerging Russian private businesses in various areas of medical science. These collaborations may include out-licensing of Novartis compounds to Russian companies, in-licensing and scouting for promising drug candidates from Russian scientists and universities, and modeling and simulation activities for clinical trials. Additionally, Novartis plans to double its investments in drug development in clinical trials in Russia and expects to enroll approximately 4000 individuals by 2013. 

Novartis also is positioning innovator drug products in emerging markets. In September 2010, Novartis announced that the Russian health authority, the Federal Service on Surveillance in Healthcare and Social Development, granted approval for the company's Gilenya (fingolimod) 0.5 mg once-daily oral therapy for the treatment of relapsing remitting multiple sclerosis. Russia was the first country to approve Gilenya. Novartis expects to launch Gilenya in Russia in early 2011. In September, Novartis reported that Rasilez (aliskiren), a renin inhibitor, received regulatory approval in China for the treatment of high blood pressure alone or in combination with other high blood pressure medicines. Rasilez/Tekturna is approved in over 80 countries and was approved in the United States in March 2007, in the European Union in August 2007 under the trade name Rasilez, and in July 2009 in Japan.  

Novartis has stated its interest in expanding in emerging markets. In a November 12, 2010, press statement, the company said it "plans to strengthen its commercial position in fast-growing emerging markets and develop significant businesses in China, Russia, Brazil, and India." As part of that strategy,  Novartis announced several investments in those markets during the past several years. The company is investing $500 million in a new vaccine-manufacturing facility in Goiana, Brazil, which is scheduled to be operational by the end of 2014. The company opened a new technical R&D and active pharmaceutical ingredient (API)  manufacturing facility in Changshu, China to support the production of Tekturan/Rasilez, which included a $56-million investment in 2009 as part of a $265-million investment in that facility. In November 2009, Novartis announced it is investing $1 billion during the next five years to expand its research center in Shanghai, making it the company's third-largest research institute in the world. The company also acquired an 85% stake in the Chinese vaccine company Zhejiang Tianyuan Bio-Pharmaceutical (1). 

sanofi aventis also is positioning in emerging markets. In November 2009, the company signed a memorandum of understanding with Prominvest, a fully owned subsidiary of the Russian State Corporation Rostekhnologii, confirming its intent to participate in the Pharmpolis Project. The project is part of an overall effort by the Russian government to localize innovator-drug manufacturers in Russia and foster the expansion of the country's pharmaceutical market. sanofi-aventis will use its insulin-manufacturing facility in Russia as part of a pilot initiative in the Pharmpolis Project. Other investments in 2009 include the acquisition of the Hyderabad, India-based vaccine producer Shantha Biotechnics; expansion of prefilled injection production lines for its insulin product Lantus SoloStar in China; expansion of vaccine production in Shenzen, China; and an expansion and relocation of facilities in Hangzhou, China. The company also invested EUR 100 million ($137 million) for an influenza vaccine-manufacturing facility in Mexico (1). Also, sanofi-aventis (Paris) enhanced its generic-drug portfolio and position in emerging markets during the last several years with several acquisitions of generic-drug companies: Zentiva (Czech Republic), Kendrick (Mexico), and Medley (Brazil).  

In 2010, Abbott acquired the Piramal Healthcare Solutions' business (domestic formulations) for $3.72 billion. The deal consisted of an upfront payment of $2.12 billion and annual payments of $400 million during four years beginning in 2011. At the time of the announced acquisition in May 2010, emerging markets accounted for approximately 20% of Abbott's pharmaceutical sales, according to the company. Abbott estimates the combined entity of Abbott and the Piramal business has a market share in India of approximately 7%. Abbott estimates the growth of its Indian pharmaceutical business with Piramal will approach 20% annually and expects it to reach sales of more than $2.5 billion by 2020. Abbott estimates the current Indian pharmaceutical market at $8 billion and expects it to more than double by 2015.  

The move followed recent deals by Abbott to increase its presence in emerging markets. In 2010, the company signed a licensing and supply agreement with the pharmaceutical company Zydus Cadila (Ahmedabad, Gujarat, India) for a portfolio of pharmaceutical products that Abbott will commercialize in 15 emerging markets. Under the agreement, Abbott gained the rights to at least 24 Zydus products and has an option for an additional 40 products. Abbott anticipates that the agreement will produce the first product launches in 2012 Abbott also formed a stand-alone established products division that is focused on expanding Abbott's sales outside the United States. 

In November 2010, GlaxoSmithKline (GSK) formed an alliance with the Russian vaccine maker JSC Binnopharm to enable local secondary manufacture of several GSK vaccines in Russia. Under the alliance, GSK will supply bulk vaccine and provide technology and expertise to enable Binnopharm to undertake the secondary manufacturing, including filling and packaging, under GMP standards. Binnopharm is responsible for gaining approval of their facilities to allow supply of GSK's cervical cancer, rotavirus, and pneumococcal vaccines under Binnopharm's trademark for the Russian market.  

In 2009, GSK partnered with India's Dr. Reddy Laboratories under which Dr. Reddy manufactures and supplies drugs to GSK, which licenses and comarkets the drugs in various countries in Africa, the Middle East, Asia-Pacific, and Latin America. In December 2009, GSK extended its strategic relationship and acquired a 19% stake in the South African pharmaceutical company Aspen PharmaCare to serve emerging markets. 

Pfizer also has been building its position in emerging markets, particularly in established products. In 2010, Pfizer formed a strategic global agreement for the worldwide commercialization of biosimilar insulin products with Bangalore, India-based Biocon. The agreement involves Biocon's biosimilar versions of insulin and insulin analog products: recombinant human insulin, glargine, aspart, and lispro. Pfizer has exclusive rights to commercialize these products globally, with certain exceptions, including coexclusive rights for all of the products with Biocon in Germany, India, and Malaysia. Pfizer also has co-exclusive rights with existing Biocon licensees with respect to some of the products, primarily in several developing markets. Biocon will remain responsible for the clinical development, manufacture, and supply of these biosimilar insulin products and is also responsible for regulatory activities to secure approval for these products in various geographies.  

Pfizer's deal with Biocon followed other agreements with domestic India pharmaceutical companies and suppliers. In 2010, Pfizer formed a collaboration with India's Strides Arcolab under which Pfizer commercializes off-patent sterile injectable and oral products in the US. The finished dosage-form products are licensed and supplied by Strides, Onco Laboratories, and Onco Therapies, two joint ventures between Strides and Aspen PharmaCare. And in 2009, Pfizer partnered with two Indian pharmaceutical manufacturers: Aurobindo Pharma and Claris Lifesciences. Under the deal with Aurobindo, Pfizer acquired the rights to 55 solid oral-dose products and five sterile injectables in 70 emerging markets. Pfizer also acquired the rights to 15 generic injectables from Claris Lifesciences. 

