New Data from Ken Getz Surprised an Audience of Industry Leaders

Ken Getz got Veeva’s Clinical Roundtable off to an exciting start by revealing some unexpected data that showed that today’s “alliance partnerships” may not be measuring up to the high expectations of either sponsors or CROs.

Finding #1: Tufts found no major difference in the average number of change orders per study when comparing ‘transactional’ against “alliance” CRO-sponsor arrangements. Interestingly, data from the 2012 Study on Change Orders showed that change orders were slightly more frequent for Phase 2 and Phase 3 studies executed under alliance agreements.

For many CROs, entering ‘alliance partnerships’ with sponsors in recent years has been a primary objective and one widely celebrated as a new model for success. These closer working relationships between the parties were expected to reduce change orders. In a transactional relationship (a project-based contract for services within a specific scope), the cost of change orders is usually borne by the sponsor, which is one reason why sponsors decided to pursue a new model. In an alliance relationship, the work spans many projects and even perhaps many functions – success and progress are more typically measured in terms of functional outcomes, with the assumption that transactional variances will even out over time. The CRO, having committed to an expected level of performance that needs to be modified, is more likely to bear the costs of change orders in an alliance. CROs were feeling the squeeze long before alliance relationships came into play, and now it sounds like they just might be getting squeezed tighter.

Finding #2. The only major difference in operating costs between sponsors and CROs is that CROs have 30 percent lower salary and benefit costs. This finding from the Tufts 2013 CRO Economics study was a startling revelation for almost everyone in attendance.

It is no surprise that CROs operate at lower costs than sponsors. But for the first time, data reveal exactly where these lower costs are derived. CRO margins are highly dependent on their ability to maintain this cost differential (and on the top line, maintain pricing power). Could the reason for this differential be that CROs use less-skilled employees than would be found in-house at a sponsor? That CROs are based in regions with lower costs of living (particularly offshore)? That they simply pay less for the same work? Perhaps all of those factors and more. Ken went on to detail some of his expectations for how the outsourcing landscape might be changed in the short and long-term.

The research seems to indicate that ‘alliance partnerships’ are not quite delivering to expectations from either party’s point of view. We’ll likely see some changes not only to the types of relationships, but also in how the work is done. (Transcelerate, which interestingly does not count CROs among its members, is the latest initiative aiming to standardize the clinical development industry).

One change that I (and Ronald Waife) think could help set and deliver correct expectations is a more appropriate use of the term ‘partnership.’ A ‘partnership’ means that both parties share an appropriate balance of risk and reward based on what they are bringing and delivering to the union. Anything less than that is a ‘service provider’ relationship. A service provider completes a very defined set of tasks for a specific fee. Partners, by contrast, share the burden of the work, but also expect to share in the reward or upside of the project – in this case, the revenue of the drug product. I’m not aware of any sponsor-CRO alliance partnerships wherein the companies share in any ultimately generated product revenue; if any exist, they would be the ones I’d most be interested in following.

Ken’s presentation was full of insights that were fodder for lively discussions among everyone in attendance. If you missed it in Philadelphia, be on the lookout for the next Veeva Clinical Roundtable.

Todd Tullis is Senior Product Manager, Vault eTMF at Veeva.