Dispatches from DIA
CROs, Sponsors Yet to Cement Appropriate Risk-Sharing Models, Execs Say
“It’s often perceived that CROs don’t care as much about a particular [drug development] program or molecule as the sponsor company, but I can tell you across the majority of our teams that that’s not the case,” Jamie Macdonald, CEO of INC Research, said at a session on the partnerships at DIA’s 49th annual meeting in Boston last week.
But how to translate that “emotional alignment into a financial model is still a work in progress. I haven’t seen any good [models],” Macdonald said, noting some employ a bonus-penalty model. “Most strategic relationships are between two and five years, so you really don’t see the outcomes of some of these alliances or whether the best practices have culminated in success for the pipeline.”
Jonathan Zung, VP of global development operations at Bristol-Myers Squibb, agreed with Macdonald on the timeline aspect, noting that both of BMS’ partnerships are just three years. But he said that CROs do not seem as invested as the sponsor in most projects.
“I think industry is open to do more risk sharing these days as we have more things to put forward in the pipeline and finite resources,” Zung said. “I think the biggest challenge as a sponsor is that we often don’t get the sense that the CRO has the same vested interest in the assets as we do. I think at the end of the day, if there’s a problem with the asset, the accountability stays with the sponsors.”
Different types of Risk
Most risk-sharing models center on operational risks -- such as the risk of not meeting milestones, not containing budget and not delivering data at a particular time – “it’s not about development or asset risk, which is a different model,” Macdonald said.
“The thing we have to remember: The biggest challenge the pharma industry has at the moment is not the cost of development, it’s the cost of developing molecules that don’t meet the commercial market -- it’s the cost of attrition,” Macdonald said. “The industry is looking for an honest broker that can tell a company: This is not a preferred asset.”
“There’s a hesitation to think about our CRO partners as co-development partners,” Peter Carberry, MD, SVP of Astellas Pharma, said. “It’s more about jumping over this hurdle of perception, which are borne out by some evidence of CROs not investing in the robustness that speaks financial sponsor.”
As far as models where operational risk would be shared, Canberry said you need careful planning to make sure the right resources are in place and prepared for the right time, as well as to ensure training and managerial support are in place.
But with respect to risk sharing, each side wants to leverage their work based on the probability of success, and that’s more around the molecule than the study, Carberry said.
Role of the CRO
As longer strategic relationships push CROs into more interactive roles, some executives are questioning how much further CROs should be involved in the sharing of development risks, especially as many are backed by investors who aren’t looking to invest in drug development.
“The CRO should be more like a professional adviser,” engaged in the success of a partnership, Ciaran Murray, CEO of Icon, said. “I think we have to be careful on who owns the molecule and what our shareholders want. If they wanted to invest in drug development, they could just as easily invest in a BMS or Astellas.”
Murray also noted competitive issues among multiple partners for a single CRO as a hindrance to putting too many resources behind one partnership. “We work for a number of strategic partners so should we be more invested in some? I think it’s an area that needs a lot of thought,” he said.
Kenneth Kaitlin, PhD, director of the Tufts University Center for the Study of Drug Development, also questioned the sustainability of a model with more risk for CROs. “For a low-margin industry where you’re not deriving revenues from marketed products, is risk sharing really compatible? It’s not really sustainable,” he said.
But as CROs grow, the possibility of such a situation could be likely in the near future. Canberry added that the CRO would have to change their business model to no longer be service oriented. “In this case, it’s possible because we do invest in drug development, and it’s really a question about do you want to own some of the assets?”
