Devising an International Clinical Trial Distribution Strategy: Genentech's Approach

Genentech is emerging from an environment in which all clinical trials outside the US involved a development partner with an established international infrastructure. The company is moving to a blended model in which it will conduct some clinical trials without relying on partners to develop and market drugs. In addition, because most biologics are currently developed in US markets, US patient enrollment has become competitive. The new blended model and the challenge of American patient enrollment are driving the company to increase patient enrollment abroad to support its expanding product pipeline and improve speed-to-market. Hence, Genentech needed a strategy for an international clinical distribution network that would support patient enrollment outside the US.

Genentech's objective was to create an international clinical distribution network that would allow all clinical activities for molecules to be undertaken globally. A cross-functional project team was assembled at the company to devise short-term and long-term strategies for creating such a network.

Globalization of the Clinical Trial Distribution Network

Until recently, Genentech did not have its own infrastructure or development capability outside the US; it relied on partners with established international distribution infrastructure to conduct clinical trials outside the US. This dependence allowed the company to focus on its core competency of research and development. This strategy was appropriate at the time, and it leveraged larger development partners' knowledge of when, how, and what Genentech drugs would go through clinical trials outside the US for ex-US filings. Today, Genentech operates independently of partners executing many clinical trials. The result is the need for an accelerated, cost-efficient, flexible strategy. The most direct way to deliver the pipeline drugs faster is to accelerate patient recruitment through an international clinical trial distribution infrastructure.

There are additional benefits to having an international distribution infrastructure. The emerging regions of New Europe, Latin America, and Asia provide a pool of new patient populations, the majority of which are eager to benefit from state-of-the-art medicines. This new patient pool decreases the burden on site and patient recruitment in the US, which is under significant competitive pressure. These factors contribute to reduced time-to-completion of clinical trials, decreased staffing costs, and lower costs per patient.

The Challenges

Genentech and other biotechnology companies share common challenges in creating an international clinical distribution network to support their pipelines of products. These challenges include:

• the lack of expertise and experience in conducting development activities outside the US

• a US-focused and conservative legal environment surrounding employment and vendor sourcing

• development partners (often large pharmaceutical companies) with opt-in rights that complicate planning for recruitment outside the US

• the lack of an existing sales and commercial-distribution infrastructure outside the US from which to springboard clinical trial execution strategies.

These challenges were key considerations in designing Genentech's international clinical network strategy.

Business Models

Genentech evaluated the following distribution business models:

• Build: The company invests in building a full or partial global clinical trial platform that includes facilities, employees, data infrastructure, and regulatory knowledge.

• Outsource: The company seeks a full or partial relationship directly with supply-chain partners (such as clinical distribution organizations, Big Pharma depots, third-party logistics providers, and clinical research organizations). These partners can provide services ranging from trial management, clinical data management, logistics, testing, and packaging, to regulatory expertise.

• Co-develop: The company seeks new partners and then develops their clinical distribution capabilities. Under this model, the company might leverage a partner with strong logistics expertise and help it branch into a clinical supply-chain business.

• Acquire: The company seeks to acquire clinical distribution infrastructure and services. This model could include purchases of several smaller regional distribution networks.

• Direct ship: The company seeks to ship material to the actual clinical trial site from the point of manufacture.

Genentech evaluated strategies that combined these business models applied across various regions and time horizons (less than two years, and three-to-seven years).

Developing the Strategy: Selection Criteria and Key Considerations

The distribution business models were evaluated based on five criteria: strategy, implementation, operation, regulatory and quality, and finance. For each criterion, key design considerations were examined. The evaluation questions for the criteria were as follows:

• Strategy: How does each business model fit the organization's overall strategy, capabilities building, and scalability? Can the model support the creation of networks and relationships with investigators and key opinion leaders? Can potential synergies be leveraged with the organization's commercial distribution network?

• Implementation: What efforts and risks are associated with creating, managing, and decommissioning elements of the network for each model? What is the organization's expertise and resource availability in executing each model?

• Operation: What is each model's predicted performance for network utilization, speed-of-supply and re-supply to regions, and network flexibility?

• Regulatory and quality: What are each model's implications for quality, release times, potential challenges with registration, approvals, import or export, and legal requirements?

• Finance: What are each model's implementation costs, headcount costs, required up-front investments, and infrastructure costs?

A decision-criteria matrix (Figure 1) enabled Genentech to compare the business models. During the qualitative analysis, the company eliminated the co-develop and acquire models based on the first four criteria. Hence, it reduced the number of business models on which it needed to perform a financial assessment.

Figure 1. The decision criteria matrix used to select a clinical trials distribution strategy

Costing Model Assumptions

Genentech created a costing model based on forecast shipments of kits for each of three global sectors—Europe, Latin America, and Asia. The company did not attempt to create costing models that were combinations of the business models against the regions. The cost modeling effort was used to find the cost boundaries for each "pure" strategy. The determination of cost boundaries provided approximate cost flexibility in pursuing a single business model, or a hybrid of business models, across the following regions: Latin America, Europe (including Russia), Asia (including the Pacific Rim), and Africa.

The build model considered the following for the four regions: start-up costs (recruiting, travel), operating costs (rent, equipment, information technology), variable costs (packaging materials, shipping), and product disposal. In addition, Genentech assumed that certain elements of its existing commercial operations in the Asia-Pacific region could be leveraged, resulting in no recruiting costs, no incremental rent or IT costs, and shared labor costs among clinical and commercial interests.