Pfizer also is partnering with suppliers in Latin America. In 2010, Pfizer acquired a 40% stake in Laboratorio Teuto Brasileiro, a Brazilian generic-drug company. Pfizer has an option to acquire the remaining 60% of Teuto's shares beginning in 2014, and Teuto's shareholders have an option to sell their 60% stake to Pfizer beginning in 2015. Pfizer also has the opportunity to register and commercialize Teuto products in Brazil and various markets outside of the country under its own brands, including branded and unbranded generic medicine.  

Other companies also are positioning in emerging markets. In March 2010, AstraZeneca signed a license and supply agreement with the Indian drug company and manufacturer Torrent Pharmaceuticals, under which Torrent supplies to AstraZeneca a portfolio of generic medicines for emerging markets. Torrent has two large manufacturing plants. in India. At Chhatral, the company has capacity to manufacture approximately 3000 million tablets, capsules and vials, and 20,000 kilograms of API. The manufacturing plant at Baddi has a capacity to manufacture 3600 million tablets, 150 million capsules, 10 million oral liquid bottles, and 12 million sachets per annum. The capacities are as reported by AstraZeneca in a March 11, 2010, press release. Torrent's R&D Center in Gujarat has a team of over 600 scientists who provide dedicated services in the areas of discovery research, generic-drug development, and new drug delivery systems/value-added generics, according to the press release.  

The increased interest in emerging markets also is reflected in companies' need to expand their supply organizations in those markets. CAPS Research, a joint research initiative between the Institute for Supply Management and the W.P. Carey School of Business at Arizona State University, recently conducted a benchmarking study to evaluate supply management and supply-management organizations in emerging markets among pharmaceutical companies. For purposes of the survey, supply management includes sourcing, procurement, purchasing, and other functions assigned to the organization's supply-management group. The study is part of the 2010 CAPS Research Pharmaceutical Industry Supply Management Performance Benchmarking survey, which examined topics selected by a group of pharmaceutical industry supply-management executives. The survey on emerging markets was conducted in July 2010, and the results were released in August 2010. 

The survey found that almost half (45%) of the respondents have supply-management organizations physically located in emerging markets. Of those companies with supply-management organizations in emerging markets, all of them (100%) had organizations physically located in Asia (less China), Brazil, China, Eastern Europe, and India. Eighty percent of the respondents had supply-management organizations each in Mexico, the Middle East/Turkey, and Russia. Twenty percent had supply-management organizations in other regions, which include Africa or Southeast Asia. 

The survey examined the degree to which companies had supply-management full-time equivalents (FTEs) physically located in emerging markets. For those companies with supply-management organizations physically located in emerging markets, 80% each had supply-management FTEs physically located in Asia (less China), Mexico, the Middle East, and Russia and 100% had supply-management FTEs locate each in Brazil, China, Eastern Europe, and India. Twenty percent had FTEs in Africa. 

The survey also examined the level of change given to supply-management leadership in select emerging markets to source and procure goods and services locally or regionally during the past year. The survey ranked the level of change on a scale of 1 to 7, where 1 represented no change, and 7 represented significant change. The level of change was moderate, ranging from a value of 3.20 in India to a value of 4.80 in China. The results were as follows: Asia (less China), 3.80; Brazil, 3.80; China, 4.80; Eastern Europe, 3.6; India, 3.20; Mexico, 3.25; Middle East/Turkey, 3.20; and Russia, 4.00.  

The survey also examined to what degree pharmaceutical companies except supply-management growth in emerging markets during the next three years. The survey found that 80% of respondents plan to increase their supply-management organizations in emerging markets during the next three years. A majority of respondents (60%) anticipate this growth being 10% or less. Twenty percent anticipate growth of 11 to 20%, and 20% anticipate higher growth of 21–30%.  

Emerging markets, particularly China and India, are expected to raise their position in overall economic innovation. According to the results of a survey of 6000 respondents in six countries conducted by AstraZeneca and released in December 2010, China is expected to become the world's powerhouse of innovation over the next decade, eclipsing the United States and Japan. The survey showed that China will be the most inventive country by 2020, followed by India. The US and Japan will be relegated from first and second place to third and fourth, respectively. Thirty percent of survey respondents currently ranked the US most innovative, followed by Japan (25%) and China (14%). However, when asked which country will be the most innovative by 2020, China which was projected by 27% of survey respondents to overtake the US as the most innovative economy. India was ranked second, (17%), followed by the US (14%), and Japan (12%). More than half of those surveyed in China and India thought their home countries would be the most innovative in the world by 2020 (57% and 56%, respectively). Americans were also optimistic with 28%, believing their country would hold this position. 

Given the market potential of emerging markets, combined with slowing pharmaceutical industry growth in established markets in the US and Western Europe, emerging markets will continue to be an important cog in the growth strategies of the pharmaceutical majors. These strategies entail investing in internal development and manufacturing,  partnering with domestic companies, and building supply-management organizations in emerging markets. 

The article examines pharmaceutical market growth, company positioning, and the innovation potential in emerging markets. Read this and other preferred organization articles in this special issue.

Evaluating the Supply Chain in Emerging Markets

acknowledges the growing emphasis throughout the pharmaceutical outsourcing arena on being a strategic, or preferred, provider. We gathered input from leading contract-service providers to understand the drivers behind this trend and how it's affecting outsourcing. Participants include: David DeCuir, director of fine chemistry R&D at Albemarle; Brik Eyre, general manager of Baxter's BioPharma Solutions business; Paul Josephs, vice-president of sales and marketing at DPT; Hans Engels, president of DSM Pharmaceuticals; Michael J. Kosko, president of Pfizer CentreSource (PCS); R. Ananthanarayanan, president of Pharmaceutical Services and Active Ingredients (PSAI) at Dr. Reddy's; Mark Cassidy, vice-president of SAFC Contract Manufacturing Services; and Peter Soelkner, managing director of Vetter Pharma International GmbH.  

There seems to be an overall trend in recent years by pharmaceutical companies to consolidate their supplier base (i.e., to work with fewer and more strategic suppliers). Have you observed this trend, and if so, what factors are driving the change? Are large pharmaceutical companies primarily pursuing this business model or is it prevalent among smaller drug companies as well? 

