Always Compete on Value; Never on Cost

The title was a maxim drummed into me at the start of my career. I’ve said before, as have many others, that a recession is not something to be simply ‘ridden out’, but as far as possible to be invested through. When the economic upturn comes, the individuals, organisations and indeed countries that will be best placed to succeed will be those that have continued developing through the lean times. Others, who might have survived by pulling in their horns, will need to adapt suddenly to an environment that has changed commercially, socially, demographically and scientifically. Simply minimising costs will not be enough.

We’ve seen wave after wave of initiatives to improve the efficiency of processes and as a result we’ve become very good trimming a few percentage points off the cost of delivering a study. If what’s important is completing Study X within budget, then this is ‘a good thing’, and many feel that this is the case. The problem is that it’s tempting for organisations to focus too exclusively on cost minimisation. When you’re very good at using a hammer, everything looks like a nail. However, this neglects the bigger picture and the importance of creating additional value for companies, shareholders and society as a whole.

In the short term, quality is better at creating value than cost minimisation. Data obtained cheaply but that is not robust is of no value, with rework outweighing any cost savings. (Improving quality to eliminate rework is one way that techniques such as Six Sigma reduce costs.)

In the medium term, speed is better at creating value than cost minimisation. For a treatment that makes it to market, a few extra months of on-patent sales will be worth far more than thousands of pounds saved during Study X. For a treatment that isn’t going to succeed, being able to make that decision earlier eliminates the cost of Studies Y and Z.

In the long term, strategy is better at creating value than cost minimisation. By far the best way to create value is to get better at planning the development programme. Compounds entering development now will face different challenges to demonstrate safety and efficacy, scientific developments enabling more precise targeting of responders and non-responders, traditional markets seeking more detailed analysis of socio-economic impact to justify pricing, new markets increasing dramatically in importance and patients being more vocal in specifying what they want from a treatment. Many of these factors will influence or even contradict each other, making it vital to have a detailed and integrated understanding of the entire picture. While some of these strategic insights will come from the clinical/regulatory sphere we are all familiar with, others will involve experts in economics and marketing.

Maximising value and minimising cost certainly aren’t exclusive. It could be argued, for example by CROs, that as long as someone is thinking about the bigger picture, then it’s okay to concentrate solely on containing costs. However, that’s could be short-sighted, because having efficient processes is of little long-term value if they can’t cope with the changing goals of future development programmes. In fact, with a broad view and portfolio of clients, being able to offer such strategic insights could be a deal-winner.

It might seem counter-intuitive, but when the overall level of business risk is high, the relative risk of trying to leap ahead through strategic innovation is actually lower than in ‘boom’ years. Some companies will fail, but some will fail anyway, and those that innovate and survive will secure their place at the forefront of the industry for a generation.

CRfocus: Table of Contents of April issue

CRfocus 20(04) – April 2009

This is the Table of Contents of Clinical Research focus 20(04) for April 2009. Members of The Institute of Clinical Research can click on the links to read the full text of each article.

Weathering the storm

Consolidation or Sea Change?

Andrew Smith

In the current economic climate, it’s easy to reach the conclusion that the recent high-profile mega-mergers (eg, Pfizer/Wyeth, Merck/Schering-Plough etc.) are simple industry consolidation. But, as we’ve pointed out in CRfocus previously, the link between the global economic turmoil and the changes in the pharmaceutical industry is perhaps less direct than one might think. Andrew explores…

What a Difference a Year Makes: Survey of Executive Confidence

Tim Ewbank

The past 12 months have seen economic turbulence on a scale no-one could have predicted. So how has this impacted on the pharma and biotech sectors? Harten Group’s seventh annual industry survey takes a look at the facts behind the headlines. Tim Ewbank presents some of the findings of this research.

Maintaining a Positive Outlook: Survey of Jobseekers

Jonathan Hart-Smith

Following a recent survey at the beginning of 2009, jobseekers within the UK pharmaceutical and biotechnology industries have a very positive outlook. Their positivity is a breath of fresh air in stark contract to the general mood for the economies of Western Europe and the USA. Jonathan Hart-Smith presents the findings of this survey.

Research integrity

Investigating Serious Non-Compliance: Planning & Conducting For-Cause Audits

Nigel Crossland FICR Csci

A for-cause audit is defined as an independent and objective examination of a clinical research study in order to confirm the circumstances of a reported incident of serious non-compliance. In this article, Nigel describes some of the principles and practicalities involved in ‘for-cause audits’ and shares some examples of their findings.

