TRENDS AND INSIGHTS INTO STRATEGIC PARTNERING & INTEGRATED DRUG DEVELOPMENT
SUMMER 2009 | Volume 1 Number 1
Collaborating For Change Strategic partnerships between sponsors and CROs are proliferating. How will they impact the industry and the future of drug development?
4 CASE STUDY
The Art of Asset Transfer Strategic partnerships vary in structure, but one stands out for its sheer leanness and efficiency
Thought Partnering How a strategic outsourcing approach can transform tactical programs for greater R&D success
8 WHATâ€™S NEW
Inside Covance Covance news from around the world
TRENDS | Strategic Partnering INSIGHT IN BRIEF
The Ideal Strategic Relationship C RO is a true, trusted development partner ne to three selected O providers handle all “non-core” competencies
Collaborating for Change
More drug companies are pioneering innovative partner-based relationships with CROs to reduce fixed costs and improve R&D efficiencies—Tufts’ Kenneth Getz discusses why strategic partnerships are becoming the future of drug development
hange does not happen overnight, especially in the pharmaceutical industry. When it does happen, it can seem sudden—a shock of the new. Such was the case with Eli Lilly’s announcement last summer to transform its R&D model by transferring an early drug development facility to Covance—along with more than 240 employees—and a 10-year service contract.
goal, according to John Lechleiter, Eli Lilly’s president and CEO, is to generate ideas and build capabilities, sell products, and reduce costs. “What we call Years YZ—the period beginning in late 2011 when patents for several medicines begin to expire—require a thorough transformation of our company that includes reduced cycle times and lower R&D costs,” says Lechleiter.
The Search For Solutions
To better understand the rationale behind the trend toward strategic outsourcing, a 2009 Tufts Center for the Study of Drug Devlopement (CSDD) report interviewed executives at 10 mid-size and large biopharmaceutical companies about their relationships with CROs. The study found that sponsors are now poised to move from widely transactional outsourcing practices to more strategic, partner-based relationships. Lilly, Daiicho Sankyo, and Bristol-Myers Squibb already are pioneering truly strategic parnerships while others are in the process of making plans to implement structures and policies to support strategic partnerships.
The $1.6 billion deal, the largest in CRO history, signaled a profound shift in outsourcing relationships between CROs and sponsors—from tactical to strategic, provider- to partner-based. And it piqued the interest of industry R&D executives looking for similar solutions at the most challenging time in the industry’s history. For Lilly, the move to a strategic relationship with Covance (with whom they’ve had a long association) is part of the company’s overall strategy to transition to a new, more networked business model by increasing collaboration with organizations outside the company. The Developments | Summer 2009
Outsourcing 2015: A New Era
Long-term commitments that last a minimum of three years A completely new pricing and compensation approach E ngages in joint portfolio review & forecasting Involves senior- and middlemanagement committees in shared governance responsibility Uses coordinated SOPs and integrated systems and processes SOURCE: KENNETH GETZ, RACHEL ZUCKERMAN & DAVID ZUCKERMAN
According to Tufts’ senior research fellow Kenneth Getz (who, along with research analyst Rachel Zuckerman and David Zuckerman, authored the study), sponsors increasingly are asking themselves which functions are performed best in-house and which ones can be best done by CROs that offer greater expertise and higher levels of efficiency. The report suggests these developments will have major implications for the industry, for companies’ internal management decision-making process and structures, and for the CRO marketplace. Developments recently spoke with Kenneth Getz, who presented some of the findings of this study during his presentation at the 2009 Partnerships with CROs conference in Orlando. Q: What prompted the recent Tufts’ report that surveyed pharmaceutical executives about their CRO relationships?
A. It was an internally funded effort at the Tufts CSDD to get direct input from companies. We had identified the shift toward strategic partnering, but we were really looking to have it validated. Q. Were there any surprises?
A: Yes and no. There had been announced relationships that set us up to receive this latest arrangement. Wyeth, for example, has been entering into a lot of these service provider models, and BristolMyers Squibb, Novartis, AstraZeneca, and others have been moving along this path for some time. In fact, there have been periods where, after an acquisition, a major pharmaceutical company often has had an asset in preclinical or in discovery that it was just looking to shed, and the buyer turned out to be a CRO. Q: How did the trend toward strategic
sors and CROs?
