Quintiles - Balancing Risk in Drug Development

7/27/2019 Quintiles - Balancing Risk in Drug Development

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The new risk-based approaches ocus on ways to circumscribe, share,rebalance and hedge drug development risk to trans orm cost and

productivity. We are seeing risk being evaluated through threedistinct lenses:

Operational risk execution risk in delivering robust clinicalknowledge on an asset

Portfolio risk the uncertainty in harnessing an assets (drugcandidates) inherent utility and value

Resource risk exposure arising rom inertia in the xed-cost basesupporting operations

In tandem, we are seeing new development models emerge as solutions torefect this segmentation and rebalancing o risk. These models challengeand redistribute the traditional boundaries o the pharmaceutical businessmodel i.e., what a pharmaceutical company must own to capturecompetitive advantage and to grow, and what can be actored out andhedged by partnering with external sources.

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This actoring extends rom resources and processes to systems andcompounds and the associated solutions involve shedding the large-scale,

ully integrated business model and moving to a more nimble, modularand variable way o leveraging resources to increase the value o assets.

a Taxonomy of r i sk in drug deve lopmen T Any risk-based transaction involves pricing and trading both the upsideand the down-side variance associated with expected outcomes. ExhibitI rames the challenges and potential solutions along the three types o development risk: port olio, operations and resource risk.

Portfolio risk

Several actors currently limit the industrys ability to pull drug candidatesthrough proo -o -concept and large Phase III studies to market in time tomeet the impending patent cli rom 2012 onwards. Constraints includeP&L pressure, reductions in development resources, and attrition at boththe regulatory and reimbursement stages. With this reduced throughput,risk is concentrated among a limited number o development programs.

We are increasingly seeing solutions to risk concentration involvebuilding connected networks o allies to access both capital and risk-based services. This approach can stretch development budgets, releasethe latent value locked in the port olio without increasing exposure to therisk o ailure, and provide more shots on goal.


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Operational risk

The industry has traditionally maintained control and mitigated risk inoutsourced trials by buying in measured tactical steps around isolated

ragments o the clinical development value chain, (e.g. data management,site start up, etc.). This parceled approach to limiting the risk o

outsourcing has o ten led to higher management costs, a dilution o accountability and massively ine cient practices throughout the process.For example, site start-up is o ten sub-optimized due to the lack o arobust connection to easibility and patient access intelligence.

Over time, these actors have institutionalized a risk-reward imbalanceamong the parties involved that can undermine trust and act as adisincentive to manage out unacceptably high variance in operationaloutcomes. We see the industry exploring new approaches that reengineerthe risk-reward imbalance through better alignment o incentives such as

outcomes-based approaches.

The increasing interest in outcomes-based approaches as more e ectivevehicles or delivery is based upon three actors. Firstly, they increase theaccountability o the service provider or solving operational problemsas opposed to merely taking orders. Secondly, they encourage a deeperexploration o design and operational easibility between the serviceprovider and the sponsor prior to starting the trial. And, thirdly, theyrebalance the risk inequity by creating an economically rational downside

or late delivery o outcomes.

Resource riskThe drug development business has a particularly rich competitivedynamic. On the market demand side, opportunities and threats emergedaily as products and competition ail or progress to the next stage o development or product li ecycle. In contrast, supply side resources arealmost always comprised o a standing orce o large, ully integratedbusiness unctions.

We see more and more companies recognizing the misalignment between

xed supply-side resources and highly variable demand-side marketfuctuations. Due to the current extraordinary volatility in the industry,senior leaders increasingly see the need to use ewer xed assets and/ or trans orm xed costs into variable costs. This means identi ying andmoving coherent, contiguous parts o the business to a variable base tomanage demand-side volatility.


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Increasingly, we are seeing the industry seeking a network o alliedorganizations to absorb and integrate potential non-core unctions (e.g.,monitors, data management, sales orce, etc.). By trans orming xed costsin this manner, companies nd that they can limit exposure to redundantcost risks and increase their ability to mobilize around an environment in

which change is now constant.

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In a series o recent case studies, we ound that weak control overoperational risk has signi cant impact on clinical trial timelines, costsand management overhead. As such, addressing operational risk becomesa key element in trans orming the clinical development model to reducetimeline and cost variability to recapture time based competitive advantage.

Using a database o over 10,000 clinical trials, we have calculated thehistorical variance rom expectations in cycle times and costs across theclinical development process see Exhibit II. The analysis shows thataddressing operational risk can shave on average more than six monthsand about 30 percent o the cost o clinical trials. For example, by

ocusing in operational risk, one development organization has realizeda 56 percent reduction in overall clinical development cycle time ( romstudy start up to report writing) to be around hal the industry average.Over the same period o time, the industry average rose by ve percent.