Yes, we have observed this trend, or at least have heard major pharma companies talk about this. I believe it has to do with difficulty of cultivating working relationships with multiple suppliers. In addition, there is always a learning curve when working with new suppliers and some pharma companies are on a very tight production schedule. We see it mostly from larger pharma, although many smaller companies continue to work with just a few suppliers because occasionally, they lack the staffing to find and develop new suppliers and may be unwilling to devote extra resources if their needs are being met.  

David DeCuir, director of fine chemistry R&D at Albemarle 

We're in the midst of a great deal of change in the global economy. Pharmaceutical companies are assessing the effectiveness of their strategies with limited resources, while still achieving the commercialization objectives for their pipeline.  Regardless of the company size, use of external resources has long been embraced as an effective strategy to gain efficiency and flexibility, but we have seen a shift from the utilization of service providers to the integration of service providers. In the past, utilization of external vendors was driven by the perception that service providers were essentially interchangeable. This perception is why so many pharmaceutical companies maintained ties with a large number of service providers for long periods of time. Coupling the economic crisis with the increased scrutiny on oversight of partners, managing multiple suppliers proves to be a costly and complex task that is no longer viable. Therefore, the adoption of supplier management standards and increased need of a broader set of services from a consolidated set of strategic partners is occurring.  

Brik Eyre, general manager of Baxter's BioPharma Solutions business 

Within the sterile drug-manufacturing marketplace, in particular, manufacturing is capital intensive.  As a result, many companies have chosen to access this competency by partnering with a supplier that has a demonstrated track record within the specialized manufacturing process to avoid investments in this aspect of commercialization. This is especially true of certain types of molecules, such as cytotoxics or highly potent compounds, which have considerable containment and safety standards. In addition, by selectively partnering with a supplier with a broad portfolio of solutions, companies gain access to a range of options across a product's life cycle.  

In our experience, there continues to be an understanding that external partnerships provide the most value when objectives are clearly understood and aligned. This allows the service provider to elucidate the objectives of the partner and provide tailored and applicable solutions. This mindset dictates a closer working relationship so that the most value is provided to each party. Because of this increased commitment, the logical extension of this philosophy has been a reduction in the number of relationships maintained among pharmaceutical companies and their partners.   

We have observed the trend of pharmaceutical companies consolidating their supplier base, primarily due to mergers among major pharmaceutical companies. In many cases, the mergers led to an initial growth of the supplier base. Since that situation is unsustainable, there is a conscious effort to reduce the supplier base down to a manageable level and use preferred suppliers. Increased pressure in the industry to reduce costs and lower overhead has also factored into consolidation.  

Paul Josephs, vice-president of sales and marketing at DPT 

Although the true preferred-provider relationship concept has been talked about for several years, it's really taken off in the past one to two years. I would say large pharmaceutical companies are driving the trend because they have more products to leverage. Smaller companies are more concerned with finding an expert with regard to a certain technology.  

Consolidation of vendors is a definite Big Pharma trend and the reasons behind it are the drive for efficiency and more leverage for the big pharmaceutical firms to get things done in a way that they desire (e.g., approach to quality and compliance and additional cost leverage). The typical approach is to reduce the number of suppliers by 50% or more. An unsolved challenge of this consolidation goal as a result of mergers and acquisitions is how to handle new products with an established manufacturing base.  

Hans Engels, president of DSM Pharmaceuticals 

Pfizer CentreSource has seen a strong trend during the past few years toward pharmaceutical companies reducing their number of vendors, and our business development colleagues have seen this trend apply to both large and small pharmaceutical companies with locations in the US, Europe, and Asia. One factor driving the approach is industry consolidation. Acquisitions have brought together companies with different sourcing philosophies and supply chains. Efficiently managing these merged organizations going forward requires that this issue be addressed. Additional drivers for vendor consolidation include the pursuit of improved performance in the areas of supply, quality, and service as well as cost.  

Michael J. Kosko, president of Pfizer CentreSource (PCS) 

We have observed a strong trend, particularly among mid- to large-sized pharmaceutical companies to consolidate their supplier base and to work with more strategic suppliers. From our interaction with customers and with the industry, one of the significant reasons for the consolidation is to incorporate an outsourcing strategy that creates a more intimate relationship with the supplier. This allows the pharmaceutical company to understand the suppliers' operations in a more detailed way, influence how the operations are being run, and enhance cost effectiveness along the way.  Other organizations that are less strategic in their outsourcing efforts are reducing the number of suppliers that they work with as a mean of controlling their own internal resources, such as staff to manage suppliers and tighter control of their spend. While this is not a new concept, over the past couple of years, the effectiveness of the pharma organizations to execute against this kind of strategy has evolved.  

R. Ananthanarayanan, president of Pharmaceutical Services and Active Ingredients (PSAI) at Dr. Reddy's Laboratories 

In recent years, SAFC has definitely observed a trend for medium and large pharmaceutical companies to consolidate their supplier base and move toward identifying and selecting strategic vendors. There are certainly cost savings in managing and working with fewer suppliers. Also, the trend for many companies is to take more of a partnership approach with suppliers, as opposed to basic outsourcing of activities. To achieve better results and efficiencies, selecting vendors that will fit into the strategic partnership model is an important factor in the overall program. For example, when outsourcing GMP active pharmaceutical ingredient manufacturing, it becomes much more efficient to have two or three strategic contract manufacturing organizations (CMOs) already identified, with master service agreements, clearer expectations, communication standards, and relationships in place to complete the work more quickly and efficiently.  

Mark Cassidy, vice-president of SAFC Contract Manufacturing Services 

We have noticed that strategic partnerships have become even more important for pharmaceutical and biotech companies. They are increasingly interested in working with partners in long-term and strategic projects and have begun setting up programs to assess and choose preferred suppliers. In the process, manufacturers are continuously screening suppliers, creating databases, and using electronic bidding with the goal of creating a base of two or three qualified service providers. They also evaluate existing suppliers with scorecards and key performance indicators, such as adherence to cycle time, supply-plan adherence, or compliant-closure adherence.  

Peter Soelkner, managing director of Vetter Pharma International GmbH 

Several factors have led to this development. First, a number of product patents will be expiring in the coming years. This is exacerbated by the fact that the pipelines of many companies are simply unable to compensate for this loss. They are trying to find a solution by acquiring or merging with other companies. Competitive pressure is increasing as well, leading many companies to look for growth in the emerging pharmaceutical markets. For the established markets of the US, Europe, and Japan, growth is expected to continue. Therefore, to take advantage of opportunities and savings potential, manufacturers are banking on preferred suppliers. Even the smaller biotech firms and start-ups are increasingly recognizing the advantages of strategic partnerships. For them, what's more important are CMOs that are able to support them in the development of new products. This level of cooperation and partnering allows a more seamless transfer to commercial manufacturing after products have passed clinical studies.  