A. Yes, I believe there is. I’ve been looking and talking about the importance of strategic partnerships for easily 20 years. But there’s something about the clarity of this direction, something about the fact that companies already have been experimenting with bridge steps that are getting them to this point. It feels as if it’s a likely direction, such a highly probable direction that I’d be stunned if five years from now we’re not seeing more of these types of portfoliobased alliances out there. Q. Do you think strategic partnerships between sponsors and CROs are a viable solution for the industry?
A. This comes back to the current environment and a couple of insights that I often talk about. Given all the work that
The Globalization of Clinical Trials Percentage of clinical investigation forms (1572s) filed outside the US/Europe US-BASED WESTERN EUROPE REST OF WORLD grew sixfold in 10 years 100%
A: It really relates to a lot of factors that are all coming together in the current operating environment. For the last decade, we’ve been dealing with increasing capacity limitations. Companies have had basically flat head-count growth, or even some headcount declines, within drug development. At the same time, research volume has been rising. So, just to manage the increasing load of product activity—with limited capacity—has forced companies to look outside of their internal resources. Then there’s globalization, which is becoming a much more common way for companies to conduct their clinical research—running trials in simultaneous
at their infrastructure and they are saying: These particular assets are really underutilized, could we perhaps enter into an arrangement where we would shed the fixed cost but maintain access to it as a variable cost? That is really the CovanceLilly model (see story on page 4). What makes it so compelling is that it was an attempt to look at a fixed cost and to find a partnership model that still gave them access to that asset, but would ultimately improve profitability. Q: So from your point of view there is something different happening—a new direction in the relationship between spon-
SOURCE: TUFTS CSDD ANALYSIS OF BMIS
nouncement of the Lilly-Covance strategic partnership. Did that surprise you at the time?
places throughout the world. The major CROs are in the best position [to conduct these trials] as they have infrastructure in a lot of these regions. They’ve helped companies move in. Many pharmaceutical and biotechnology companies with limited-to-no prior drug development experience are running their own clinical studies. They were a sort of natural outsourcing driver. They turned to CROs that had a lot of experience within a specific therapeutic area or novel molecule. All of these things were coming together. And now, in the current environment, it’s getting even more stifling. Companies are really questioning how much fixed cost they want to carry. They’re really questioning how they can maintain their earnings and profitability. They’re looking
PERCENT OF TOTAL 1572s FILLED
A. No, not surprises. A lot of people articulated well, and with a lot of compelling business insight, why they’re moving in this direction. Particularly articulate were Jeffrey Kasher [Vice President and Chief Operating Officer, Global Clinical Development, Eli Lilly & Company] and Adrian Otte, [Vice President, Global Development Operations, Amgen]. They were also at Partnerships with CROs and on a panel with me, so I wasn’t surprised. If anything did catch me a little bit, it was such statements as: “We will never completely shun the transactional approach. We’re always going to have a mixed model.” And, “We never want to take such a risky stance that we lose our ability to do some of the transactional approaches in which most of the functional work is still handled by our internal staff.” What it showed is that there’s still a high level of risk aversion, and the desire to move at a slower pace, which we see all the time. Q: A year has passed since the an-
has to get done and all the activity that’s going on, it can’t be done without CROs. They are integral to drug development today. They’re not simply service providers. They are as integral and entrenched in this as the sponsors themselves. As companies look for ways to optimize or improve their effectiveness, they don’t have to look very hard at their current outsourcing relationships to see that there is something fundamentally wrong with the way they go about establishing them. It’s so blatantly obvious that I can’t contain my optimism.