Research Integrity: A European Perspective: EFGCP conference report

Andrew Smith

This year’s EFGCP Annual Conference, held in Prague at the end of January, aimed to provide a European perspective on integrity in the conduct and publication of clinical research. Andrew was there, and presents commentary on selected presentations, as previously reported on the CRfocus blog.

Book review

“The Trouble with Medical Journals” by Richard Smith

Reviewed by Debbie Early MICR

Prof. development

Tools & Updates: CTA Workshop Report

Judi Eaton

Judi reports on the latest ICR CTA workshop, aiming to give CTAs everywhere ‘Tools & Updates’ as part of the ‘Maximise Your Potential’ series. Topics included the draft CTA Handbook, a regulatory and ethics update and the ongoing development of the Integrated Research Application System (IRAS).

Regular updates

Our Institute, Our Future: Message from the Chair

Janette Benaddi MICR Csci

In her first message as Chair of ICR, Janette pays tribute to her predecessor, Susan Ollier, and sets out her vision for the coming year. During difficult times, it is important that we continue to support you in your careers and ensure that we are meeting your expectations. Janette explains that we are going to embrace these challenging, changing times and continue to add value to the services we provide for members of ICR.

It’s Not All Work, Work, Work…

Andrew Smith

Our regular look at the lighter side of clinical research, including “Ten things we hope sales & marketing won’t say to clinical” and engaging with patients in a “hip hop stylee”…

Consolidation or Sea Change?

Less than a month after Pfizer bought Wyeth for $68bn, today’s big merger news is that Merck will buy Schering-Plough in a deal worth $41.1bn. In the current economic climate, it’s easy to reach the conclusion that this is simple industry consolidation, with the cash-rich companies opportunistically buying up those less fortunate, integrating the businesses and continuing as before. But, as we’ve pointed out in CRfocus previously, the link between the global economic turmoil and the changes in the pharmaceutical industry is perhaps less direct than one might think…

Analysts have argued that the pharmaceutical industry is one of those least threatened by the global recession: big pharma companies are less highly leveraged (ie, funded by debt) than their comparators in other industries, many have substantial cash ‘cushions’, and share prices already reflected investors’ knowledge of the impending ‘patent cliff’ facing many companies in the next few years. Indeed, you could expect the sector to outperform overall stock markets as investors flee other ‘blue chip’ industries (eg, financial services, automotive industries etc.) that are suffering the brunt of the crisis.

So, if this isn’t a ‘fire sale’ to prevent Company X from going under (which, at these prices, it clearly isn’t), then why are these mega-mergers coming thick and fast at the moment? My view is that it’s a rush for a ‘critical mass’ of intellectual property, bargaining power and cash. The goal is to propel big pharma from the “invent it here, develop it here, sell it here” model that was the only game in town 20 years ago to the “license in candidates, contract out development, manufacturing and sales” model that’s been discussed in recent years as the only way to make big pharma sufficiently diverse and agile for the future. In the short term, this requires a pipeline broad enough to navigate the patent cliff safely, with key patents on many high-earning drugs expiring in the next couple of years. In the longer run, though, access to huge quantities of resources is vital, to manage such a deep strategic change while mitigating the operational shock and potential brand damage of changing how tens of thousands of people and their associated infrastructure are deployed.

I’ve previously commented that these changes of ownership will make relatively little difference to how clinical research itself is conducted: scientific requirements and professional standards are unchanged, and there is still more demand for clinical research than there are professionals to perform it (or patients, for that matter, but that’s another story…). Company cultures will differ, as will the precise nature of the SOPs to meet these professional standards and scientific requirements, but we will mostly be doing the same tasks, albeit increasingly in the CRO sector rather than within pharma.

This could make work more complicated, as the ground rules of successive studies change subtly as we work with a wider variety of sponsors, on studies that are getting increasingly complex anyway for unrelated, medico-economic reasons. However, it should also make life more interesting, as we work in a diversity of therapeutic areas.

So, is all of this a ‘good thing’? I’d have to say that it is, because the expiry of key patents is the ‘elephant in the room’ throughout the pharmaceutical industry. We may be well placed, as a sector, to ride out the current turbulent times but our own crisis was looming well before the financial services industry started crumbling. The political appetite for bail-out funds will almost certainly be gone before anyone in our sector needs one, so we need to take advantage of this opportunity to change the way our industry is organised.

Unthinkable!?

If you dig past the current economic doom and gloom spread throughout the media, you’ll come across the idea that a recession can actually be a great time to be innovative and entrepreneurial. If this can (and does) happen in the wider sphere of business, I would argue it can (and should) also happen in the development of new medicines.

