Pharmaceutical-Contract Research Organization Relationships

Information Systems and Operations Management

Speaker: Feryal Erhun  (Cambridge)

Salle Bernard Ramanantsoa

Abstract: 

Motivated by an observed shift in relationships towards partnering, we set out to explore under what conditions should a pharmaceutical firm pursue a strategic partnership with a contract research organization (CRO) and when should the firm engage a CRO with a transactional arrangement. Pharmaceutical companies face substantial financial consequences from clinical trial overruns. In an effort to conduct clinical development in a more cost and time efficient manner, pharmaceutical sponsors have largely outsourced development to CROs and these client-vendor relationships are evolving. Despite changes in relationships, there is no consensus on a best course of action and this is evident from the divergence in outsourcing models employed. To develop a better understanding of strategic partnerships in the industry and by employing game theory, we formulate the problem as a three-stage game between a pharmaceutical company and a CRO. By operationalizing commitment, we investigate whether strategic partnerships are the future of pharmaceutical-CRO relationships. Our research suggests that there is value in commitment and transparency regarding the market potential of pipeline projects in pharmaceutical-CRO relationships. We identify the types of environments in which different outsourcing arrangements should be pursued, and provide insights on how to govern CRO relationships. (Joint work with Lidia Betcheva and and Nektarios Oraiopoulos)