The outsourcing model was based on having Genentech's internal cost-for-resources organization provide outsourcing oversight, and on variable shipment rates (including shipping, import, and packaging) to the countries of the five regions.

The direct-ship model was based on the variable cost of shipment rates including shipping, import, and packaging to the countries of the five regions. In addition, it included labor costs and expenses of the central distribution center where material would originate for direct ship.

Demand-Assumptions Model and Demand-Sensitivity Analysis

The net present cost (NPC) of each business model was calculated using shipment forecasts by region, as input to the costing models described earlier. The short-term (less than three years) demand-assumptions model was created based on the number of clinical trials per phase from a database owned by Genentech's clinical operations group. The database is a repository of active, approved, and planned clinical trials and studies. The data were distributed across the regions, based on estimated percentages of planned clinical trials for each region. These numbers were not risk-adjusted for trial failure.

The long-term (three-to-seven years) demand-assumptions model was based on information obtained from the company's product portfolio management group, which is responsible for providing decisions, guidance, and direction for strategic issues, and resource allocation for the entire product portfolio. The product portfolio management group provided data on a risk-adjusted number of projects of molecules by phase. These were converted, by the product operations strategic planning organization, to shipment forecasts, based on clinical trial duration and shipment assumptions. The project team built a business process to capture clinical trial shipment demand annually, as part of Genentech's manufacturing network long-range planning activities (Figure 2).

Figure 2. Business process model for estimating clinical demand

In addition to generating short- and long-term forecasts by region, Genentech conducted a demand-sensitivity analysis to determine the cost of each business model if the clinical trial volumes were incrementally decreased to half the forecast volume, or incrementally increased to three times the forecast volume. The sensitivity analysis provided insight into the clinical trial volume threshold that would make the total cost of ownership of one business model preferable to another if clinical trial volumes increased or decreased from forecasts.

Outsourcing as a Short-Term Strategy

Based on the qualitative analysis performed with the decision-criteria matrix and the cost models, the short-term strategy is to use a pure outsourcing model for Europe, Latin America, and the Middle East. A hybrid of the outsourcing and direct-ship models is to be used for Asia, whereas the direct-ship model will be applied to Australia and New Zealand.

The main driver for the outsource recommendation is the long implementation time required for a build or acquire strategy. Additionally, because of Genentech's limited international experience, it would have been challenging, in the short term, to quickly acquire local clinical-distribution and logistics expertise, particularly about the distribution strategy that woudl yield the proper ratio of regional depots to country-specific depots. From a total-cost-of-ownership (TCO) perspective, clinical trial volumes for the next two years made the outsourcing cost model the most desirable among the business models analyzed.

To implement the new short-term strategy, the company plans to diversify contract clinical distribution organizations (CDOs) to evaluate performance, with a long-term goal of dual sourcing so that strategic relationships are cemented and volume discounts are achieved. CDO performance evaluation is critical because CDO quality is not consistent across all regions.

Outsourcing and Building in the Asia-Pacific Region

From a TCO standpoint, the outsourcing model is an attractive strategy for the long term given Genentech's forecast ex-US clinical trial (shipment) volumes. Qualitatively, long-term outsourcing has benefits similar to those for short-term outsourcing. Based on the decision-criteria matrix, the outsourcing model does not enable the company to build international distribution know-how as specified in the strategy criterion, nor does it deliver the control described in the regulatory and quality criterion. The build model, however, is an ideal way to satisfy these two criteria. Genentech will consider the option to build and direct ship where possible in Asia, because this model's TCO for Asia is comparable to the TCO of outsourcing in Asia. The hybrid approach satisfies all the criteria that Genentech feels are important in developing an international clinical trial distribution strategy.

To implement the build aspect of the long-term strategy in Asia, the company will consider building a regional depot in Singapore because this would be co-located with its commercial distribution center, allowing Genetech to leverage resources (thus reducing costs) with regional logistics and distribution knowledge. The company will continue to outsource the country-depot function until sufficient clinical trial volumes financially justify building Genentech's own country depots. Figure 3 depicts a long-term hybrid combining the outsource, build, and direct ship models.

Figure 3. A long-term hybrid model for regional and local distribution, combining the outsource, build, and direct ship models.

Next Steps

Genentech will periodically reevaluate its assumptions to ensure that the assumptions driving the strategic decision have not substantially changed. The project team has built a business process and set volume trigger points by which the strategy being followed will be reevaluated. Genentech's clinical trial distribution strategy is set up to leverage increased knowledge of the following: global medical markets, global manufacturing and distribution networks, and significant expertise in working with outside contractors and partners. This leveraging will ensure that Genentech continues to focus on innovative medicines to solve difficult and serious health conditions.

Acknowledgements

The authors wish to thank Franco Pasquale, Joy Guidi, Ed Cox, Melody Spradlin, Frank Hathaway, Lisa Arjes, Robert Larson, Susanne Somerville, Michelle Polowski, Colleen Griffith, and Aslam Galia.

Joe Jovero is a global supply chain senior manager and Sue Steven, PhD, is a senior director, process research and development, both at Genentech, Inc., South San Francisco, CA, 650.467.9816, jjovero@gene.com