We’re seeing a torrent of news about partnerships. What do they say about the health of the industry?

-Sanofi-Aventis signed a multi-faceted service partnership with Covance; it included the sale of two CMC sites, anda 10-year sole sourcing agreement for central lab services.

-GlaxoSmithKline established new strategic partnerships for clinical development with PAREXEL and PPD Inc.

-Eli Lilly formed a strategic partnership for clinical trials with PAREXEL; it had entered a similar agreement with Covance in March. Lilly also expanded its two-year-old relationship with i3 Statprobe.

-Bristol-Myers entered clinical research partnerships with ICON plc and PAREXEL.

In most announcements, key executives of the drug development firm and the outsourcing service provider expressed their satisfaction with the arrangement, and with the potential for improving the productivity of their respective business efforts. In listening to presentations from the companies involved in outsourcing partnerships announced during the past few years, I sense they can indeed improve corporate efficiency by streamlining the process of conducting research. Using partnerships can enable a drug company to accelerate its timetables for clinical development and can enable a CRO to plan for effective utilization of its personnel. However, there is a significant limit to the potential of partnerships, as suggested by this question:

“Does becoming more efficient at the process ofdrug development make a company more effectivein developing new drugs?”

Sadly, the evidence suggests the answer is a resounding NO.

Many large firms trying to improve their success at developing new drugs say they are seeking to imbue their organizations with the entrepreneurial elements that characterize smaller biotechnology firms that seem to have a better track record at innovation and invention.

That is why I want to call attention to a provocative article in the September issue of Nature Reviews/Drug Discovery. Authors Frank L. Douglas, V.K. Narayanan, Lesa Mitchell, and Robert E. Litan wrote about their assessment of entrepreneurship in the drug industry, based on interviews with 26 current and former leaders of R&D departments at major drug and biotechnology companies. Their short note was included in that publication’s Perspectives section; it offered several recommendations based on observations along six major themes:

-Maybe it’s better to focus only on high probability targets, rather than pursue as many targets as possible.

-Maybe internal R&D teams should be much, much smaller than they are at most large firms.

-Maybe large companies need to figure out better ways to give appropriate rewards to their most successful scientists.

-Maybe those companies need to increase their appreciation of the “soft” skills of effective middle managers.

-Maybe large-company CEOs need to become much more intimate associates with the head of R&D in their firms.

-Maybe merged firms should be much more sensitive to the strengths and weaknesses inherent in various R&D organizational models, including those not resident in either party to the merger.

The article ends with a brief comment on the transferability of insights from drug discovery research teams to their colleagues in drug development. The company that can optimize the lessons learned from closer communication between those groups just might become the leader in transforming what still seems to many to be a very hide-bound industry.

Michael A. Martorelli is a Director at the investmentbanking firm Fairmount Partners. For additional commentaryon the topics covered in this column, please contact him at [email protected], or atTel: (610) 260-6232; Fax (610) 260-6285.