Preferred provider–sponsor company relationships 

From a contract-service provider perspective, how has supplier consolidation affected the pharmaceutical contract environment, including the expectations and nature of the outsourced relationship? When a contract service provider becomes a so-called preferred provider, how might its relationship with the sponsor change?  

In this case, the service supplier has more opportunities, but occasionally this means that the sponsor's need is outside the supplier's core expertise. Frequent communication is key and must be combined with a positive working relationship, including among technical staff. It is important to stay abreast of future trends and products. Having a larger presence with a customer, however, can be a double-edged sword.  On the one hand, your customer becomes more valuable to you, but on the other hand, your importance to the customer increases and that changes the balance of power somewhat in your favor.  

A strategic relationship requires an increased level of commitment from both parties. In our view, this needs to be considered as an investment by both parties with the goal of establishing a relationship that provides both organizations with additional value. These types of relationships are not simple and require a high degree of experience and knowledge, as well as clear communication practices to ensure proper alignment of goals.  

What hasn't changed despite the trend is the fact that pharmaceutical companies still have clear commercialization objectives and are focused on results. Therefore, delivering on commitments—whether development milestones or commercial-scale manufacturing targets—is crucial for creating mutual reliability in such a collaborative relationship. We see pharmaceutical companies seeking more assurance that their projects will be managed diligently, and service providers providing support to maintain budgets, timelines, and quality. As the partnership evolves, it becomes increasingly synergistic and both parties realize increased benefits by periodically revisiting alignment of strategies and goals.   

For the preferred-provider model to be successful, increased attention must be paid to metrics. New metrics may be needed to assess the effectiveness of the partnership and provide data that can be used to drive mutual continuous improvement.  

The practice has provided significant opportunity for a contract provider like DPT. The preferred-provider environment forces both the contract provider and the client to look at the relationship in a different paradigm. You go from looking tactically at one or two different opportunities, where you manage them in a specific way, to managing a relationship or partnership on a strategic level. There is more transparency on both sides with regards to future volumes and commitments. On the provider side, there's more transparency and commitment with regard to capacity, resources, and so forth. 

In addition, a preferred provider tends to complement the customer rather than being a general supplier. This level of integration drives inefficiencies out of the system. Where it was once a transactional, buy–sell relationship, it becomes an integrated relationship with access and visibility in the customer supply chain.... For example, with an integrated supply chain, we have access and visibility into our customer's network and are working as a complement to our customer. From a development perspective, we also have dedicated resources proactively working on development projects for our customers, so we are not working on an opportunity-by-opportunity basis but actually have staff working on multiple projects for our partners. 

One major impact on the industry from supplier consolidation is a more aggressive pricing structure. The governance structure between suppliers and sponsors also becomes more sophisticated (e.g., annual relationship, trend assessment meetings) and supply-chain planning becomes more integrated.  

When a supplier enters into a preferred-provider partnership, it is crucial that each party have a clear understanding of the arrangement. In our experience, having agreed-upon metrics to evaluate performance is key. In addition to developing metrics (e.g., delivery performance), the performance evaluation should contain a dialogue on the customer pipeline that addresses how both companies can increase the span of their relationship with new opportunities. In our more developed partnerships, for example, PCS regularly schedules sessions involving key executive leadership from both organizations.   

In our experience, once a service provider has been invited into the fold of strategic suppliers, the relationship evolves rapidly. Access to senior management on both sides is much more evident, and the information flow between the parties is more free-flowing. This information goes beyond the technology needs, and by revealing more sensitive information, parties can align to ensure success on both sides. The desire for both parties to succeed tends to have a far greater priority than what we normally observe in a more tactical relationship. More objectives are set between the parties to define what success means as well. Even the language we use and the titles we assign to each other are different. For the very tactical projects, we could be referred to as a "vendor." For something bigger we are usually a "supplier." When we get involved on a strategic level, we become "outsourcing partners." Language says a lot in our experience. If you are being called a supplier, you probably are one.  

The expectations are high regardless of whether a strategic relationship is in place. However, most service providers desire a more strategic relationship with their key customers and an expectation that comes along with these relationships includes longer range planning, more transparent communication, preferred capacity utilization, and well-defined plans for escalating issues that affect product quality or team cohesion.  

What does it take to be a preferred provider? What would you identify as the critical success factors?  

First, and foremost, one must have a positive track record with the customer. Then, the contract-service provider must be able to provide a variety of technology options. It may difficult for niche technology players to become key suppliers.  

A contract service provider has to demonstrate a proven track record in three key areas: delivery (i.e., the expertise and ability to deliver on commitments); service (i.e., a robust customer-centric philosophy and committed, engaged project teams); and integrity (i.e., a culture of "doing the right thing" that fosters confidence in the partnership). Trust and reliability are the foundation of any partnership. And in the most effective partnerships, each party contributes unique services, expertise and technology.  

Within Baxter's BioPharma Solutions business, we have a systematic approach to partnerships that starts from project initiation through the mature phase of a project through conclusion. All aspects require diligent alignment of expectations and monitoring of critical success factors. We have increased our investment in customer-service training and certification programs for our project managers, built communication-sharing tools, and developed improved metrics-tracking programs to better enable our teams to meet the needs of our clients and produce optimal results. 

Transparency is critical, as is trust. And, goals that are mutually beneficial are vital because there has to be incentive for both the sponsor and the contract provider. When I talk about transparency, I mean transparency not only through today but three years down the line.  

Critical and fundamental success factors in today's environment are financial stability, a solid quality track record, and proof of capability. A customer is not going to take a risk in this environment with somebody who doesn't have a quality track record. That's your ticket into the game. Proof of capability comes from your ability to execute.  

At DPT, we have implemented these things with all of our partners so that there is an ongoing scorecard. We are measuring month by month, quarter by quarter, so we are on track, and if we are not on track, we identify how we are going to get back on track. 

Good reputation (primarily through common history), flexibility (i.e., delivery of products and services, contract design, and pricing), and sound financial sustainability. 

Critical success factors required to take a vendor from a status of "supplier" to "partner" include supply assurance, regulatory compliance, product quality, service, and cost. A supplier's ability to innovate will also set it apart from the competition. A strong focus on relationship development is essential to building strong, enduring and collaborative relationships. Expanding the relationship to include marketing, technical service, regulatory affairs, finance, customer service, and leadership can deepen the partnership and promote ongoing collaboration.  

