Nice Insight


Life Science Leader December 2011 Written By Kate Hammeke Research Manager Nice Insight	If one word could sum up the key focus of an industry, that word in the case of drug development would be innovation. Unlike a decade or two ago, when incremental changes through invention or renovation were enough for shareholders to feel confident in earnings and security in the pipeline, current pressures for profitability present the need for substantial improvement in terms of streamlining processes, improving technologies, and manufacturing more effective products. With many pharmaceutical companies having scaled back and re-focused their own business and internal staff already, they are looking to external partners for help with innovation. Success in the search for an external partner that augments competitive advantage takes time. The process of reviewing staff resources and compatibility, operating procedure documentation, equipment and costs for even a small number of providers takes anywhere from months to years to complete. This time and resource-intensive process is a short-term obstacle to innovation. This has led to a popular practice of establishing preferred vendor lists comprising partners that have already undergone a thorough review process, which reduces the time spent identifying best-suited CROs and CMOs for specific projects or long-term outsourcing relationships. Then, when new projects arise, partners are selected from the preferred vendor list. Businesses with preferred provider lists should have an internal system to gather feedback throughout the course of the project and after its completion. However, internal feedback shouldn�t be relied on as only basis for evaluation of companies on the preferred vendor list. Outside factors can influence how a contract business operates, ranging from the exit or promotion of a key staff member (someone influential in the specifics of the project relationship and process) to a significant change in operations or personnel due to a merger or acquisition. Six of the businesses included in Nice Insight�s quarterly industry survey on pharmaceutical and biotech CMOs and CROs were acquired by other contract pharmaceutical companies and subsequently presented new branding / identities in the third quarter of 2011. Of these six, three were CROs and three were CMOs. The CROs were Inc. Research (formerly Kendle), Aptiv Solutions (formerly Fulcrum Pharma), and Agilent Technologies (formerly Biocius). The CMOs were Aptalis (previously known as Eurand), FujiFilm Diosynth (formerly Avecia), and Monument Chemical (formerly Johann Haltermann). Productivity is a key outsourcing driver with respect to innovation, as it contributes to the sponsor�s ability to help speed the product to market. If an acquisition results in a decline in customer perception for productivity, which is a metric continuously monitored by Nice Insight, this indicates that the business should be re-evaluated to mitigate issues relating to the change in perception. CROs were not as successful as CMOs in maintaining their productivity scores post-integration. All three CROs recorded lower productivity after the acquisition, relative to quarterly data gathered prior. Inc. Research showed the largest drop in the category (down nine percentage points) relative to Kendle�s score in the previous quarter. Conversely, CMOs were able to maintain or improve their post-integration perception in productivity. Aptalis� productivity score was already strong and remained steady at 78% through the transition. And both Fuji Film Diosynth and Monument Chemical received higher productivity scores with 10 and 11 percentage point increases respectively.

	Reliability and accessibility categories are reflections of how a contract organization satisfies the sponsor�s needs. Shifts in these scores also warrant investigation, as the ability to meet project milestones (reliability) directly impacts the sponsors� ability to deliver. While accessibility has less of a direct impact on the end product, it is equally important for personnel to be able to respond to sponsor needs and present potential issues before they develop into a problem. Once again, CMOs proved more likely to maintain reliability and accessibility scores post-merger or acquisition than CROs. This finding suggests that when a CRO on a preferred vendor list is acquired by another company�even if it is another company on the preferred vendor list�the sponsor�s procurement staff should re-evaluate the new entity to ensure it still meets the criteria of a preferred vendor. Our data indicates that each of these businesses maintained or improved their quality score post-integration. Among the CROs, Fulcrum Pharma realized the largest increase in its quality score (seven percentage points) after the merging of Fulcrum Pharma, Averion International and ClinResearch formed Aptiv Solutions. Among the CMOs, Axcan�s acquisition of Eurand and subsequent name change to Aptalis stood out with the greatest increase in quality customer perception score, at six percentage points. While each of the businesses referenced was able to maintain a solid customer-perceived quality score, fluctuations among other key outsourcing measures support the importance of continually evaluating preferred vendor lists. Monitoring the partners on the list to see if they have undergone significant changes in structure or staff is a good first line of assessment. Next, the opinions of sponsor company colleagues are also obviously valid, but a review how the business is rated among industry peers�measuring pre- and post-change�provides fundamental ongoing due diligence.


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