CROs are seeking greater upside from royalties and other opportunities to participate in profits. Meanwhile, drug makers have an interest in reducing upfront drug development costs, and reducing the financial risks of product failure.More sponsors and CROs are entering into innovative relationships where risk is shared more fully between the two companies, while profits from successful projects are also shared. Key types of agreements include preferred vendors, functional service providers (FSPs), risk sharers, alliance partners, drug licensors, joint venture partners and contract research alliance partners.Scope of this research' Identify the benefits and challenges of risk sharing & innovative contracting agreements and structure more successful deals. ' Analyze compensation and pricing issues in risk sharing agreements, so that negotiations may be more fruitful. ' Evaluate the different types of risk sharing and innovative contracting agreements. ' Learn from detailed case studies of the activities of leading drug developers and CROs. ' Gain insight into to optimal conditions for risk sharing and innovative contracting agreements and their outlook to 2016. Research and analysis highlights Risk sharing/innovative contracting agreements are becoming more popular, although many companies are not yet able to structure effective relationships. Successful agreements can be extremely beneficial for both drug developers and CROs, however, unsuccessful relationships can significantly impact either or both companies' businesses.The leading CROs tend to be more flexible and willing to partner than less experienced CROs. The number of risk sharing/innovative contracting agreements is expected to continue to expand strongly, although some types of relationships will be utilized more than others.Risk sharing/innovative contracting agreements with offshore CROs will experience particularly strong growth as the drug development industries in China and India expand.Key reasons to purchase this research' Why are risk sharing agreements between drug developers and CROs becoming more popular' ' What are the key considerations in such agreements for both parties' ' Which types of risk sharing agreements are most popular' ' Which CROs & drug developers are most active in risk sharing' ' What are the typical benefits of risk sharing agreements'

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Risk Sharing and Innovative Contracting with CROs
Published on February 2011
Report Summary
CROs are seeking greater upside from royalties and other opportunities to participate in profits. Meanwhile, drug makers have an
interest in reducing upfront drug development costs, and reducing the financial risks of product failure.
More sponsors and CROs are entering into innovative relationships where risk is shared more fully between the two companies, while
profits from successful projects are also shared. Key types of agreements include preferred vendors, functional service providers
(FSPs), risk sharers, alliance partners, drug licensors, joint venture partners and contract research alliance partners.
Scope of this research
' Identify the benefits and challenges of risk sharing & innovative contracting agreements and structure more successful deals.
' Analyze compensation and pricing issues in risk sharing agreements, so that negotiations may be more fruitful.
' Evaluate the different types of risk sharing and innovative contracting agreements.
' Learn from detailed case studies of the activities of leading drug developers and CROs.
' Gain insight into to optimal conditions for risk sharing and innovative contracting agreements and their outlook to 2016.
Research and analysis highlights
Risk sharing/innovative contracting agreements are becoming more popular, although many companies are not yet able to structure
effective relationships. Successful agreements can be extremely beneficial for both drug developers and CROs, however,
unsuccessful relationships can significantly impact either or both companies' businesses.
The leading CROs tend to be more flexible and willing to partner than less experienced CROs. The number of risk sharing/innovative
contracting agreements is expected to continue to expand strongly, although some types of relationships will be utilized more than
others.
Risk sharing/innovative contracting agreements with offshore CROs will experience particularly strong growth as the drug
development industries in China and India expand.
Key reasons to purchase this research
' Why are risk sharing agreements between drug developers and CROs becoming more popular'
' What are the key considerations in such agreements for both parties'
' Which types of risk sharing agreements are most popular'
' Which CROs & drug developers are most active in risk sharing'
' What are the typical benefits of risk sharing agreements'
Table of Content
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Table of Contents
About the author 2
Disclaimer 2
Executive summary 10
The need for risk sharing and innovative contracting with CROs 10
Types of CRO risk sharing and innovative contracting agreements 11
Optimizing CRO risk sharing and innovative contracting agreements 11
The future of CRO risk sharing and innovative contracting agreements 12
Chapter 1 The need for risk sharing and innovative contracting with
CROs 14
Summary 14
Introduction 15
The drug approval process 15
United States 15
Europe 19
Pressures on drug developers 21