Attaining a preferred-supplier status usually involves a fairly significant journey over a period of time. Typically, there are a series of information exchanges that occur in the beginning to ensure that the two parties are compatible with respect to service offerings and strategic needs.  Once the determination is made that the two organizations are indeed compatible, then function-to-function and person-to-person relationships are evaluated. Both parties need to know that they are able to not just meet each others' needs, but are able to work together harmoniously. Mutual respect must be achieved or the trust needed to evolve a strategic relationship will never come to fruition. Trust must be earned through proven execution. Most often, smaller projects are awarded to the supplier to test performance, and if successful, more projects to prove performance are awarded. Typically, it is when a dependable track record established, that a discussion about being a preferred supplier occurs.  

Critical factors would include having the appropriate capabilities to match the sponsor's needs; trust and communication; excellent service, quality, compliance, and safety record; experience and/or expertise in the specified service area; an understanding of the sponsors' expectations; excellent project management and competitive pricing 

The demands made on CMO partners are clear: quality, reliability, flexibility, and punctuality are among others the most important factors necessary to achieve a successful partnership. At Vetter, for example, we invest in high-quality materials and aim to achieve the highest possible safety and cGMP standards. We implement a highly structured project-management approach. This, combined with ongoing direct communication, serves to reinforce mutual trust. 

Most important, a CMO has to know and understand the needs of its clients, and meet them accordingly. For Vetter, it is important to know what a client needs today, but it is also crucial for us to understand what support they will need in the future.  

A contract-service provider roundtable, featuring Albemarle, Baxter, DPT, Pfizer CentreSource, Dr. Reddy's, SAFC, and Vetter. Read this and other preferred organization articles in this special issue.

Strategies for Becoming a Preferred Provider

The simplest definition of a "preferred provider" is a vendor that has achieved priority status in the award of contracts by a bio/pharmaceutical company. Beyond the simple definition, however, the designation as a preferred provider can confer a broad range of roles and opportunities, depending on how the practice is implemented by the designating company. The practice extends well beyond contract services to many of the items that bio/pharmaceutical companies purchase, such as laboratory consumables and office supplies. Further, how preferred-provider status is achieved varies from company to company. Global bio/pharmaceutical companies usually have a formal and rigorous process for conferring preferred status on a vendor. At small and mid-size bio/pharmaceutical companies, preferred providers are not usually designated in a formal process, but earn that status in the minds of decision-makers based on their performance in a series of increasingly complex assignments. 

The preferred-provider model has evolved in response to the growing complexity of outsourced drug-development programs, especially in clinical research. In the early days of contract research, when outsourcing was primarily a tactic to supplement in-house resources, it was typical for the bio/pharmaceutical companies to contract separately for each and every clinical study that was outsourced. In fact, it was quite common to contract the separate elements of a trial (e.g., data management, site monitoring, medical writing) to different contract research organizations (CROs). This practice resulted in outsourcing programs that were complex and costly to administer, and gave CROs the upper hand in pricing.  

The first efforts at establishing preferred-provider relationships were aimed at reducing that complexity and giving bio/pharmaceutical companies more pricing leverage. Sourcing managers realized that by prequalifying a small number of vendors and negotiating price schedules with them, they could reduce the administrative burden in setting up and managing CRO relationships, while at the same time establishing more favorable pricing. In return for their participation, the CROs were led to believe they would gain a greater share of the available business. 

Unfortunately, these early efforts at preferred-provider relationships delivered fewer benefits than expected for both bio/pharmaceutical companies and CROs. The problem was that these early arrangements lacked "teeth" (i.e., study directors were often not required to use a designated preferred provider when sourcing a study). As a result, the bio/pharmaceutical company didn't get the savings it expected and the CROs didn't get the incremental business they thought they would receive in exchange for better pricing. Not surprisingly, CROs became skeptical that efforts to gain preferred-provider status were worthwhile. 

In recent years, the crusade launched by bio/pharmaceutical companies to rein in costs has finally made the preferred-provider designation meaningful. In most global bio/pharmaceutical companies today, just two or three preferred providers are getting as much as 80% of the available contract clinical-research work, with most of the remaining opportunities going to CROs with specialty capabilities. 

The nature of the opportunities being offered to preferred providers is changing as well. Rather than contracting work on a project-by-project basis, more global bio/pharmaceutical companies are following the "functional service provider" model, in which CROs are being handed responsibilities for a specific activity across a broad range of trials. For instance, Lilly, which has wholeheartedly endorsed the functional service provider model, has given responsibility for specific services in specific geographic areas to its preferred providers (see Table I).  

Table I:  Lilly's strategic sourcing relationships. 

With the enforcement of the preferred-provider designation, global bio/pharmaceutical companies expect to reap several benefits. 

Most bio/pharmaceutical companies expect CROs to offer lower pricing for services in exchange for the preferred-provider designation. This expectation is based on the assumption that the CRO will have a more certain revenue stream with substantially less sales expense as a result of the preferred-provider designation. They also assume that the costs of maintaining the relationship will be less as the companies will be working together more closely and over a longer period of time. 

At many bio/pharmaceutical companies, the pricing benefit is furthered by running a competitive auction process, with participation limited to the preferred providers. This is especially true among mid-size companies, where the volume of activity may not lend itself to the functional service provider model, and for development-scale API and dose projects. 

Bio/pharmaceutical companies conduct a prequalification process before designating preferred providers, and generally designate CROs with which they have extensive previous experience. As a result, they are realizing savings from not having to vet vendor qualifications every time a new study needs to be contracted. Further, by concentrating the business in a few CROs, they are saving ongoing costs arising from vendor audits, contract negotiation (preferred providers work under a master agreement that dictates the business and quality terms governing the relationship), and contract management. 

The designation of preferred providers enables bio/pharmaceutical companies to shorten the time required to award a contract by eliminating the bidder-qualification process for each project and limiting bidding to a smaller number of participants. The functional service provider model shortens the timeframe even more by eliminating the contract-award process altogether. The time savings are especially valued in the current industry environment, where time and cost savings are highly valued. 

Because they make for closer and longer-term relationships, preferred-provider arrangements offer excellent opportunities for clients and CROs to work together to improve study designs and squeeze time and costs out of clinical-research activities. In fact, most bio/pharmaceutical companies expect CROs to seek out these process-improvement opportunities, and the ability to find them enables CROs to get back some of the profit margin they give up by charging lower prices in exchange for the preferred-provider designation. 

The embrace of the preferred-provider designation among global bio/pharmaceutical companies is driving major changes in the strategies of CROs and the structure of the CRO industry. Its impact is being felt in three key areas, as outlined  below. 

Broadening geographic scope and capabilities. 

