Destruction of competition would counteract procurement’s aim
Tuesday, September 15, 2015
Does procurement provide strategic value to pharmaceutical companies? This was the title of a pre-conference session held as part of February’s Association of European CROs (EUCROF) conference in Paris.
During presentations by representatives from Takeda, Novartis and Lilly, I developed much deeper insights, but ultimately the content of the presentations fueled my skepticism—mainly because the great majority of KPIs presented by the procurement representatives related solely to “bottom-line” cost savings (e.g., 10% reduction in annual spending on service providers). If Big Pharma is going this way, it will accelerate the CRO environment’s consolidation, and perhaps only five big CROs will share more than 90% of the market. It’s unclear if procurement knows this development will destroy competition—which counteracts its own initial aim. Procurement’s message at this conference was that its value is based on reducing cost, improving quality and saving time. But what is the reality?
A recent report published by Tufts Center for the Study of Drug Development concluded that change orders for phase II and III trials were actually higher for strategic relationships than transactional relationships. An Avoca Quality Survey from 2012 found that 80% of sponsors indicated a stable or downward trend of quality of service from CROs. Interestingly, 74% of CRO correspondents agreed there is a correlation between sponsor demand for decreased prices and an overall lowering of quality by CROs. This phenomenon is known as the “Lopez Effect,” recognized first in the automotive industry: It is characterized by downward pricing of service providers driven by procurement teams, which seriously impacts the quality of vehicles.
What’s still valid is Roger Atkinson’s statement in a 1999 scientific article: “Time and costs are at best only guesses, calculated at a time when least is known about the project. Quality is a phenomenon; it is an emergent property of people’s different attitudes and beliefs, which often change over the development life-cycle of a project.” I agree!
Written by Guest Writer Jorge Garcia. Garcia is Corporate Development Director of CromSource. Previously, he spent 19 years working for different service providers in the pharmaceutical environment (central laboratories, staffing agencies and CROs), mainly in project management and sales. He was the chapter chair of the German Association of Clinical Research Professionals (ACRP) from 2002 to 2006.
This article was reprinted from Volume 22, Issue 09, of The CenterWatch Monthly, an industry leading publication providing hard-hitting, authoritative business and financial coverage of the clinical research space. The Action Items section features short columns focusing on actionable or how-to advice from clinical trial professionals. To submit an Action Item, please contact firstname.lastname@example.org. Subscribe >>