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Although not insubstantial, the direct cost savings are small compared tothe indirect reductions in overhead, recaptured opportunity cost and thetime based competitive advantage in reaching the market aster, which canexceed $1 billion or a mid-size port olio (Exhibit III)

rooT cause s of oper aTiona l r i skQuintiles Consulting conducted interviews recently with cross- unctionaldevelopment teams across several sponsors, to understand the root causeso operational risk.


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In general, we ound that respondents outsourced clinical developmentin piece-meal ashion. They awarded tactical elements o the clinicaldevelopment value chain (such as data management or monitoring) to arange o vendors through a procurement process designed to minimize thecost o each step. Therea ter, sponsors tend to recognize and pay or value

based on completed inputs to the development process, such as number o monitor visits or number o sites initiated.

In several companies the outsourcing process has evolved in an ad hocashion to cope with the disparate needs o di erent unctions, geographies,

therapeutic areas, and external service providers. In these cases, there isno longer a single way o doing business. Through our analyses o casestudies and internal roles and responsibilities, we observed that manypharmaceutical organizations are structured to actively encourage up to100% management overhead on outsourced trials, with unctions and

roles being duplicated depending on the speci c composition o the variousinternal and external teams.

Analyses determined that much o the behavior that drives this ine ciencyis caused by a perceived risk-reward imbalance in these relationships,which rein orces a lack o trust and consequently leads to a high burden o internal pharma oversight. This vicious cycle tends to institutionalize andperpetuate ine ciencies (Exhibit IV)


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address ing r i sk ThroughouTcomes -based mode l sOne approach that companies are using to trans orm operational e ciencyis to address the perceived risk-reward imbalance by adopting outcomes-

based pricing and management models. Through these models, serviceproviders promise discrete outcomes in the orm o agreed-upon units o measurement (such as a randomized patient), with minimalsponsor oversight.

This model radically changes pricing, moving away rom costs based ona unit activity (such as a visit) and associated change orders, and towarda price to adopt the risk o guaranteeing an outcome (such as an FDAauditable data set on May 1, 2010). As part o the risk trade transaction,service providers will agree on a more equitable level o control over the

design and execution o the trial su cient to manage the risk to anacceptable level or both parties. This will usually involve a greater degreeo integration around planning and design activities such as easibility andsite selection. The changes in attitudes and behaviors implied by this modelare summarized in Exhibit V.

change i s sTar Ting wiT hp i loT in iTiaTivesSo ar, no large pharma company has yet solved the problem o owning theentire risk in the value chain by working in alliance with service providersin that chain. However, in recent months, we have seen several companies


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launch trans ormation initiatives, some involving relatively radicaldepartures, such as outcomes guarantees.

Although most o these initiatives are still in the pilot stage or only applyto a small portion o the business the why, what and how de ning these

pilots is already clear:

Why: Reinvigorating the development process is essential to develop moreproducts within xed or shrinking budgets.

What: E ciencies largely derive rom undamental decisions on what isthe optimal unit o outsourced work; who is responsible and accountable

or delivering it; and what degree o autonomy/oversight is required tobalance e ciency, control and risk. I the ultimate deliverable is an agreed-to quality o outcome at a speci c time, the new operating principles shi tvariable price inputs to the trial to xed price outcomes, thereby rede ningthe answers to these questions.

How: In order to adopt and mitigate the inherent risks in outcomes-basedmodels, the traditional role o the sponsor and its service provider will needto be explored. Changes will likely cover variables like site selection, start-up/close-out timeliness, monitoring e ciency and execution fexibility. As aconsequence, contracts will likely be based on the time value o outcomes.

We believe that insights rom the successes and ailures o the pilots willre ne and elaborate new operating models and usher in a new paradigm or

clinical development. In an era o constant change, those organizations thatcan nimbly manage the three dimensions o development risk (port olio,operations and execution) will emerge as winners. The key question acingdevelopment leadership teams, then, is when, or whether, they will bewilling to meet this challenge in order to remain viable and competitive.

Adrian McKemey is a Managing Director with Quintiles Consulting and leads the

Product Development and Commercialization Practice.Badhri Srinivasan leads the Enterprise Trans ormation Unit an organizationdedicated to mining the experiences accumulated over 10,000 clinical trials to identi ysystematic issues and solutions increased speed and reduce cost and variance in clinicaldevelopment.

Peter Payne leads e orts on assessing, mitigating and pricing asset and clinicaldevelopment risk to support risk sharing initiatives at the port olio, operational andresource level.


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Quintiles - Balancing Risk in Drug Development

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