As clinical trials have become more global, the ability of a CRO to manage trial activities in many countries at one time has become a key differentiator. This capacity has sparked a flood of new office and laboratory openings, and acquisitions of small regional CROs, all geared to filling gaps in CRO coverage. The principal focus of these activities has been in the emerging markets, including China, India, Eastern Europe, and Latin America.  

The ability to manage global networks, deliver on time, and reduce costs has put a premium on the operating skills and capabilities of the CROs. The global bio/pharmaceutical companies favor preferred-providers that have established a track record of reliable or exceptional performance over a period of years. Preferred-provider status is dependent on achieving objectives and is monitored using a broad range of metrics. As result, CROs continue to invest in information technology, operate Six Sigma and other continuous-performance methodologies, and recruit operating executives from companies like GE with strong reputations for operational excellence. 

The growth of preferred-provider programs is creating winners and losers in the CRO industry, and threatening the long-term prospects of many small and mid-size CROs. According to 

 estimates, the six largest CROs now account for 50% of total clinical CRO revenues, and the trend is toward greater consolidation. The largest CROs are winning because they have the broadest capabilities and geographic coverage, and are the most stable financially. Another group doing well is the small specialty CROs that offer special therapeutic or technical expertise. The biggest challenges are being faced by the mid-size CROs, which lack the broad scope of the biggest CROs and specialty capabilities of the niche CROs. 

While the preferred-provider model now dominates much of the clinical research outsourcing activity among the global bio/pharmaceutical companies, it has made much less progress in formulation, process development, and manufacturing. This reflects a variety of historical and technical characteristics of CMC activities.  

The historical factor in the lower penetration of the preferred-provider model in the CMC areas is that there is much less outsourcing experience there than in clinical research. While as much as 35–50% of clinical-research expenditures at global bio/pharmaceutical companies are outsourced today, outsourcing of CMC activities is probably less than 20%. Outsourcing of CMC activities has always lagged clinical research by at least five years. There are several reasons for that slower pace of outsourcing. 

For one, CMC development requires a broader range of scientific and technical competencies than clinical research. Whether it is API process development or dose formulation, the set of tools and technologies that are potentially needed is vast, and the cost of investing in necessary staff expertise and equipment is prohibitive. It is unlikely that any single contract-service provider will have the complete range of capabilities needed to serve the needs of a global bio/pharmaceutical company with a diversified pipeline. 

A second factor has been the fact that CMC is much more involved in creating, or at least working with, the intellectual property that bio/pharmaceutical companies are so keen to protect. Clients will often split up activities among multiple suppliers to avoid exposing the complete IP portfolio to any one vendor, and will keep critical activities in-house, e.g., final stage synthesis of small molecule APIs,  

A third factor has been the fact that CMC development usually involves research and development facilities and manufacturing sites in which bio/pharmaceutical companies have made heavy investment for equipment and infrastructure. Those facilities are expensive to operate, and there is strong incentive to keep them as fully utilized as possible. Companies are often more likely to move projects and products among captive facilities than they are to outsource them to a contract development manufacturing organization (CDMO) or contract manufacturing organization (CMO). 

Nevertheless, the outsourcing of CMC activities appears to be growing, particularly in areas requiring specialized expertise. For instance, most global bio/pharmaceutical companies outsource most of their clinical-packaging activities, which require specialized capabilities in package design and logistics, and where requirements tend to fluctuate widely through the year. Analytical chemistry is another area where there is considerable outsourcing, especially for specialized testing and stability storage. The preferred-provider model is well established in those service areas. 

As preferred-provider relationships evolve, they are moving in the direction of tighter cooperation between the bio/pharmaceutical company and the service provider across a broader array of responsibilities. For instance, deals announced by Covance (with Lilly and sanofi-aventis) and Aptuit (with GlaxoSmithKline) in recent years have involved taking on activities that span discovery, preclinical toxicology, CMC development, and clinical research (see Table II).  

Table II: Preferred-provider organization (PPO) agreements. 

Another step in this evolution is likely to involve service providers taking on an entire activity, effectively supplanting the bio/pharmaceutical company's in-house capabilities. Recent examples include Fisher Clinical's takeover of clinical-packaging operations at Lilly, and Lonza's takeover of the development, clinical and launch manufacture of Novartis's biologics pipeline.  

The power of the preferred-provider model ultimately lies in its demand that the bio/pharmaceutical company and service provider work together more closely, share information more readily, and ultimately share responsibility for outcomes. As the client and provider get more comfortable working together, the preferred-provider model will continue to play a crucial role in restructuring the bio/pharmaceutical business model. 

is president of PharmSource Information Services, Inc., and publisher of 

The designation of preferred partners has become integral to the outsourcing process. Read this and other preferred organization articles in this special issue.

The Preferred-Provider Model

Each year, the Avoca Group, a consulting firm focused on the pharmaceutical industry, surveys industry executives and managers from around the world to understand trends in the outsourcing of clinical research by pharmaceutical companies and other sponsors. In 2010, Avoca explored respondents' views of the future of outsourcing relationships, posing questions about how pressure to achieve increased quality and efficiency will affect outsourcing strategies, vendor-selection priorities, preferred-provider relationships, and the need for formal measurement and management of vendor performance and relationship quality. 

A clear theme in the results of the Avoca Group's 2009 industry survey was the need to achieve an enhanced level of efficiency in clinical outsourcing (1). More than 92% of each of sponsor and service provider respondents felt that the 2009 levels of efficiency in these relationships were not adequate to meet future needs. Avoca's data also suggest that sponsors are increasingly dissatisfied with the performance of their outsourcing relationships. Satisfaction with the performance of clinical service providers declined steadily from 71% in 2008 to 62% in 2010. In 2010, only 42% of sponsors were satisfied with the value they received for their outsourcing spend. Providers, too, have experienced declining satisfaction with their relationships with sponsors; 87% were satisfied in 2008, and only 74% were satisfied in 2010. 

Despite sponsors' declining satisfaction with providers, it is unlikely that the level of clinical research outsourcing will decrease in the near future. To the contrary, all indicators suggest that the level of outsourcing will remain stable or even increase (2). Suboptimal satisfaction with current outsourcing relationships, coupled with the need to continue or expand such relationships, is thus forcing sponsors and providers to devise innovative ways of working together that are more mutually satisfactory. 

This report will reveal the directions that sponsors and providers are taking in this endeavor, explore the obstacles to companies' successful implementation of new approaches, and investigate whether early adopters of current trends are indeed enjoying increased satisfaction with the quality and value of their clinical outsourcing relationships. 

Avoca created two unique survey instruments, one for pharmaceutical companies and other clinical-research sponsors, and a second for contract research organizations (CROs) and other providers of clinical research services. The survey instruments included yes–no questions, multiple-choice questions, and free-text response areas. Participants were offered an executive summary of the survey results for their participation in the survey. 