Summer 2009 | Developments
CASE STUDY | Asset Transfer
The Art of Asset Transfer
Strategic partnerships come in a variety of models to help facilitate R&D innovation, reduce costs, and drive efficiencies
he announcement of the landmark strategic partnership between Covance and Eli Lilly last summer did not convey the richness and the complexity of how the partnership evolved and what was required of both partners to make the partnership work. “Partnerships require commitment at all levels and we are still at the early stages of our relationship,” said Adrienne Takacs, Director, External Sourcing, Lilly Research Laboratories, during her presentation at the 6th annual Drug Development Summit, that took place in Arizona in March. “A tremendous amount of time and energy went into the process of crafting a vision for the partnership, but even more effort went into nailing down all of the details.” For Lilly, the vision was conceived of years ago and since has been part of an ongoing process to transform their R&D organization by moving from a FIPCo (Fully Integrated Pharmaceutical Company) to a FIPNet (Fully Integrated Pharmaceutical Network). This process includes a Developments | Summer 2009
review and an assessment of core competencies, choosing partners, and working closely with partners to assure success. “With FIPNet, Lilly has thoughtfully disengaged from functions that others can do faster, better or more cost effectively than we can,” says Takacs. “So how do we decide at Lilly which functions to focus on for partnerships? “Our performance in core capabilities must be at an advantage to our competitors since this is how we differentiate from our competitors. As we move to a Fully Integrated Pharmaceutical Network, we will focus our relationships with partners on essential and strategic capabilities; however we do not rule out utilizing partners for core capabilities as long as we maintain a competitive advantage.” The Lilly-Covance strategic partnership was built on a long-standing service relationship of functional outsourcing. The new relationship adds routine discovery capabilities and opportunities in late-stage clinical trials. Lilly and Covance now
Case Study in Brief S ituation: Lilly required a solution to increase R&D flexibility/productivity and reduce the time and cost of drug development projects without damaging employee morale. S olution: A 10-year, $1.6 billion partnership that resulted in an asset transfer of both people and fixed-cost infrastructure, including an entire preclinical facility and more than 240 employees. B enefit: By partnering on joint process improvement projects, Lilly’s cycle times and fixed costs have decreased while productivity has increased. Transferring an entire asset to a CRO relieved the sponsor of the financial burden to maintain a less-than-optimally used facility. Furthermore, by increasing its flexibility in drug development, the client could now focus more on core competencies.
work together across the value chain of pharma R&D. “Lilly sees the value from this strategic partnership coming from Covance providing quality studies in a reliable manner,” In addition to quality capabilities, Covance and Lilly are committed to working together to improve R&D productivity, and one of the ways they are doing this is by reducing pharmaceutical development cycle times. “A key piece of Lilly’s transformation and the one piece of the value chain Lilly has focused on is lead through proof of concept,” says Takacs. “Lilly’s goal is 1,000 days to the patient. This is a critical phase of the value chain, and by speeding the time it takes to iterate clinical study findings with discovery and preclinical research, we shorten the time that patients are waiting for innovative medicines.” For Covance, the acquisition of a fully functional research site has allowed the company to grow as an integrated unit. Instead of bringing scientists from diverse backgrounds together, Covance acquired a group of Lilly scientists who had worked together for years and have a strong dedication to scientific excellence that helps bring new innovative medicines to patients. “Both Lilly and Covance committed significant resources to the team, and throughout the process both sides of the table
asked a lot of the other,” says Jonathan Koch, Vice President and General Manager, Greenfield Laboratories, Covance. “For instance, since we were planning to own and operate the Greenfield, Indiana facility as a CRO, we asked our partner many questions that they had not thought about in the past. These questions revolved around having multiple sponsors utilize the facility instead of a single sponsor. In addition, we all gained firsthand experience in understanding that the way in which a CRO measures productivity is quite different than a sponsor. Simply stated—our views on room utilization, study throughput, and revenue (or expense) per FTE were different. “A CRO cannot operate a facility in the same manner as a sponsor. Where the sponsor operates the facility as a cost center that caters to the needs of a single R&D organization, and may have periods of variation in facility throughput, a CRO operates the facility as a profit center that must maintain productivity and throughput by performing work from many sponsors.” Koch stresses that what makes it all work is not only executive support and ongoing participation, but also the mutual understanding of both partners’ strategic needs and core competencies. He adds that it helps to have a flexible and adaptable attitude combined with open and frequent communication.
