COMING DOWN THE LEARNING CURVE
It should be remembered that both the global bio/pharmaceutical companies and their CRO partners are still very new to the
strategic sourcing process. They have barely begun to progress down the learning curve of how to establish and manage these
relationships; the bio/pharmaceutical industry is thought to be a decade or more behind other industries in its sourcing practices.
As both sides gain experience and as some of these relationships blow up, as they inevitably will, the sourcing model will
evolve in directions that have not yet been anticipated.
At many of the global bio/pharmaceutical companies, the senior executives that negotiated these strategic sourcing deals had
little previous direct experience in managing CRO relationships and often did not involve lower-level colleagues who did.
It is likely that they underestimated the risks and challenges of those sourcing deals and the abilities of their partners
to handle them.
The consequences of adopting a radical new sourcing strategy with untested partners could be dire, if not catastrophic. Boeing
demonstrated that with its Dreamliner supply-chain fiasco. The company outsourced major components of its new 787 Dreamliner
passenger jet (including large sections such as the wings and fuselage) to partners around the globe. The company found out
too late that many of its partners were not up to the task, which resulted in delaying delivery of the new plane by at least
two years. In one case, Boeing had to acquire one of the partners providing critical components in order to regain control
of the supply chain.
Boeing ran into these major problems despite decades of experience in outsourcing major components for its civilian and military
aircraft programs. It is not a big leap to imagine newcomers to strategic sourcing, which the global bio/pharmaceutical companies
are, having significant problems themselves as they learn to master the new model. In circumstances similar to Boeing's, several
bio/pharmaceutical companies have been forced to buy back manufacturing facilities that they had sold to startup contract
manufacturers after those CMOs ran into financial problems and put the bio/pharma companies' product supply at risk.
The point here is not to question the major acquisitions cited above or to question the business strategies of CROs and CMOs
aimed at expanding their service offerings. They are a response to what the global bio/pharmaceutical companies are actually
doing today and to ignore that would risk being shut out from the biggest opportunities.
The further risk, however, is that in the two or more years it will take to fully integrate the parent and acquired companies
into a genuinely single entity, the sourcing paradigm may have moved to a different place. The lessons of the first strategic
partnering efforts will have been learned and applied to different sourcing arrangements.
In the meantime, the CROs that are already big will be using their large scale to further their lead with new capabilities.
For instance, Covance, the second largest clinical services provider by revenue, recently announced a new service to help
bio/pharmaceutical companies select clinical sites more efficiently by using a database that incorporates information from
the thousands of trials they have serviced in recent years.
The CROs playing catch-up don't want to find themselves in the position of planning for the last war. Like the French military
leaders who built the "impenetrable" Maginot line after World War I, they risk being circumvented by new technologies and
the innovative strategies they make possible.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, 703.383.4903, info@pharmsource.com
,
http://www.pharmsource.com/.
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