Industry Perspective:
Q&A with Josef von Rickenbach
Chairman and CEO
The evolving biopharmaceutical services market
Josef von Rickenbach, Chairman and CEO of PAREXEL International, founded the company in 1982, and has seen the biopharmaceutical services industry change dramatically over the intervening years. In a recent interview, he discussed the evolving relationship between biopharmaceutical companies and CROs, and how he thinks that relationship will change in the years ahead.
What is the biggest change currently affecting the biopharmaceutical services industry over the last ten years?
Perhaps the most significant trend in biopharmaceutical services over the past decade has been the evolution in the nature of outsourcing and the business relationships between sponsors and service providers. Until a few years ago, the majority of these relationships were based on traditional project-by-project outsourcing models. While this approach produced significant savings for the biopharmaceutical industry, these transaction-based approaches are reaching the limit of their capacity to reduce costs and increase operational efficiency.
Faced with continuing financial and competitive pressures, many biopharmaceutical companies are moving beyond such narrowly focused relationships and exploring new types of strategic partnerships designed to deliver greater benefits throughout the product development lifecycle. This next partnership stage involves longer-term relationships with a small number of service partners, focusing on the areas of product development where the most valuable improvements can be achieved: project oversight cost reductions, and time savings.
Achieving those savings requires a new, long-term, partnership paradigm characterized by deeper and more complex relationships between biopharmaceutical companies and CROs. Under such a strategic development partnership, a service provider would deliver a broad array of services or focus on a particular therapeutic area, development function, or geography. This strategic partnership model helps biopharmaceutical companies greatly increase operational efficiency by focusing their internal resources on the highest priorities – such as discovery research and product marketing – while relying on their partners for a broad array of specialized knowledge and infrastructure, such as in-depth therapeutic-area expertise, clinical trial experience, global patient and investigator resources, and regulatory knowledge. This strategic mix of internal and external resources is even more efficient in the longer term because the commitment between the partners allows the savings to increase and accrue over time. The long-term commitment also allows for investments in data integration, standardized protocols, study start-up procedures, document templates, and other efficiencies that can dramatically reduce clinical study times – an area where even modest improvements can save millions of dollars.
Are there other changes?
The other major change that has significantly impacted the biopharmaceutical industry and its service partners in recent years is the globalization of clinical studies. This trend has been driven by several factors, including the need to access larger patient populations for the larger Phase III, Phase IV or safety trials, and the need to reduce the expense of conducting those trials by taking advantage of high-quality, lower-cost clinical resources available outside North America and Western Europe. Another driver of globalization is the increasing importance of serving new markets in emerging countries such as China and South Korea. Global development strategies can bring significant cost and time efficiencies to the entire clinical trial process, while also providing strong clinical data for faster regulatory approval of new therapies in these growing markets.
As biopharmaceutical companies have evolved toward broader strategic partnerships during the last decade, CROs such as PAREXEL have also evolved to meet the industry’s growing demand for expert resources and global reach. CROs have expanded their service offerings to bring more innovation to study design and execution, and increased their depth of therapeutic expertise and technology resources – improvements that will help their strategic partners reduce development costs and accelerate time to market. Larger, more complex global development programs also require service providers to have greater size and global scope to provide the services their partners need.
Looking forward to the next ten years, how do you think the model for biopharmaceutical outsourcing will evolve?
The natural outgrowth of stronger strategic development partnerships between the biopharmaceutical industry and CROs will be the transformation of outsourcing to an outcomes-based relationship, with shared risks and rewards. Sponsors will increasingly give their strategic development partners more freedom to provide the desired results using the best available resources. If the CRO can deliver the results a biopharmaceutical company requires within the required timeframe, budget, and quality, the sponsor will not have to be intimately involved in the details of trial services or technology. Without the need to manage those services on a day-to-day basis, biopharmaceutical companies will be able to significantly reduce their overhead costs and concentrate their resources on other priorities, like basic research, product acquisitions, or market expansion.
These stronger strategic partnerships will significantly alter the nature of the relationship between biopharmaceutical companies and service companies. The industry’s selection criteria for its service partners will focus on the level of a partner’s expertise and experience, rather than on specific technologies or services. The partner will be expected to have the ability to marshal – and manage – all of the resources that are necessary to accomplish the sponsor’s project: therapeutic area expertise; worldwide investigator and site resources; advanced technologies; global regulatory knowledge; marketing expertise; data analysis; and risk management.
The growing emphasis on outcomes-based partnerships will also change the economic foundation of the relationships between biopharmaceutical companies and service companies, with contracts increasingly based on fixed-price models. This is a logical outgrowth of the trend toward long-term partnerships, with biopharmaceutical companies contracting for a specific result – such as the completion of a Phase III trial program within a certain timeframe – and the service provider having the flexibility to decide how best to produce that result within the contracted price and deadline. Inherent in this approach is the concept that the service provider would benefit financially if the project can be completed more quickly and cost-effectively – but also risk reduced profitability if the project takes longer or costs more to complete. The investments required for service companies to achieve greater efficiency throughout the development process – investments that benefit both parties – are only possible if there is a multi-year commitment that includes the sharing of rewards as well as risks.
This new relationship model will put a significant burden on service providers to assemble and maintain the vast array of expert resources necessary to tackle such wide-ranging development responsibilities. It will also accelerate a growing convergence trend that is blurring the distinction between “technology” and “service” companies, as providers expand their capabilities to meet the needs of sponsors. At the same time, the changing nature of biopharmaceutical development should accelerate the recognition among key development stakeholders – sponsors, regulators, patients, the medical community, and healthcare payers – that the service industry has the ability to take on this burden and assemble the resources necessary to manage complex development programs on a global scale, with a high level of efficiency and quality.
Equally important, these evolving strategic partnerships will lead to new operating procedures and best practices that leverage the convergence of technologies, services, and expertise. The result will be greater innovation and accelerated development times that will bring novel therapies more quickly to patients in need around the world.
