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Achieving Cross-Functional Supplier Integration: A Case-Study Analysis
"The global pharmaceutical industry is undergoing a period of rapid change," explains Brian Scanlan, CEO and president of Cambridge Major Laboratories, a contract API manufacturer. "Big Pharma is divesting assets and taking on a more virtual model shared by the majority of the emerging pharma sector. With this change also comes opportunity—an opportunity to set a new model for API and drug-development sourcing," he says. This new model is predicated on improved cross-functional supplier integration to create a so-called "virtual one stop-shop," which relies on increased communication and project management among suppliers. "This virtual one stop-shop has distinct advantages to the traditional one-stop model. Specifically, that individual best-in-class suppliers can come together to achieve the common goal of getting the client's molecule to market faster," he explains.
Cambridge Major Laboratories is a participant in such a model through an alliance established with three other partners: Xcelience, a contract provider of formulation development and finished drug-product manufacturing; Micron Technologies, a provider of cGMP micronizing and milling; and Beckloff Associates, a scientific and regulatory consulting firm and subsidiary of Cardinal Health. Under the model, named the Chemistry Playbook, each company is independent and responsible for its own activities and project management, but a prospective sponsor company, if it wishes, can use the complementary service offerings of all or some of the partners. The model brings together the functional expertise of each alliance member but with enhanced cooperation, such as by providing a single point of contact among all the contract-service providers for the sponsor company and offering integrated commercial and billing processes.
In the Chemistry Playbook model, a single point of entry among all alliance members handles the confidential disclosure agreements, proposals, master service agreements, and project plan. "The partners will do all the work to get the agreement signed," says Scanlan. The commercial aspects of a program, such as terms of agreement, payment terms, termination clauses, intellectual property, limits of liability, warranties, and identification clauses are harmonized among the alliance partners. Invoicing is flexible and can be billed in step-by-step mode and electronically. Cross-company teams with defined handoffs in the project cycle are used to bridge any functional gaps that arise in a traditional or nonalliance outsourcing model.
Derek Hennecke, CEO and president of Xcelience, says that this partnership model seeks to minimize "deliverable bias" by emphasizing project ownership that entails full responsibility for integrated project management and timelines while preserving the advantage of the functional-area expertise offered by each company. The partnership acts as a one-stop shop, but with streamlined timelines, as agreed by a sponsor company and project manager of each of the partner companies. The amount of individual project-manager presence is determined by the phase of the project. The Gantt chart, which shows the project's schedule, deliverables, and project timelines, are shared among all functional areas to prevent the common problem of silo creation, whereby each service provider views only its aspect of a given project rather than the goals and timelines of the sponsor company's entire project. "In the alliance model, there is a natural pull of projects through the system due to each partner's individual accountability," says Hennecke.
As with any effective outsourcing project, constant communication flow between technical and regulatory areas of expertise is crucial. In the playbook model, real-time feedback loops across the entire development program are developed to facilitate and achieve the regulatory and technical interface required for successful project execution. Scanlan adds that the alliance model for the Chemistry Playbook supports various outsourcing business models. For example, it is appropriate for emerging bio/pharmaceutical companies that lack internal CMC support and operate as a virtual model with limited internal assets, which would also include early-stage start-up companies. The model also is appropriate for the large pharmaceutical companies that moved to a virtual model for a given project.
Broader market trends
The need to form collaborative business models and better integrate internal and external resources is a situation not only confronting suppliers to the pharmaceutical industry, but pharmaceutical companies themselves. In a recent analysis, the consulting firm PwC asserts that over the next decade, many companies will be required to strategically reassess and change their manufacturing and distribution model by having to increasingly manage a vast network of service providers as well as manufacture and distribute their own products (1).
"The most successful pharma companies will be those that now recognize the underlying value locked in their supply chain and can leverage it as a value and brand differentiator rather than just a cost," said Steve Arlington, global advisory pharmaceutical and life sciences leader at PwC, in a Feb. 21, 2011 PwC, press release (1). Offering an end-market view, by 2020, PwC asserts that the management of information transfer between the pharmaceutical company, the patient, and healthcare provider will be as important as the movement of products.
This need for integration and better collaboration is also evident in other pharmaceutical operations, namely in research and development. "Efficiency is the name of the game, and the adoption of a more collaborative approach could just be the key to unlocking this potential," said Jo Pisani, partner of global pharmaceuticals and life sciences at PwC, in a Nov. 8, 2010, PwC press release (2). "Working with others accelerates and facilitates innovation, discovery, and development, which in turn can reduce costs and benefit both large and smaller companies. Even small changes could yield significant savings." According to PwC research, given average development costs and lead times, a 5% increase in success rates for each phase transition and a 5% reduction in development times could cut research and developments costs by about $160 million as well as accelerate market launch by nearly five months. Given average development costs and lead times, the $160-million estimate is based on a projected 5% reduction in development times and success rates for each stage of transition (2).
Earlier this year, John C. Lechleiter, chairman, president and CEO of Eli Lilly, underscored the importance of collaborative business models for research-based pharmaceutical companies. "... The imperative to reinvent invention extends well beyond our walls," he said. "In fact, the changes that are absolutely essential for companies like Lilly are transforming the research-based pharmaceutical industry into one that is more networked,... global,... and entrepreneurial than ever before" (3).
He explained the transformation of Lilly from a fully integrated pharmaceutical company, or FIPCO, in which the company owned every part of its value chain, to a fully integrated pharmaceutical network, or FIPNet. "We're using FIPNet to build additional R&D capacity and capabilities that leverage what we do well while attracting molecules, funding, and expertise from partners," he said. "Through FIPNet, we can share investment, risk and reward."
To illustrate that network strategy, he offered the example of Chorus, a virtual drug-development network established in 2002 as a small, cross-disciplinary group of Lilly scientists who design, oversee, and interpret early-stage development work through a network of organizations outside the company. Chorus manages some 15 molecule programs with a dedicated staff of only 29 scientists and has been able to reach clinical proof of concept about 12 months earlier and at half the cost than current industry models (3).
Earlier this year, Eli Lilly reported on the Mirror Portfolio, which establishes investment funds for early-stage research, and which will work with the Chorus project. Lilly has committed to invest as much as 20% of the capital for these funds, or a total of $150 million. In addition to financial resources, Lilly will offer to out-license molecules to these funds. For its investments of time and capital, Lilly will receive preferential access to molecules managed by the funds. Lilly retains the rights to purchase all molecules licensed from Lilly through the Mirror Portfolio as well as to evaluate and acquire a limited number of externally sourced compounds, all at fair market value (4).
Lechleiter sums up the benefit of such collaborative approaches. "Our Mirror Portfolio strategy is just one example of a broad range of initiatives that research-based companies like ours must pursue to rebuild our R&D engine ... and thus reshape the research-based pharmaceutical industry of the future."
1. PwC, "Patient Over Product: Pharma Needs to Prepare for the Future, Warns PwC," Press Release (London, Feb. 21, 2011).
2. PwC, "Global Biotech Industry Must Reivent Itself to Survive Warns PwC," Press Release (London, Nov. 8, 2010).
3. J. Lechleiter, Pharma Summit 2011, London, Feb. 20, 2011, www.lilly.com/news/speeches/Pages/110210.aspx, accessed July 12, 2011.
4. Eli Lilly, "Lilly Marks Major Milestone for Mirror Portfolio with Agreement by Independent Fund to License First Two Investigational Medicine," Press Release (Indianapolis, IN, Feb. 15, 2011).