Avoca collected 109 sponsor surveys from 74 companies and 174 service-provider surveys from 88 companies during a two-month period. Seventy-two percent of sponsor respondents were employed by pharmaceutical companies, 22% by biotechnology companies, and 6% by other sponsor companies. Forty-eight percent reported that they were employed by top 20 companies in terms of revenue. Seventy percent of respondents were executive and middle-management personnel, and the remainder held project-management or other similar-level positions.  

Of the provider respondents surveyed, 71% were employed by full-service CROs, 11% by niche service providers, 9% by central laboratories, and the remainder by other types of providers. Fifty-nine percent reported that their companies were in the top 20 in their industry in terms of revenue. Seventy-nine percent of clinical service-provider respondents were executive or middle-management personnel, 15% were project managers, and the remainder held other roles. 

Planned changes to outsourcing practices. 

When asked about the changes their companies anticipated making during the next five years to address the need for increased outsourcing efficiency, sponsors' responses fell into a few major categories (see Figure 1). First, the majority intended to consolidate more outsourced work within preferred-provider relationships, and most of these respondents also planned to reduce the total number of suppliers they used. Second, most respondents planned to improve the ways that they measured, shared information about, and managed the performance of their providers and the quality of their outsourcing relationships. Third, most respondents planned to use improved criteria for provider selection. Finally, several respondents planned to change their outsourcing models or to incorporate more risk-sharing clauses into their future contracts.  

Figure 1: Sponsor companies described changes that they are making to improve the efficiency of their outsourcing relationships (74 companies reporting). (ALL FIGURES ARE COURTESY OF THE AUTHOR) 

Providers reported the intention to make changes of a similar nature (see Figure 2). As was the case for sponsors, the majority of respondents planned to strive for long-term relationships, with an increased focus on repeat customers and preferred-provider relationships. Also like sponsors, most providers planned to focus increasingly on relationship-management programs (including customer feedback programs and performance measurement), and improved models for sharing information about outsourcing relationships.  

Figure 2: Provider companies described changes that they are making to improve the efficiency of their work with sponsors (88 companies reporting). 

The following sections will describe the detailed data that were obtained about several of these major trends. 

Consolidation of outsourcing relationships.

 As described, the majority of sponsors intended to consolidate more outsourced work within preferred-provider relationships. At the time of the survey, 69% of the sponsor companies represented reported having preferred-provider relationships, including 97% of the top 20 companies and 49% of other companies.  

Figure 3a: Approximate percentages of companies' clinical research outsourcing spend that went to preferred providers in 2009. 

Within the group that engaged preferred providers, the extent to which outsourcing spending was allocated to preferred versus other providers varied widely. Forty-two percent of sponsor representatives stated that more than three-quarters of their clinical-research outsourcing spending went to preferred providers, while 36% reported this fraction to be less than half (see Figure 3). Seventy percent of respondents stated that the percentage of outsourcing spending allocated to preferred providers had increased since 2007.  

Figure 3b: Changes in clinical research outsourcing spend on preferred providers between 2007 and the present. 

The data were examined to determine whether a relationship existed between a great fraction of outsourcing spending allocated to preferred providers and a high level of satisfaction with the work performed or the value received (see Figure 4). Sponsor respondents whose companies allocated 75% or more of their clinical-outsourcing budgets to preferred providers were about as likely to be satisfied with the work performed as were respondents whose companies allocated less to preferred providers, and were more likely to be satisfied than were companies without preferred providers. However, respondents whose companies allocated 75% or more of their clinical-outsourcing budgets to preferred providers were less likely to be dissatisfied with clinical service providers' performance than were those that allocated less.  

Figure 4: Sponsors' levels of satisfaction with the work that clinical service providers have done. 

Differences between the groups were more pronounced when the value received for the money spent on clinical service providers was examined. Figure 5 shows that respondents from companies without preferred providers were far less likely to be satisfied with the value received than were respondents from companies with preferred providers, and the fraction that was satisfied increased with increased allocation of spending to these relationships. Likewise, only 5% of respondents from companies that allocated 75% or more of their clinical-outsourcing spending to preferred providers were dissatisfied with the value obtained, whereas 33% of those from companies without preferred providers were dissatisfied.  

Figure 5: Sponsors' levels of satisfaction with the value received for the money spent on clinical service providers. 

Altered expectations of preferred providers.

 In keeping with their need for efficient, high-performing outsourcing relationships, sponsors as a group anticipate increasing their demands on the providers they choose for preferred relationships, to the point where these relationships come to resemble what are commonly referred to in the industry as partnerships. In the survey, sponsor respondents were provided with a list of items and asked to indicate whether they always expected, sometimes expected, or did not expect each one of preferred providers. They were asked first to reflect on their expectations in the immediate past (i.e., 2007–2009), and then to reflect on their expectations moving forward (i.e., 2010 and beyond). Figure 6 shows that, between 2007 and 2009, discounted rates was the only item that was always expected of preferred providers by the majority of respondents. Increased oversight by providers' senior management ranked second, and access to specific staff members ranked third. The remainder of the items listed were always expected by less than a quarter of respondents and were not expected by a quarter or more.  

Figure 6: What sponsor companies expected of their preferred providers in the recent past (2007â2009). 

For 2010 and beyond, however, expectations of preferred providers changed considerably (see Figure 7). Except for advice or input regarding strategic planning, all items listed were always expected by at least half of sponsor respondents, and were not expected by 13% or less.  

Figure 7: What sponsor companies expect from their preferred providers in 2010 and beyond. 

In the clinical service-provider surveys, respondents were presented with the same list presented in the sponsor surveys and asked about their perceptions of what sponsors always expected, sometimes expected, or did not expect of their preferred-provider relationships in the recent past (i.e., 2007–2009) and present or future (i.e., 2010 and beyond). Most providers said that, in the recent past, discounted rates were always expected, but all other items were expected only sometimes. Thirty-one percent of provider respondents felt that formal relationship-management programs were not expected by sponsors at all. 

For 2010 and beyond, providers as a group seemed to recognize sponsors' changing expectations of their preferred relationships (see Figure 8). Most recognized formal performance measurement and management to have become always expected, and the increased importance of formal governance and formal relationship management was also recognized. The percentage of respondents that felt that relationship-management programs were generally not expected declined from 31% to 12%.  

Figure 8: What service providers believe that sponsors expect from their preferred providers in 2010 and beyond. 

Formal relationship-measurement and -management programs.