And Now the Rest of the Story “We are still in the early days of our relationship,” says Koch. “Still, we can say that by February our alliance had completed the 1,000 study mark. In addition, almost all of the former Lilly employees are now Covance employees, and this spring we have launched our Discovery Services, offering non-GLP toxicology, in vivo pharmacology, and imaging to all clients.” Takacs agrees that the transition has been seamless. “Lilly scientists and staff are critical to the partnership,” says Takacs. “Our Partners have benefited from the acquisition of our experienced staff and business continuity issues were minimized. It’s been a win-win for Covance and Lilly and the productivity improvements that form the Lilly-Covance strategic partnership will translate into a win for patients, too.” O perational control of the Greenfield site has transitioned to Covance with no loss in business continuity or study volumes N early all of Lilly’s staff accepted the opportunity to work at Covance
C ovance benefits from the acquisition of experienced Lilly staff
E mployees become core to new organizations
S taff re-energized as new opportunities and potential for growth emerge
C ommunity acceptance is high E mployee engagement is high
Summer 2009 | Developments
INSIGHTS | Thought Partnering BY THE NUMBERS
Worldwide Toxicology Market T oxicology Capacity: CROs: 8.5 million sq. ft. Big Pharma: 19.8 million sq. ft. C apacity Growth: 2.4 million sq. ft. of CRO capacity added from 2006-2008
Strategic partnerships are emerging even in tactical areas of outsourcing—Covance’s Dr. Mark Little explains
recent trend shows big pharma is increasingly outsourcing new areas of drug development to CROs— many of which were traditionally done almost exclusively in-house. Sponsors hope the move will free them to focus
on pipeline development by outsourcing non-core functions, especially in such areas as toxicology, where outsourcing penetration is lower. There is a caveat, however. This new market requires a mindset shift along with a more strategic approach to outsourcing. Also known as Thought Partnerships, these new strategic partnerships require a greater degree of collaboration between sponsor and CRO. Developments spoke with Dr. Mark Little, VP of Business Intelligence and Market Research at Covance, to explain the evolution of this new approach to outsourcing. Developments | Summer 2009
R &D Spend: $5.5 million USD spent on average for ~25 toxicology-related studies carried out on a single molecule to support development S ub Service Areas: Toxicology testing requires diverse scientific expertise to support various studies, including in vitro model culture and optimization; general toxicity studies; immunotoxicology studies; oncogenicity studies; reproductive and developmental toxicology studies; safety pharmacology studies; specialized toxicology studies Global Toxicology Trends: • Pharmaceutical companies are conducting more complex toxicology studies per molecule to gain as much information to kill weak candidates and support regulatory filings • Big Pharma is decreasing internal capabilities for in vivo toxicology studies due to the high cost of maintaining animal colonies and facilities • Demand for toxicology services has increased due to regulatory agencies placing greater emphasis on product safety • Rising costs and the need to accelerate product development timelines are driving drug manufacturers to consider alternate approaches to in-house development SOURCES: LEHMAN BROS (JAN. 2007); COVANCE ESTIMATES
R&D Outsourcing Continuum
Past 3-year annual growth in outsourcing spending
Relative time frame in which outsourcing utilized
5–7 years for “services”; 15 yrs for facilities
Capacity needs, expertise
Regulatory reform, capacity needs
Globalization, capacity needs
Percent of total spending on outsourcing
Drivers of outsourcing
Q: How did Thought Partnerships emerge at Covance? A: Thought Partnerships have emerged across all of our drug development capabilities via stronger relationships that led to greater transparency and information sharing. For instance, as a result of our partnership with Lilly, we have moved from GLP tox work performed principally in Madison and Harrogate to non-GLP discovery services, including tox work in our Greenfield (Ind.) facility. And what that means (beyond market considerations) is that we are moving into Thought Partnerships with our clients. These partnerships have deepened our relationships through a mutual sharing of knowledge and understanding of science—the essence of a Thought Partnership. Q: What is driving the trend towards thought partnering?
A: The need for more efficient R&D and reduced fixedcosts are driving the trend towards thought partnering. For example, in GLP tox work, basically they [sponsors] give you one compound and it’s very recipe driven: you know what to do, you do it, and then hand the data back. But with non-GLP tox work, the client might give you 10 compounds and say, “Help us sort these out.” So now you’re in on the decision-making process. The data we generate together will steer the direction of drug development for the next two or three years possibly. Q: It sounds like a microcosm of strategic partnering? A: Exactly.
Q: Why is it that the non-GLP work wasn’t always outsourced? A: I have asked toxicologists the same question. They said that when they are doing early work, they don’t know enough about the drug to outsource it. In other words, it’s not yet a cookie-cutter process—they want to play with it a little bit before they actually go into a GLP setting. So, that has been a driver of keeping it in-house.
SOURCE: TUFTS CSDD, 2008
A phase-by-phase breakdown of outsourcing spend, outsourcing duration and drivers of outsourcing
It is expensive, however, to maintain that level of capacity over periods of varying demand. The meter’s always running on the investment in facilities. The economics eventually don’t make sense and a more effective and efficient way is to outsource with a partner with whom you have a lot of trust. Q: So, thought partnering inherently means a different way of doing business. Can you give an example?