Expiring patents on blockbusters 22
Rising usage of generics 22
Decreasing market exclusivity 25
Increased regulatory requirements 25
Declining drug approvals 27
Escalating R&D costs 30
More complicated disease targets 31
Reduced R&D staff 32
Economic issues 33
Rising utilization of CROs 34
Drivers contributing to CRO usage 34
Current CRO usage 37
Shortcomings of conventional CRO agreements 39
Shortcomings for drug developers 40
Shortcomings for CROs 42
Conclusion 43
Chapter 2 Types of CRO risk sharing and innovative contracting
agreements 44
Summary 44
Introduction 45
What is risk sharing' 45
Benefits and challenges for sponsors 46
Benefits 46
Challenges 47
Benefits and challenges for CROs 47
Benefits 47
Challenges 48
Optimum conditions for risk sharing 48
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Optimum conditions for sponsors 48
Optimum conditions for CROs 49
Key types of agreements 49
Preferred vendors 51
Case study: GlaxoSmithKline 52
Functional service providers 54
Case study: Perceptive Informatics 55
Risk sharers 55
Case study: Teva Pharmaceutical Industries 57
Case study: PPD 58
Alliance partners 60
Case study: Parexel 61
Drug licensors 62
Case study: Almac Group 62
Joint venture partners 63
Case study: Lilly 64
Contract research alliance partners 65
Case study: ICON 68
Conclusion 69
Chapter 3 Optimizing CRO risk sharing and innovative contracting
agreements 70
Summary 70
Introduction 71
Risks and risk reduction (small molecule drugs) 71
Risks for sponsors 71
Confidentiality and intellectual property 71
CRO staffing and turnover 73
CRO volatility and/or financial stability 74
Higher priority projects for the CRO 75
Risks for CROs 76
Pricing 76
Technology 77
Offshore risk sharing alliances (small molecule drugs) 77
Risks for sponsors 81
Heightened intellectual property risks 81
Legal complexity 83
Differing regulatory regimes 84
Infrastructure 85
Risks for CROs 86
Communication and expectations 86
Case study: Pfizer 89
Biotech risk sharing alliances (large molecule drugs) 91
Risks for sponsors 92
Technology risk 92
Increased company volatility risk 94
Third party risk 94
Risks for CROs 95
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Technology risk 95
Case study: Covance 95
Case study: Oxford BioTherapeutics 96
Compensation and pricing issues 98
Case study: Novotech 99
Case study: aaiPharma 101
Risk sharing best practices 102
Case study: Otsuka 102
Case study: Quintiles 104
Innovative partnering history 105
Current partnering activity 105
Typical relationships 106
Initiating innovative relationships 109
Implementing innovative relationships 110
Maintaining innovative relationships 111
Conclusion 112
Chapter 4 The future of CRO risk sharing and innovative contracting
agreements 114
Summary 114
Introduction 115
Current limitations to innovative contracting agreements 115
Drivers of increased innovative contracting agreements 116
How the future of outsourced research will change 120
Near term: 2012 - 2013 121
Predictions for risk sharing and innovative contracting agreements 122
Long term: 2014 - 2016 123
Predictions for risk sharing and innovative contracting agreements 124
Expected evolution of innovative contracting agreements 125
Preferred vendors 126
Functional service providers 127
Risk sharers 127
Alliance partners 127
Drug licensers 128
Joint venture partners 128
Contract research alliance partners 128
Preparing for the future 129
Conclusion 130
Appendix 131
Scope 131
Methodology 131
Primary research 131
Secondary research 131
Glossary/Abbreviations 132
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Table of figures
Figure 1: US and 5EU ratios of drug sales volumes of branded vs. generics, 2005-09 24
Figure 2: US R&D spending vs. new New Active Substance approvals, 1990 - 2010 29
Figure 3: Advantages of CRO usage by product stage 37
Figure 4: Growth of CRO usage by segment, 2010 - 2015 39
Figure 5: Comparison of leading risk sharing/innovative contracting relationships 51
Figure 6: Pharmaceutical Contract Research Alliance partnerships 67
Figure 7: Comparison of leading risks for sponsors and CROs, and impact of risk sharing/innovative
contracting relationships 72
Figure 8: Capabilities of leading offshore R&D outsourcing venues 80
Figure 9: Comparison of leading risks for sponsors and offshore CROs, and impact of risk
sharing/innovative contracting relationships 81
Figure 10: Comparison of leading risks for sponsors and biotech CROs, and impact of risk
sharing/innovative contracting relationships 93
Figure 11: Calculation of expected total compensation in risk sharing agreements 100
Figure 12: Relative usage and growth of different types of risk sharing and innovative contracting
agreements 126
Table of tables
Table 1: Revenues and patent expirations for selected companies' blockbusters, 2010 23
Table 2: US New Active Substance approvals, 2000 - 2010 28
Table 3: US spending per New Active Substance approval, 1990 - 2010 29
Table 4: Benefits to CROs and sponsors of leading risk sharing/innovative contracting relationships
50
Table 5: R&D productivity for GlaxoSmithKline, 2000 - 2010 53
Table 6: R&D Productivity for Lilly, 2000 - 2010 65
Table 7: Common sources of East/West miscommunication 88
Table 8: R&D productivity for Pfizer, 2000 - 2010 90
Table 9: Best practices for risk sharing and innovative contracting agreements 103
Table 10: Key reasons for dissatisfaction in contract R&D relationships 111
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