Magazine Article | January 11, 2011

An Inside Look Into Functional Service Provider Relationships

Source: Life Science Leader

By John Centofanti

It’s not uncommon in the pharmaceutical industry to outsource specific business functions or to utilize the specialized services of outside vendors. That’s true of nearly every industry. Global pharmaceutical company Eli Lilly and Company has taken this further. In 2008 it transformed its relationship with i3 Statprobe from a vendor to a functional service provider for its data management operations. No doubt Lilly could hire the cream of the crop in any area of expertise, or outsource functions to numerous vendors. So, what’s the value in such a close partnership?

In 2008, Lilly moved a significant portion of its data management operations to i3 Statprobe, a global pharmaceutical services company. Gregg Dearhammer, i3 Statprobe’s president of data services, stated, “Lilly has transferred its U.S. data management and operational execution of data management for its clinical trials to i3. In this capacity, i3 handles the daily operations part of the data management, while strategic, holistic thought leadership is retained by Lilly.”

Lilly’s relationship with i3 Statprobe is not new. A few years prior to this arrangement, i3 was providing data management, statistical programming, biostatistics, and medical writing services for Lilly. Plus, it had been providing, on a small scale, some clinical monitoring and project management services. Aarti Shah, Ph.D., vice president of statistics and the advanced analytics hub at Lilly, shared how the work evolved from tactical to strategic. “Previously, i3’s services were selected from the perspective of capacity and staff augmentation,” said Shah. “Our relationship then evolved from staffing augmentation to work based on complementary services.”

This functional service provider relationship wasn’t formed because of a staffing crunch, but is part of Lilly’s “Fully Integrated Pharmaceutical Network,” or FIPNet strategy. FIPNet seeks strategic partnerships with other companies that can deliver both expertise and effort alongside Lilly. A statement on Lilly’s website from former Chairman Sidney Taurel reveals this strategy: “Our goal is still to be ‘fully integrated,’ but not within one company. Instead, we seek to create a fully integrated global network that includes Lilly … but also other companies, organizations, and even individuals in some cases. These collaborators will not be owned or employed by Lilly but nevertheless assembled, led, and managed by us.”

Shah added, “A few months ago, we expanded our strategic partnership with i3 to include biostatistics and medical writing. Having a good relationship in place and leveraging that was obviously a key part of the relationship-growing. A commitment from both organizations is critical.”

Dearhammer stated, “Our role is being one of the network providers. We work collaboratively with Lilly and other providers that Lilly has contracted with in its areas of expertise. While we may be providing operational execution, there may be another vendor Lilly has contracted with in clinical monitoring, and we have to work together to ensure we are achieving Lilly’s portfolio goals.”

The leaders at Lilly and i3 seem very happy with their arrangement, and both seem to gain benefits. i3 collaborates with other Lilly partners and is able to share best practices in efficiency and relationship, according to Dearhammer. He stressed, “Sponsorship at the top is critical to strategic partnerships like these. We have a robust governance structure at many levels. That affects the strategic partnership at all levels of the relationship.”

Dealing With Conflict
Conflict is sure to arise when one company does not own, yet manages, another. Lilly and i3 address issues at several levels to ensure the relationship is strong and moves forward. One way is through the formal structure — the contract — that dictates authority and responsibility. The other is through the working relationship. Shah reveals most challenges relate to communication and operational issues. Although the formal governance determines how conflict is resolved, the working relationship provides the strength in timely resolution and even conflict prevention. In essence, the governance structure guides the formal relationship, but the open and positive working relationship is what makes it work effectively.

“There must be a clear path toward conflict resolution,” said Shah. “So we don’t impact the process, we have role calls. We have analyses of situations and reward those resolutions. If something needs urgent attention, we text each other or call our counterparts directly versus waiting for the next scheduled governance meeting. It’s really informal. The relationship is such that we can candidly talk about the conflict versus worrying about where to place the blame.”

“That’s true,” Dearhammer added. “The most difficult part is the strategic alignment from top to bottom. We have to get everyone on board, everyone pulling the oars in the same direction. That only comes through creating open communication and an effective governance model.”

On a logistics level, Lilly requested i3 to open an office in Indianapolis, the location of Lilly’s worldwide headquarters. Aside from the obvious practical benefits of proximity, being nearby provides an opportunity for collaboration and face-to-face interaction. Once the i3 office was opened, i3 hired eligible Lilly staff. Even better, additional jobs were created to support i3 operational functions. Neither company revealed exact numbers, but both agreed the portfolio is fluid, and therefore the number of employees fluctuates according to need. Dearhammer said not all employees at the i3 Indianapolis office are dedicated to Lilly projects. Initially, the office was opened to solely perform Lilly work, but today the dedicated staffing changes based on all of i3’s partnerships. 

A New Outsourcing Trend
Lilly’s functional services partnership with i3 may be a good example of how a healthy one should work. More pharmaceutical companies are investigating the risks and benefits of functional services relationships. Shah shared, “We see a trend from full project outsourcing toward functional services partnerships. Companies are leveraging different partnerships for their specialty rather than for entire projects, from ‘soup to nuts.’”

Dearhammer said an increasing number of customers are asking about these strategic partnerships. He referred to several reports from pharmaceutical analysts who see fewer CRO references but deeper relationships between CROs and sponsors. So, a pharmaceutical company may be outsourcing to fewer service providers, but giving more responsibility to one particular CRO. This type of relationship lends itself to a much deeper understanding of both parties’ businesses, as well as their business culture. This has to positively affect communications and the daily working relationship.

The Biggest Challenge
Functional services relationships come with challenges. Dearhammer said, “Because it’s novel and a change in direction, it requires everyone to think differently. It takes aligning people in their thinking.” When their relationship with Lilly grew into partnership, Dearhammer said it required a person involved in data management to be involved in strategic partnership meetings. It was a significant change in the normal course of business for employees at every level. Clearly a task for leadership, an organization must inspire its people to think bigger and to think differently. Dearhammer believes this comes through time and by staying committed to the relationship.

Shah said it is a challenge to change the mindset of people to do things differently. In their case, she believes people do not feel like they are on different teams, but different parts of the same team. “The message is very clear. We’re open to change if it makes the most sense.” 

What makes an effective functional services arrangement? As in any business or personal relationship, trust, communication, and valuing the other party are key. This inside look into Lilly and i3’s relationship is a reminder that all good business comes down to healthy relationships. Of course, legally binding contracts are part of it, but the companies presented here spoke more about open communication and teamwork than they did about a solid contract. Both are necessary, but the working relationship is what makes it successful.

Functional services relationships can change the way sponsors and CROs do business. CROs should consider how they might position themselves and how they could gain the trust of a sponsor to deliver a niche service. It could result in a long-term business relationship.

Used with permission from Life Science Leader magazine.