 At the time of the survey, 54% of sponsor companies reported that they had formal relationship-management programs in place with at least some of their suppliers, and 66% of providers reported that they had such programs in place with at least some of their clients. Components of relationship-management programs most commonly included performance-metric assessment and review, lessons-learned meetings, issue-handling procedures, and formal governance structures. Less commonly employed were systematic ways of gathering relationship metrics from internal and partner staff. 

Of the sponsor respondents that had experience with relationship-management programs, 68% reported that these experiences had been primarily positive, and an additional 30% reported that they had been a mix of positive and negative. Similarly, 60% of provider respondents reported having had primarily positive experiences, and an additional 31% reported a mix of positive and negative. Thus, given the considerable level of exposure to such programs and the largely positive experiences, the increasing demand by sponsors for formal relationship-management programs in the future is not surprising. 

In Avoca's sample of sponsors, formal relationship-management programs were associated with a higher rate of satisfaction and lower rate of dissatisfaction with the work provided by clinical service providers. This relationship was stronger when sponsors were sorted according to whether, as part of their relationship-management programs, they employed an adequate set of key peformance indicators to evaluate the performance of service providers (see Figure 9). Although the numbers were small, sponsors that also employed adequate Key Relationship Indicators appeared to enjoy even greater benefits.  

Figure 9: Sponsors' satisfaction with the work performed by clinical service providers, by whether or not an adequate set of key performance indicators (KPIs) is employed. 

 The fact that a company intends to change its outsourcing strategies or tactics does not necessarily mean that the desired changes will be implemented successfully. One objective of this year's industry survey was to explore how the industry was faring with respect to elements of change management such as internal corporate communications about changes in outsourcing strategy and tactics, and attitudes towards changing role definitions. 

With respect to internal communications, slightly more than half of sponsor respondents reported that their companies did a good job of communicating changes to staff, though less than half felt that these communications were supported with good training. Provider respondents felt more positively about communications within their organizations than did sponsor respondents, but again, support with training appeared to be the weakest link. 

Implicit in most changes designed to improve outsourcing efficiency is the assumption that internal resources will be spared, which, in principle, entails changes in the daily work of the sponsors' clinical-trial managers or other personnel that oversee CROs. However, when asked whether they saw the role of the sponsor's clinical-trial manager changing in the context of a trusting, strategic outsourcing relationship, only 40% of sponsor respondents and 33% of provider respondents said yes.  

Responses to the question of whether the role of the sponsor's clinical-trial manager should change in a strategic relationship varied considerably according to the nature of the respondent's position within his or her corporate structure. Among sponsors, while the majority of clinical or operations personnel felt that the role of the clinical-trial manager should not change materially, approximately two-thirds of each of outsourcing and management personnel said that it should change. Similarly, among providers, executive managers were nearly twice as likely as middle managers, and nearly 10 times as likely as project managers, to say that the role of the sponsor's clinical-trial manager should change.  

A new business model for contract R&D: Quotient Clinical 

The results of the 2010 Avoca industry survey illustrate widespread recognition of the need for efficient and high-performing outsourcing practices in the clinical drug-development industry. Feedback provided in this survey suggests that both sponsor and clinical service provider companies currently are making, or intend soon to make, wide-ranging changes in the way they conduct their outsourcing business. Among the changes planned or underway, major themes that emerged include the consolidation of outsourcing activities within long-term preferred-provider relationships, higher expectations of these relationships, and increased investment in formal measurement and management of performance and relationship quality.  

The potential benefits associated with such changes in approach appear to be appreciated by sponsors and clinical service providers alike, and based on the data collected, each of these changes appears already to be underway within the industry. Both direct reports from respondents about their experiences, and associations in the data between the use of these approaches and increased satisfaction with provider performance and value, suggest that these approaches, when implemented in a high-quality manner, do in fact yield greater outsourcing quality, value, and overall relationship satisfaction. 

, is executive director of survey research at the Avoca Group, 179 Nassau St., Suite 3A, Princeton, NJ 08542, tel. 909.337.2848, 

denise.calaprice-whitty@theavocagroup.com

1. Avoca Group, "The 2009 Avoca Report: Trends in Clinical Outsourcing" (Princeton, NJ, 2009)  

2. Avoca Group, "The 2010 Avoca Report: Trends in Clinical Outsourcing" (Princeton, NJ, 2010) 

The author analyzes the results of a survey that polled pharmaceutical executives and managers about both sides of the outsourcing relationship. Read this and other preferred organization articles in this special issue.

The Future of Clinical Service Provider-Sponsor Relationships

Outsourcing is an important part of pharmaceutical companies' development and manufacturing activities. Reflecting the greater value of outsourcing, pharmaceutical companies may develop deeper and more strategic collaborations with select suppliers. 

spoke to pharmaceutical industry executives to gain their perspectives on the preferred-provider relationship and its role in pharmaceutical outsourcing. Participating in the roundtable are Mark Scheftel, executive director of global procurement at Merck & Co.; MacDara Lynch, vice-president of global external supply at Pfizer; and Eric Evans, vice-president and general manager of the global active pharmaceutical ingredient (API) division at Covidien. 

As an overall trend in the industry, we see pharmaceutical companies interested in working with fewer and more strategic suppliers, particularly as it relates to contract services, such as contract manufacturing or contract research. Do you think that is a fair characterization, and if so, why are pharmaceutical companies interested in pursuing such an approach?  

It's certainly true of how we are approaching supplier relationships at Merck. We think it's absolutely critical to develop strong, mutually beneficial relationships with a small cadre of highly capable and reliable suppliers. In an environment where cost, quality, and service are vital competitive levers, the pharmaceutical companies that can optimize their business relationships with a core group of strategic suppliers will have an advantage in the marketplace. 

The industry trend toward consolidation means that companies are in a position of dealing with a greater number and potentially hundreds of suppliers. Managing supplier relationships becomes more complex and with greater complexity comes greater potential for risk specific to quality, compliance, and supply—all of which impact cost. Reducing the number of suppliers reduces complexity and risk. There's more to it than simply reducing the number of suppliers, however. Having an integrated internal and external supplier network and developing more strategic relationships with some suppliers is essential. 

Pharmaceutical-industry executives from Merck & Co., Pfizer, and Covidien share their perspectives on their expectations and evaluation in the preferred-provider relationship. Read this and other preferred organization articles in this special issue.

Pharmaceutical Technology-02-01-2011

Keys to Executing a Successful Technology Transfer

Evaluating the Supply Chain in Emerging Markets

Strategies for Becoming a Preferred Provider

The Preferred-Provider Model

The Future of Clinical Service Provider-Sponsor Relationships

Optimizing a Supply Network