Despite the instinct to stop training, stop advertising and stop investing in R&D, this is the very last thing we should be doing. Some will survive the next couple of years by simply cutting costs, but they will emerge into a world where the old models no longer apply. The rules will have been changed by maverick organisations who kept looking for the next big thing, and individuals who could ‘think the unthinkable’.

This ‘unthinkable’ might be a genuinely new idea. But, like stories, there are only so many, and once we start constraining ourselves into a specific sector, genuinely new ideas are rare. A far more approachable category of unthinkables is those ideas that pop into our heads from time to time but are swiftly forced out again because we can’t see a way to make them feasible, beneficial or politically acceptable. If we can set aside the voices of criticism and negativity (whether internal or corporate) and try to view these unthinkable ideas in a different way, we might be able to do something with them.

This generally requires someone to look from a different perspective, to change how we interpret an idea or situation, perhaps as radical as taking a view diametrically opposite the ‘conventional wisdom’ to see whether the boundaries we imagine simply disappear. (As an exercise, try to think of ways to interpret the current recession in a positive way.) This, in turn, requires a dynamic kind of optimism or, to borrow the vocabulary of an American politician who is likely to define the next few years, “hope, for change”.

Of course, the problems facing us in clinical research are exacerbated, but not created, by the current economic turmoil. Patent expiries on blockbusters reduce the revenue we can plough back into R&D; regulators raise the bar for the size of patient safety databases; governments base reimbursement decisions on evidence for patient value; and drug discovery hands us candidates that we can’t find enough patients to test, let alone enough professionals to conduct the studies… It would be easy to get depressed by this ‘perfect storm’, even before the recession hit!

But, for a moment, try to look at this situation from a hopeful, positive perspective. If the current recession can be viewed as an opportunity for the next generation of innovators to change the way business will be done for the next decade, can’t the same be true for clinical research? If this is what it takes for us to change the way we evaluate new medicines, creating a model that is a step-change more effective and efficient than at present, then would it be unthinkable for me to say that we can view our situation in a positive way?

What We Want & What We Need

It’s an odd time for us, working in clinical research. The economies of the developed world are teetering on the edge of recession, many pharmaceutical companies are seeing their biggest money-makers reaching the ends of their patents, and as a consequence many of them are looking reduce their headcount and cost-base by out-sourcing activities, in-sourcing personnel and off-shoring studies to the emerging markets. Conversely, we are also facing a skills shortage (even in high-growth regions such as India), with experienced clinical research professionals in great demand and increasing competition to hire the best people. To help meet this demand, we’ve published an ‘extra’ CRfocus recruitment supplement in addition to ICR members’ 11 regular issues, bridging the gap between July and September.

The skills shortage over the past few years has weighted the balance of supply and demand in the personnel recruitment sector strongly in favour of candidate supply, but this balance is shifting. If handled carefully, this could actually be a positive thing for all involved in the long-term, rather than the negative scenario many perceive it to be.

The demand side of this equation (ie, the pharma companies) has been moving slowly over the past few years, with companies seeking more flexible staffing arrangements, albeit constrained by the pragmatic need for staff to work on the current portfolio of studies. The gap between what industry wants in the long term and what it needs in the short term widened during this period; companies have been robust enough to tolerate this up to now, but as the broader economy tightens, industry’s capacity to tolerate this gap is reducing, and the desire to increase flexibility is becoming a necessity.

On the supply side, candidates have made the most of being in demand over recent years, with experienced personnel getting almost whatever they want as an incentive to change employers. With the tightening of the economy, people are placing even more value on job stability and structured professional development, over rapid increases in responsibility and salary. (This is particularly true for the thirty- and forty-somethings who comprise the majority of ICR’s membership, in the “family-size” stage of their lives.)

With drivers for change on both sides of this equation, we can expect to see a turbulent time ahead in the recruitment market for clinical research professionals, in which everyone involved (including all the intermediaries, such as recruitment consultancies and media channels like CRfocus and our online job-board CRjobs.org) will need to be more creative in balancing the wants and needs of both sides of the supply/demand equation.

The fact that both sides of the equation are shifting also suggests that there is a ‘sweet spot’ to be found, although the pace of change risks overshooting this balance point and tipping too far the other way. Employers and employees need to find other areas in which to add value to working together. A recent podcast from the Harvard Business Review discussed ways to reward staff when simply paying them more is not an option. Its conclusions (flexible working to suit family commitments, personal and professional development, visible recognition of performance and involvement in areas of interest beyond the strict remit of the role) are hardly rocket science, but both recruiters and candidates need to consider them and make more use of them.

By having a broader discussion on these topics, both industry and individuals can get what we need, even if it does mean compromising a little on what we want.