CROs & CMOs: Focusing On Innovation

Life Science Leader, May 2012

In 2011, innovation was a major topic among the various players in the drug development industry. Feedback from clients and sponsor-side industry personnel prompted a change in the outsourcing drivers included in the Nice Insight Pharmaceutical and Biotechnology Outsourcing survey, such that innovation — or the ability to improve in-house capabilities with customized solutions — replaced accessibility for the 2012 research cycle.

The results from the Q1, 2012 survey indicated that while important, innovation ranked sixth after quality, reliability, productivity, regulatory track record, and affordability with respect to partner selection.

Five of the CMOs in Nice Insight’s study received “excellent” scores — 80% and above —

in the innovation category. The top-scoring businesses included Cangene bioPharma,
Legacy Pharmaceuticals, Norwich Pharmaceuticals, Sandoz, and UPM Pharmaceuticals. Interestingly, each of these companies received a score of 81% in innovation, and their
results averaged eight percentage points higher than the industry mean of 73%. Quality
and productivity tend to link closely to innovation. These outsourcing drivers are indicative of enabling the sponsor organization to focus on core competencies while trusting that its project is receiving the necessary attention to be successful. Nice Insight compared how the top-scoring companies for innovation fared on these two measures. Among innovation leaders, the average productivity score was three percentage points higher than the CMO benchmark (77% vs. 74%). This difference was present but less pronounced (at one percentage point) when comparing the quality score of innovation leaders to the CMO benchmark for quality.

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As a matter of fact, innovation leaders averaged higher ratings across each of the
outsourcing drivers when compared to the CMO benchmarks. These businesses also
averaged ratings four percentage points higher with respect to regulatory track record and three points higher in terms of affordability. The one exception was reliability, where the innovators’ average and industry benchmark were both 73%. Next, Nice Insight reviewed how innovation leaders fared with respect to market share when compared to the custom manufacturing, analytical testing and regulatory support benchmarks. For all of these services, the innovation leaders averaged a greater percentage of market share than the overall benchmarks for each service. Both the customer perception ratings and market share data indicated these businesses would make solid partners for specialized projects, where customized solutions may be necessary.

Innovation can come in the form of breakthrough science, inventive business practices, or more broadly, changes in an industry’s way of thinking or approach to problem solving. CROs and CMOs often look to advances in technologies and focus on the breakthrough science segment of innovation. Sponsors have also looked to business practices as a means to innovate — in part by engaging CROs and CMOs with the hopes of bolstering their competitive advantage — enabling sponsors to focus on core strengths and at the same time decrease fixed costs. As the drug development industry moves toward partnerships based on shared risk, rather than the more transactional relationships of years past, the business climate is becoming more open to alternative forms of innovation.

As the drug development industry moves toward partnerships based on shared risk, rather than the more transactional relationships of years past, the business climate is becoming more open to alternative forms of innovation.

Evolving from a closed process to one of “Open Innovation”* — with collaborative intelligence across multiple sponsors and contract organizations — may initially cause challenges with respect to regulatory requirements and IP ownership. But a major overhaul in status quo problem solving is likely a necessary component of any plan to maintain profitability while bringing less expensive medication to the people who need it. It is very likely that the topic of innovation will continue to resurface not just as it relates to the problem-solving process and frequently converts to dollars — whether saved or earned.


*“Open Innovation” is a term coined by Henry Chesbrough, director of the Center for Open Innovation at the Haas School of Business, University of California.

 

Nice Insight

Nice Insight, established in 2010, is the research division of That’s Nice, A Science Agency, providing data and analysis from proprietary annual surveys, custom primary qualitative and quantitative research as well as extensive secondary research. Current annual surveys include The Nice Insight Contract Development & Manufacturing (CDMO/CMO), Survey The Nice Insight Contract Research - Preclinical and Clinical (CRO) Survey, The Nice Insight Pharmaceutical Equipment Survey, and The Nice Insight Pharmaceutical Excipients Survey.