Strategic Alliances: The Cure For What Ails Pharma?

By Sara Gambrill, Life Science Leader magazine

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 $50B 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 $45B 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, latestage 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.

Large pharmaceutical companies look out for biotechs that could increase their pipelines in core areas. Merck has 17 scientific scouts worldwide who meet with companies in their respective regions and build relationships with them. When a scout identifies an opportunity for Merck and another company to work together on a program that is a high priority for both, they begin discussions. “We realize 99% of the world’s biomedical research takes place outside of our labs, so we are always looking for the best opportunities to bring to Merck,” said Pamela Demain, executive director of corporate licensing, Merck.

Merck also posts a booklet, which is updated every six months, on its website listing areas the company is interested in as well as the areas it is not interested in. If a biotech sees something on the list of areas of interest that they are working on, and Merck hasn’t yet contacted them about it, there may be an opportunity to form a strategic alliance.

Varney stressed the importance of getting the attention of someone at the pharma company who will work to get the deal done. “I’ve not seen any deals done where there’s not an internal champion. That speaks to the importance for biotechs to present their work at scientific conferences and forums in addition to business forums,” he said.

Some challenges in strategic alliances between pharma and biotechs revolve around a lack of transparency about the timing of a compound’s development. “There are instances where the biotech company will think that a compound is ready to move forward to the next stage of development, but the compound has to go through the Big Pharma’s formal process, and they might keep it back for reasons that are difficult for the biotech to understand. It’s important to have that process managed and be as transparent as possible,” Varney said.

Strategic Alliances in the Future
Demain believes there will be more strategic alliances with Big Pharma in the future, such as the one Merck formed with AstraZeneca. “We have a very early stage cancer compound, and AstraZeneca has one also. To see how they work in combination, we’re conducting a joint Phase 1 clinical trial of our compounds together, which has never happened before in the pharma industry,” Demain said. “Through our partnership, we can find out how our cancer compounds work together in combination early on, and it de-risks the program for us and for AstraZeneca.”

Demain also believes there will be many more strategic alliances between pharma and biotechs because, “by combining our strengths throughout the process, we ensure we are heading toward a shared success.” But, Varney believes there could be obstacles ahead for biotechs that want to form strategic alliances with pharma. “My concern is that if pharma companies reduce their headcount too much, they will lose the experts in the field who are able to provide us internal support for those programs and to provide a rational argument as to why those technologies are so important to the company moving forward. If Big Pharma is unable to evaluate opportunities fully, then there will be a tendency to buy later into those programs, perhaps after clinical proof-of-concept, rather than at an early stage of animal proof of concept. And it’s difficult for a biotech to get to that point in today’s venture market,” Varney said.

Takacs sees strategic alliances expanding in the future to include three, four, or more partners participating in a network. “The transition we’re making is to a fully integrated pharmaceutical network, a FIPNet, where we cast a wide net in terms of talent, resources, and even risk-sharing, with partners in academia, pharma, CROs, and a number of different types of partners,” Takacs said.

While cost and time savings are clearly drivers for the creation of FIPNets, so is the potential for learning. Takacs said, “FIPNets give us broader access to different ideas and resources, whether it’s new targets, how to improve R&D productivity, running clinical trials more effectively, or identifying more clinical trial sites. We coalesce this rich knowledge to help improve R&D.”

Takacs also described the need for more effective integration between partners in strategic alliances in the future, meaning shared ownership in the governance and participation as well as integration at the project level so scientists work together between the two companies to ensure they have the right designs and the work is conducted appropriately.

Varney described this kind of integration as key to an alliance’s success. “I’ve had good and bad experiences with strategic alliances. The ones that have worked best have been where you call up your peer at the other company to share data as soon as you receive it and vice-versa, and you’re able to discuss it. It’s not about ‘our chemists’ and ‘your chemists,’ he said. Driven by the need to cut costs, pharma is changing the way it develops drugs by partnering strategically with CROs, biotechs, and even each other. In the future, networks of partners may be able to gain knowledge that could create a smoother, less risky path to market.

“Both CROs and pharma need to find ways to work with competitors to make this network of companies that will be driving — and hopefully fixing — the pharma R&D engine,” Takacs said.

Used with permission from Life Science Leader magazine.