A: Recently we met with a client at a small biotech company—the head of toxicology who had a cardio-safety problem to solve. He needed to test the candidate compounds in a non-GLP setting to determine whether any further development was required. He talked to us first about his problem and at that point there was no RFP. He was saying, “I have this problem and I have to get the answer in six months. Can you help me?” At this point, we became thought partners, crafting a solution together. We said “Yes, this is the technical problem you’ll have with it, you’re asking for three things and we can do two at once, but the third will have to be done separately, and here’s how. So, it’s a different approach—not RFP driven. We’re saying, “We hear you, we hear the problem, and we hear you asking us how to get to a solution.” It’s a dialogue around a shared problem. We are a thought partner and now we are going to help you make some significant decisions on the direction of your pipeline assets. Q: Is this a result of less productivity and so more outsourcing is going to take place, or is it prompted by the need to reduce costs and gain efficiencies and expertise?
A. I think it’s more of a mindset shift on what is core vs. non-core. I think companies are asking: Do we really need to keep this in house or is there a trusted partner out there that can do it as good as we can? Summer 2009 | Developments
ABOUT DEVELOPMENTS Developments is a quarterly newsletter that looks at trends of and provides insights into strategic partnering and integrated drug development to encourage discussions that result in R&D solutions. ABOUT THE EDITOR Chuck Drucker is Sr. Director, Marketing, Strategic Partnering & Integrated Drug Development, Covance. With headquarters in Princeton, NJ, Covance is the world’s largest publicly traded CRO. STORY IDEAS Developments welcomes your feedback and story suggestions. To share your thoughts, please visit www.covance.com For more information: THE AMERICAS +1.888.COVANCE (+1.888.268.2623) +1.609.419.2240 EUROPE/AFRICA +800.2682.2682 +44.1423.500888 ASIA PACIFIC +800.6568.3000 +65.6.5677333
w w w. c o v a n c e . c o m
Covance is an independent, publicly held company with headquarters in Princeton, New Jersey, USA. Covance is the marketing name for Covance Inc. and its subsidiaries around the world. ©Copyright 2009. Covance Inc. ILLUSTRATIONS BY CHRISTINA SCHLESINGER
Developments | Summer 2009
What’s New | Recent Developments at Covance GLOBAL EXPANSION Covance announces the opening of three new clinical development offices in Kiev, Ukraine; Bratislava, Slovakia; and Tel Aviv, Israel, to further enhance the company’s global presence. (February 3, 2009) Covance expands its biotechnology services facility in Harrogate, UK and also becomes one of the few contract research organizations to receive a cGMP Manufacturing License from the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) in the UK. (February 18, 2009) Covance expands its clinical pharmacology footprint in Europe with the acquisition of Swiss Pharma Contract, a 50-bed clinical research company based in Basel, Switzerland—increasing Covance’s global capacity to approximately 550 beds and adding a talented staff, including nine physicians. (March 13, 2009) Covance opens new clinical development offices in Santiago, Chile, and Lima, Peru, and expands the company’s Buenos Aires, Argentina office. (April 7, 2009) Covance expands global bioanalytical portfolio in Shanghai, China with new specialty services, including method feasibility/development; method validation; method transfer; GLP sample analysis for preclinical and clinical studies; pharmacokinetics/ pharmacodynamics. (June 2009)
NEW FACES Dr. Kenneth A. Somberg joins Covance as Chief Medical Officer, Clinical Development. Most
recently Ken worked at Novartis Pharmaceutical Corporation where he held the position of VP and Global Franchise Head, Drug Regulatory Affairs for the Immunology and Infectious Diseases Business Franchise. He previously served as Global Head of Clinical Development for Transplantation and Infectious Diseases. (April 9, 2009) Dr. Judith Boice joins Covance as Vice President of Clinical Integrated Drug Development. Most recently Judith served as a Director of Clinical Research at Merck Research Laboratories, where she chaired a product development team that was responsible for integrating numerous areas, including Toxicology, Clinical Pharmacology/Drug Metabolism, Clinical Research, Regulatory Affairs, and Marketing. In addition, Judith led the clinical early development team for several programs that focused on advancing drugs from FIH through POC and into later-stage development. (April 14, 2009)
AWARDS & RECOGNITION: Joe Herring, CEO, Covance, receives 2009 North American Pharmaceutical & Biotechnology CEO of the Year Award from Frost & Sullivan; named among World Pharmaceutical Frontiers 2009 Pharma 40 which recognizes the 40 most influential people in the pharmaceutical industry. (March 2009) Covance’s Clinical Pharmacology business receives Lilly’s Global Supplier Award for the second consecutive year for its efforts in helping Lilly meet its corporate objectives. (May 27, 2009)