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Pharmaceutical Outsourcing

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Ann Nguyen:

Hello. My name is Ann Nguyen, Senior Associate Conference Producer at Cambridge Healthtech Institute. Today we have a special podcast for the 13th Annual Strategic Alliance Management Congress this May 16-18 in Philadelphia, Pennsylvania.

We're very excited to have one of our supporters and speakers during the event, Jonathan Hughes, who is a Partner, Outsourcing and Supply Chain Management Practice Leader and part of the core leadership at Vantage Partners. Vantage has been a longtime supporter and strategic partner for this event and we are certainly delighted to have Jon join us today.

Jon, thank you for joining us for this podcast. How are you doing today?

Jon Hughes:

I'm doing well. It's a pleasure to be here, thank you so much for the opportunity.

Ann Nguyen:

Excellent. We're glad to have you. So let's get started. Many of our listeners know and think of Vantage Partners as a leader in alliance management, but can you tell us a bit about yourself and the role you play at Vantage?

Jon Hughes:

I'm happy to and I'm glad that many of your listeners do think of Vantage Partners as a leader in the space of alliance management. I think that's fair. Many of them may not know our overall work at Vantage is broader than that. Vantage specializes in helping companies form and manage their most important business-to-business relationships, business partnerships, of various kinds. Certainly one area that we focus is on alliances between companies and in the biopharma space especially BDNL, for lack of a better term, partnerships, in-licensing, out-licensing, co-development. Vantage Partners also does, both within the life sciences sector and in other sectors, a lot of work helping companies improve the way that they work with their key suppliers of various kinds, and in many cases elevating more transactional customer-vendor relationships into something that is more strategic, that delivers more value and that, in some cases, might very appropriately be called a partnership or even alliance between customer and supplier. It's in that realm of various kinds of supplier relationships, including very specifically that biopharma companies have with CROs and other suppliers within the clinical development space. That's where I spend a lot of my time at Vantage Partners, leading that practice at the firm.

Ann Nguyen:

Biopharma companies are increasingly forming strategic partnerships with CROs or other suppliers. My next two questions relate to this. Firstly, forming strategic alliances with CROs has not traditionally been the route sponsors have taken. Why has this changed and where are we now? Also, how have sponsors and CROs adapted over the years?

Jon Hughes:

Very interesting questions. It is true, I think, the move toward partnerships and alliances between sponsors and CROs has evolved significantly over the last 15 or 20 years that I've worked in this space. I think 15 or 20 years ago, very few sponsors would say they had partnerships or alliances with CROs. I think over the last 10 years or so, it's been increasingly common although certainly not universal by any means. Why is there this movement, again over many years, toward doing more of that kind of alliance arrangement with CROs or at least looking very closely at it?

We have found with many of our clients and again I think other experts looking at this as well, have found that the more traditional arms-length, tactical transactional approach to outsourcing that was the history of the industry, it's just not a structure that necessarily enables the things that are required to drive improvements in clinical development. It doesn't really allow for investment, it doesn't really enable continuous improvement, and innovation and learning. I think a lot of companies have looked at the limitations of transactional outsourcing and said, "Well, what is a model where we as a sponsor could work more efficiently and more effectively with CROs that would allow us to better leverage the expertise and capabilities that CROs do have in order to be faster, more cost efficient and more effective at conducting outsourced clinical trial."

If we want CROs to invest in information technology, in training and development of their people, in becoming really expert on how to work with us as a sponsor, those investment activities are only going to happen if there's some predictable context. That means a longer-term relationship and that's, I would say, one dimension of a number. Not the only one but one dimension of having a more strategic partnership or alliance. Of course what one would expect and what one should hold a CRO accountable for is that predictability, they will make certain investments. We need to track through and make sure those investments lead to better performance.

There is part of having a "partnership" or alliance, though, that is -- it's kind of the softer side of alliances. It has as much to do with attitudes, mindset and behaviors as it does to formal incentives in the formal business arrangement. It is, again, a lot of the benefit of moving to that model is instead of the historical, “We're the sponsor, we know best and we will tell you the CRO what to do, how to do it and then be very frustrated by the fact that you're not innovating even though we've tied your hands behind your back” -- you hear a lot of people -- it's sponsors as well as CROs, talking about this legacy of almost a master-servant relationship. Those kinds of mindsets, attitudes and behaviors, in my experience, very clearly do not lead to the best CRO performance. CROs as a company or CRAs, all the various staff and individuals at a CRO who are working on your studies, who are essentially extended team members of the sponsor. If you want to get their best performance, and the best performance of CROs, I think having an attitude, a mindset of partnership, of treating CROs and CRO teams as colleagues rather than just mindless drones who need to be ordered about and micromanaged, to really respect and leverage their expertise, their experience, their capabilities when there are problems or performance issues…

The data on that is mixed. There are many companies that have been very successful with partnership and alliance models with CROs. There are many examples of companies that have tried that strategy and have not realized particularly positive results. They've either gone back to a more traditional model or they have explored something short of an alliance or partnership or maybe some different kinds of hybrid models.

