The Right Connection

Across the global pharmaceutical industry, companies are waking up to the shortcomings of new drug applications. The cost of research and development (R&D) is rising, while the approval rate of innovative new drugs is declining. Joe Herring, Chairman and CEO of Covance, talks about the role outsourcing plays.

NGP. Why is now the best time to consider a strategic partnership? And how will strategic partnering address the challenges facing the pharmaceutical industry?
JH. As pharmaceutical companies continue to feel increasing pressures, the question is not if to outsource, rather how to do it most effectively and efficiently. The timing has never been better, as the entire industry continues to face unprecedented pressure from every direction – patent expirations, increased regulatory scrutiny and continually falling R&D productivity – the mandate for change has never been stronger. The simple concept of making fixed costs more flexible is paramount. 

This mounting industry pressure is now starting to challenge conventional thinking, forcing them to look for ways they can outsource for longer-term strategic advantage, not just incremental gains. The key targets would be productivity improvements and increases in return on investment.

Pharmaceutical companies have to be asking themselves, ‘Is routine drug development a core competency?’ That doesn’t mean they’re not good at it, and it doesn’t mean they can’t be good at it. It’s just that they are likely to have better investment opportunities, such as acquiring new molecules and strengthening commercial efforts, instead of building/refreshing toxicology facilities or hiring clinical research associates in emerging markets.

NGP. How are CROs investing in their infrastructure to help pharmaceutical companies make the case for strategic outsourcing?
JH. In today’s economy, outsourcing has become more of a necessity in the globally competitive, modern business world. But, relative to other industries, the pharmaceutical sector has been slow to adopt strategic partnering. Today, approximately 25 percent of new product development in the biopharmaceutical industry is outsourced, which is significantly lower than other industries.

One pressing issue is expediting patient recruitment, including having staff and infrastructure in the faster growth areas for clinical trial conduct, such as Latin America, Central and Eastern Europe and Asia-Pacific. Large CROs now have scale, skills and global reach. They also have invested in newer facilities, better technologies, as well as strengthened therapeutic expertise. 

CROs have also been building specialized technical skills over time. For example, 10 years ago, the preferred route of administration for most toxicology studies involved grinding up test article and adding it to the daily diet of rodents. Today, there are many new routes of administration, such as inhalation and IV infusion and expanded use of non-human primate models. This technical shift happened slowly over a number of years, and the CRO industry built the majority of this more ‘speculative’ capacity. With the tremendous growth of specialty drug candidates, including biologicals, CROs consequently hold most of these more specialized technical skills and know how.

As these new routes of administration began to make up a larger portion of new drug candidate in pipelines, outsourcing naturally accelerated. The counterbalancing impact was that more and more internal capacity was left idle, which created another major productivity drain.  

NGP. What must take place for strategic partnering to be successful within the pharmaceutical industry?
JH. Placing development work with an outsourcing provider without a well-defined partnership structure is simply asking for more trouble. Executives at pharmaceutical sponsors need to get more actively involved in the partnership governance structure and objective setting, as well as creating a positive culture for the partnership. For the most part, these tasks are currently delegated to purchasing or outsourcing personnel, who can only control what is within their silo. It would be unthinkable to create a new business franchise without management oversight and involvement, so why would creating a CRO partnership to conduct large chunks of drug development be any different? 

Success of outsourcing can be enhanced when the outsourcing partner sees the whole development program – what the sponsor is really trying to accomplish and allow the CRO to bring fresh ideas and outside perspectives based on experience. The days of insular thinking will not work in this rapidly changing environment.

NGP. What makes Covance a compelling choice as a strategic partner?
JH. We believe that our strategic focus on service quality and operational excellence, along with our diverse portfolio of preclinical, central laboratories, clinical development and commercialization services have helped our strategic partners to reduce time and cost in their drug development efforts. And at the same time, re-deploy assets to higher value activities. 

For example, in the last three or four years, phase I/II has been a fast-growing part of drug development whether in-sourced or outsourced. To meet this need, we have increased our geographic footprint, which has allowed us to accelerate patient enrollment. In fact, greater than 70 percent of our clinical programs are running on or ahead of schedule, which compares very favorably against industry metrics. 

In addition, our central laboratory adds global logistics to the productivity mix. We can pull frozen or ambient patient samples from over 100 countries, and provide lab testing and results within 24 hours to investigators and sponsors – all done with Six Sigma quality. 

In non-clinical development, we utilize a program management capability which leverages the industry’s largest capacity and most modern systems to accelerate the time to IND/CTA. Covance has managed more than 250 IND-enabling programs, with 100 different sponsors, and we have a track record of moving a new drug candidate from first-in-animal to first-in-human in an average of 24 weeks. Benchmarks with clients tell us this is 2X the in-house metric.

Covance, through its work with several key strategic partnerships, has established a variety of best practices in alliance management including governance structures, issue management, financial and contract management, and client communications. We also offer flexible options to include dedicated space, dedicated FTE arrangements, and dedicated teams of operational, scientific and technical teams.  

NGP. What are the trends in the industry that will be changing the way pharmaceutical and biotech clients view outsourcing?
JH. The pressure on improving R&D productivity will not go away. As a result, there will be more and more collaboration between large pharmaceutical companies and CROs. Pharmaceutical companies are going to learn new skills in partnering and find even more innovative ways to leverage the ever-growing capabilities of broad-based, global CROs. The market demands are going to continue forcing our clients to challenge conventional thinking relative to what we do well, and where they need to focus their time and resources.

Productivity also needs to increase within the management of outsourcing. As CROs, for every employee that works on a project, our clients have approximately 1.0 FTE dedicated to checking the work of our employee. It’s not until trust-based relationships are built and quality metrics are put in place that this ‘hidden factory’ can be eliminated from the cost structure. They don’t need to be checking the checker who’s checking the CRO.

Another trend is in automation. The collection, storing and reporting of a full range of our drug development data has to become more automated, and we are making huge investments to make this happen faster. Not only investments in traditional data management, but in the integrated systems architecture to facilitate a more parallel drug development paradigm which will speed productivity and decision making.

My final hope is for more active involvement of executive management in this critical process change for the industry. Without this essential element, outsourcing initiatives come and go rapidly, and only incremental changes occur.

Joe Herring joined Covance in 1996 and assumed the role of CEO in 2005. He was elected Chairman of the Board in 2006. Prior to Covance, he spent 18 years at American Hospital Supply Corporation, Baxter International and Caremark International.