Pharmaceutical-CRO Relationships: Are Strategic Partnerships the Way Forward?
46 Pages Posted: 16 May 2022
Date Written: April 28, 2022
Abstract
Pharmaceutical (pharma) companies face substantial financial consequences from clinical trial overruns. In order to conduct clinical development in a more cost- and time-efficient manner, they have largely outsourced development to contract research organizations (CROs). To offer an analytical perspective on how pharma managers’ choice of outsourcing relationship type can affect timelines, we investigate strategic partnerships and transactional arrangements. Strategic partnerships are characterized by a pharma company’s commitment of future business to CROs, while transactional arrangements are one-off but potentially repeated engagements. We formulate the problem as a three-stage game between a pharma company and a CRO. We investigate the when and how of strategic partnerships by characterizing the conditions under which a pharma company should pursue a strategic partnership with a CRO rather than engage in a transactional arrangement and by detailing the way that these relationships unfold. We show that although more environments are conducive to strategic partnerships than not, there is still a place for transactional arrangements, and we delineate when this will be the case. In considering the direct and indirect benefits of strategic partnerships, we also address the how of strategic partnerships; offering suggestions for reevaluating current industry practices to enhance relationships. For instance, although disclosure of the pharma company’s pipeline market potential is seen as critical to controlling a CRO’s operations, it is not always needed. Such transparency only has value in certain environments and, counterintuitively, there exist situations in which pharma companies with weak portfolios benefit from disclosing the strength of their pipelines.
Keywords: Strategic Partnerships, Pharmaceutical Outsourcing, Commitment
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