Ann Nguyen:

Secondly, what are some of the unforeseen risks and benefits of moving beyond a traditional customer-vendor relationship?

Jon Hughes:

What's the downside? What are the unforeseen risks? They are ... I think some of the big ones, as with any supplier relationship where a customer is paying a supplier for certain services or solutions or support of some kind, if we enter into an alliance and we begin to work together more closely, there's a longer-term commitment. We're now not constantly bidding out one study versus another. We are doing a lot more work together.

There's some risk, I suppose, that creates a degree of dependency. If we, as a sponsor, enter into arrangements where we're very, very dependent on just one or a couple of CROs, then there's some risk of opportunism or complacency on the part of the CRO. I think it's very important when we talk about partnerships and alliances, of any kind not just with CROs, but with other biopharmas as well, that we're not naïve. Trust is an important aspect of partnerships. Trust cannot mean expecting that a CRO or any partner is going to act counter to their own self interests in order to make us successful. If they did, they wouldn't be in business for very long. We need to expect that CROs will, in part, act within their own self interest. We need to construct alliances and partnerships. This is where I think there has been evolution in the industry, especially over the last five years, is a more realistic notion of what it means for a sponsor and a CRO to have an alliance. Within an alliance context, to do a better job of talking about our expectations of one another and making sure those expectations are realistic. They're not some pie-in-the-sky fantasy that we're bound to be disappointed by. The risks are real but I do think they can be managed. They can be mitigated so that you get more of the upside potential of these closer, more collaborative partnerships arrangements and you really do control the downside risks there -- which is real but is not inevitable.

Ann Nguyen:

During the upcoming Strategic Alliance Management Congress, Vantage will be hosting a luncheon workshop focused on managing sponsor-CRO partnerships. Can you give us any insights as to what attendees can expect to learn during this?

Jon Hughes:

I think that we will, during the luncheon, we will talk some about how is outsourcing within biopharma and the outsourcing of clinical development, how is that different from but also how is it similar from outsourcing in other contexts and in other industries. What can we learn from that? How do we take some best practices and some successes in terms of outsourcing, especially outsourcing alliances and partnerships in other sectors, and apply and adapt some of those lessons and insights to alliances and partnerships between sponsors and CROs? It's not a matter of copy and paste; you can't simply replicate what works in other outsourcing contexts. But there are things to learn so that I think will be, hopefully, a set of insights that come out of that. As well as looking very closely just within biopharma of partnership and alliance successes and failures because there are plenty of both. What is it that differentiates the successes from the failures? Where are the success factors and the risk factors? How do we make success more likely in a partnership model? I wouldn't necessarily say that alliances or partnerships are always the right answer for every company or with every CRO. What are some of those factors that hopefully will help the delegates at the Congress think about. Are partnerships and alliances right for us? Are they not right for us?

Ann Nguyen:

We like to end our podcasts with an outlook. In your opinion, how will sponsor-CRO relationships continue to evolve?

Jon Hughes:

I think that the notion of what it means to have an alliance or be in a partnership, I think companies will continue to get more creative and more sophisticated about different versions of that. I think that there's the notion of partnership and alliance, how does that relate to different outsourcing business models? Full service versus functional outsourcing versus dedicated units with dedicated staff? I think alliance structures will evolve to accommodate hybrid and multiple diverse business models within a single sponsor-CRO relationship.

I think that CROs will need to continue to evolve their business models and their capabilities to be a true alliance partner to sponsors. I think there's change and evolution on both sides that needs to happen to really unlock the potential of true alliance relationships. I think there's so much technological innovation going on with traditional IT, with big data. I think clinical development continues to cry out for greater investment in and application of information technology, more automation, more use of big data, tools and techniques. How much will CROs build those capabilities themselves and make those investments? Will they buy those capabilities through acquisition? Will they form vertically integrated firms? Will they partner with various niche providers and nontraditional solution providers to bring a more comprehensive set of capabilities and solutions to sponsors?

Those are some of the things that have me excited, that I'm exploring with clients. I'm looking out at the industry and expecting significant evolution over the coming years.

Ann Nguyen:

Jon, it was a pleasure speaking with you. Thanks so much for your time and we're looking forward to your upcoming luncheon workshop during the Strategic Alliance Management Congress this May.

Jon Hughes:

Likewise on all counts, thank you so much.

Ann Nguyen:

For those listening, thank you for tuning in and we look forward to seeing you at the conference. Goodbye!

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