Outsourcing Partnerships: What's Working, What Isn't, And What Can Be Improved

By Ed Miseta, Chief Editor, Clinical Leader

The latest Pharmaceutical Outsourcing Monitor from Michael Martorelli and the folks at investment banking firm Fairmount Partners shows the pharmaceutical outsourcing industry moving along at a very healthy pace. The pace of consolidation, which picked up in 2013, has continued on into 2014. Investment in outsourcing companies continues to come in from both public and private sources, and strategic partnerships continue to garner more attention and evolve. All this seems to indicate 2014 will be a year of growth for the industry.

The report points out several consolidations that will impact the outsourcing arena in 2014 and beyond. At the top of the list is the merger between Patheon and the Pharmaceutical Products division of DSM. Also garnering significant attention was the acquisition of ReSearch Pharmaceutical Services and CRI Lifetree by PRA International and the acquisition of CCBR-SYNARC by BioClinica. The CCBR-SYNARC acquisition continues the growth trend for BioClinica, which we reported on last year after the company acquired CoreLab Partners (Growing To Meet The Needs Of Big Pharma). Also worth noting were the acquisitions of Novella by Quintiles, HERON Group by PAREXEL, and Acurian by PPD. The report notes consolidation across the pharma outsourcing industry is now a fact of life, and the lineup of the largest companies will continue to evolve and change.

Strategic Partnerships: Preferred But Not Perfect

When it comes to partnerships in the pharma outsourcing world, the picture is not as clear as some might think, prompting the report's authors to note "if you've seen one partnership, you've seen one partnership." These partnerships will continue to evolve, and making general statements about them will prove to be difficult.

Noting it is difficult for a sponsor to dis-engage from a CRO that it has a three- or five-year deal with, the report also notes it would be foolish for any provider to take these relationships for granted. Most sponsors outsource for the cost savings, and most noted in an AVOCA Group that quality can suffer after three years of a strategic relationship. Those two facts should worry any CEO of a service provider.

In addition, the report notes several reasons for sponsor disenchantment with partnerships, as noted by Patricia Leuchten of AVOCA:

• CROs Tend to under-resource projects and staff them with people who are inexperienced or unqualified
• Sponsors do not adequately plan for the long term, and will change decisions without the input of the CRO
• Neither the sponsor nor the CRO adequately capture information about lessons learned, which can further impair communications.

Still, there are many positive outcomes that result from outsourcing partnerships. Citing sponsor and CRO comments from a survey performed by Vantage Partners, the following best practices were identified as leading to increased satisfaction with partners:

• A formal process for systematically managing the scope and budget of every project
• A formal process for identifying and implementing opportunities for innovation
• Redesigning all processes to enable more transparency
• Developing a multi-level governance structure
• Implementing a balanced, two-way scorecard
• Proactively focus on change management.

While some of these best practices might seem obvious, the numbers say otherwise. Only 47% of responding sponsors had a process for managing the scope and budget of projects, and none had been successful in driving innovation. Furthermore, almost half admitted to shortcomings in the area of transparency while most CROs were more used to a boss-vendor relationship as opposed to change management.

Talk To The Worker Bees

CEOs and senior management often relate positive outcomes of strategic partnerships to investors and stakeholders. The negative outcomes are not as highly touted. The report notes in conversations with "worker bees" at sponsors and CROs, many frustrations resulting from these partnerships can be quickly ascertained. The biggest complaints will tend to be:

• Joint project teams have a tough time dealing with recurring restructuring programs being implemented by sponsors
• Frustration with time delays and inefficiencies related to changes in management responsibilities and turnover
• Inability of team members to properly adjust to shifting regulatory guidance or feedback
• The escalation of problems from lower-level management to higher levels
• Inadequate training and management of human relationships.

The Pharmaceutical Outsourcing Monitor also contains a plethora of information on rising company profit margins the activities of private equity, and detailed information on recent financings and the previously mentioned acquisitions.

A complete copy of the March 28, 2014 Pharmaceutical Outsourcing Monitor can be obtained by contacting Michael Martorelli at (610) 260-6232.