Strategic Alliances: The Cure For What Ails Pharma?

It’s no secret the pharma industry is facing some formidable challenges this decade. In 2011 alone, the patents to more than 10 blockbuster drugs worth nearly $50 billion in combined annual sales will expire. Last year, major drug companies cut 53,000 jobs on top of the 61,000 jobs cut during the prior year — much deeper cuts than most other sectors. And, though R&D spending has risen to $45 billion per year, the FDA has approved fewer new drugs every year during the past five-year period.

To address these challenges, the pharma industry has begun to form strategic alliances, also called strategic partnerships. These relationships between pharma and CROs, pharma and biotech, and even large pharma and large pharma can reduce costs and decrease product cycle times. Strategic alliances also allow companies to share risks and rewards as well as offer the opportunity to learn from each other.

“Strategic alliances are an important area for improving pharma R&D and bringing medicines to patients. The pharmaceutical industry needs to go through this transformation. There are huge pressures facing pharma now, such as increasing costs and development times. Strategic alliances are one of the ways we’re fixing R&D, so we can speed the delivery of novel medicines to patients,” said Adrienne Takacs, Ph.D., senior advisor, alliance executive, Eli Lilly and Company. Lilly has a number of strategic alliances with CROs across all of R&D; its largest one is with Covance.

Pharma and CROs: An Evolved Relationship
Strategic alliances between pharma and CROs are often the next logical step in a longstanding relationship. The pharma-CRO relationship started out as transaction-based three decades ago. Paying CROs a fee for service was a tactic that allowed pharma to save on headcount costs and increase productivity.

As pharma’s needs grew, the CRO industry flourished, and its knowledge and expertise about drug development increased. Deep relationships over long periods of time were formed. While transaction-based relationships still exist, there are now pharma-CRO relationships that have evolved into strategic partnerships. “In almost all cases, strategic partnerships are the next growth level following decades of interaction and relationship building. In the partnership era, the relationship is truly collaborative,” said Josef von Rickenbach, CEO, PAREXEL.

There are several characteristics of strategic alliances that set them apart from transactional relationships, including size and scope of the work involved, governance, and joint strategic planning between the companies with a view to the long term.

Keys to Success
Sharing a common culture and setting up governance processes properly are critical to the success of all strategic alliances.

“Having a common culture between the partners is extremely important, as is sharing key objectives and having a relationship-based structure,” Takacs said. “This involves working together on things like metrics and R&D productivity. There has to be trust between the partners — not so much when things are going well, but particularly when you hit bumps in the road.”

Frequent and open communication and working together on expectations early on, also contribute to the success of strategic alliances. “The keys are the details. There has to be a significantly enhanced amount of transparency, and our performance has to be rooted and anchored in specific metrics agreed upon beforehand so the client knows what to expect, and we know what to track,” von Rickenbach said.

Strategic and cultural alignment between companies makes the governance processes work smoothly. “For each of our strategic partnerships, we invest a fair amount of time, resources, and energy to put a mechanism and an infrastructure in place that allows us to execute within a framework that the client is happy with, so everybody knows what is supposed to be done by whom,” von Rickenbach said.

The Lilly-Covance partnership has a broad scope covering discovery services in in vivo pharmacology, toxicology, and ADME (absorption, distribution, metabolism, and excretion) as well as GLP (good laboratory practice) toxicology, clinical pharmacology, early-stage clinical, late-stage clinical, and the central laboratory support of this work. The partnership has three tiers of governance. One sets the strategic direction, the second executes the strategy and also focuses on shared learnings, and the third focuses on the quality of the results.

The opportunity to learn is what sets the Lilly-Covance partnership apart from Lilly’s strategic alliances involving a single partner in a single area. “The fact that we work across different business functions gives us the advantage of learning about productivity improvements, for example, in toxicology, that we can share with clinical and vice-versa,” Takacs said.

Lilly and Covance also have worked on Six Sigma projects together to reduce cycle times in preclinical and clinical, with positive results — another benefit of working together long-term.

Partners in strategic alliances also share risk. “In this era, there is more mutual dependence. Pharmaceutical companies look at us strategically now. From our side, these assignments are much more significant. The risks and rewards are shared,” Rickenbach said.

Pharma-Biotech Strategic Alliances
A partnership between a pharma and a biotech or another pharma is formed to codevelop a compound. Pharma and CROs in strategic alliances work together on R&D activities to support the development of compounds. Both types of alliances are relationship-based and need to have shared goals and common culture to be successful. Undergirding all successful strategic alliances is executive support and participation.

Pharma companies and biotechs bring complementary strengths to their strategic alliances. Typically, biotechs are set up to pursue programs with a high degree of risk, or less validity in terms of proof of concept. They can bring innovative approaches to diseases and conditions and, ultimately, offer pharma the opportunity to add to its pipeline. Pharma companies typically form strategic alliances with biotechs when there is some validation of the biotechs’ programs in their areas of interest. The pharma companies bring much-needed resources as well as expertise to a partnership.

“There are a number of benefits for ‘Big Pharma’ for establishing these types of partnerships. First, they can shave two years off a program by forming a strategic alliance with a biotech, rather than starting the program themselves. Second, they can invest in what they do best,” said Dr. Mark Varney, CEO, Cortex Pharmaceuticals. Dr. Varney has 20 years of experience at both biotechs and Big Pharma.

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Source: Life Science Leader