By Mike Anello
Biopharmaceutical firms seeking to reduce fixed costs and streamline operations will place an increasing demand on CROs in the years to come. In fact, some industry experts estimate that roughly 40% of drug development will be outsourced by 2012. Moreover, the world market for contract research outsourcing is projected to exceed $26 billion by the year 2012. Perhaps these are bold predictions, as the exact configuration of services in the near future remains anyone’s guess. There is much uncertainty about the roles that CROs will play in the future, especially in light of the fact that profits from many patented drugs will end shortly, and drug producers are soul-searching for ways to maintain profit ratios within the uncertain world economy. As CROs define and redefine themselves, clients may find themselves chasing a moving target, unable to pin down industry trends. To shed more light on the subject, Life Science Leader conducted a roundtable discussion with industry executives, covering a wide array of topics, including current and future challenges, the globalization of the marketplace, new services, and the role of technology, strategic alliances, and functional outsourcing.
The executive panel included Fred Eshelman, Pharm.D., CEO of PPD; David Williams, CEO of Clinsys; Candace Kendle, Pharm.D., CEO of Kendle; Josef von Rickenbach, chairman & CEO of PAREXEL; Tim Oostdyk, CEO of Lancaster Labs; and Joseph Herring, chairman & CEO of Covance.
Life Science Leader (LSL): What do you see as the primary challenges facing the CRO industry?
David Williams of Clinsys: A significant challenge comes from the shift of financial power back to large pharmaceutical companies from many of the smaller biotech companies. As the smaller biotech companies experience the tightening of venture capital, studies can be delayed and products may often be licensed out to big pharma. Cancellation of large projects has affected some CROs, but has not been an issue to date for Clinsys. Our clientele and size of projects is nicely dispersed. We’re not geographically sensitive to any one particular area, so we don’t have that issue.
Joseph Herring of Covance: One of the biggest challenges is keeping up with the demands of a global growth market, specifically, the increasing demands for scientific talent. Over the next five years, the CRO industry is expected to experience anywhere from 10% to 15% growth. This places greater demands on CROs for additional scientific and regulatory talent around the world to meet increasing customer demand.
Candace Kendle of Kendle: As clients rethink their opportunities, it is a priority for CROs to remain very close to them and help them in the process. Big pharma is not feeling as much of a recessionary pinch as the smaller biotech companies due to the streamlining of the pipeline that the large pharmaceutical companies did during the last industry downturn in 2003.
Fred Eshelman of PPD: Changes in the FDA’s approval processes and regulations are also causing difficulties in R&D. With the changes in FDA review times and postmarketing safety issues, companies will have to adapt and decide which R&D activities truly add to their financial well-being by generating new products and income. Then they’ll need to consider outsourcing or purchasing the rest.
Tim Oostdyk of Lancaster Labs: With the current economic climate, the pharmaceutical industry’s expectations of the CRO industry have never been higher in terms of quality, service, scientific expertise, and effective communication. The challenge is to absolutely deliver on that promise of value to continue to drive industry growth. We need to enable our customers to be more advanced, more efficient, and more cost-effective than they could be on their own in order to validate the wisdom of increased outsourcing.
LSL: How does the access to new patient populations globally impact opportunities for CROs?
Kendle: Operating throughout the world provides CROs with great opportunities to expand their reach. New patient populations are readily available, allowing studies to be completed more efficiently and allowing medical providers and patients access to new treatments. This benefit of globalization should not be minimized. There is great opportunity for growth while providing a service that benefits the patients in emerging countries.
Williams: Not only does operating throughout the world provide CROs with great opportunities to expand their reach, it enables us to provide a service that benefits patients in emerging countries.
LSL: How does a CRO take advantage of this global opportunity?
Oostdyk: There are significant operational challenges in delivering consistent quality and service in all regions. To take full advantage of the global opportunity, the CRO must perform at the same level, regardless of region of the world. Further, to provide full value you need to facilitate the logistics and the communication challenges for the client.
Josef von Rickenbach of Parexel: A truly global CRO should have the ability to manage complex clinical development programs on a worldwide scale, providing a high level of standardization and quality. There are still significant challenges in creating a seamless global organization for many CROs. For instance, resolving the issue of integrating data from different international sites is one challenge.
LSL: Haven’t recent advances in technology made it possible for CROs to operate more seamlessly without borders, such as with simultaneous regulatory submissions?
Kendle: The major CROs have the ability to ensure the safety of patients with real-time data and complete system trial management that wasn’t available 10 years ago. That can’t be underconsidered. You couldn’t have done this in good conscience, I think, much before now.
Herring: Clients expect CROs to be able to provide more efficiency by supporting their drug development needs in more regions around the world. We have a central laboratory with four global locations that allows us to report the results of studies based in more than 100 different countries in 24 hours or less.
Williams: Technology is advancing positive change in the industry. Clinsys is one of a small handful of CROs that have their own proprietary electronic data capture (EDC) system. EDC is allowing CROs to do more of their work in real time. Patient information is entered directly into the system from an investigator’s site. Monitors can log in to the system and review true real-time data. EDC systems can also catch erroneous data that would normally need to be manually reviewed, resulting in large time and cost savings. I would estimate that approximately 40% of studies are currently being conducted via EDC systems.
LSL: Are there other challenges facing CROs when they are considering global expansion?
von Rickenbach: To conduct global studies, a CRO must be able to access diverse patient populations, navigate regulatory issues, identify investigators, and ensure data quality. A challenge CROs can face is finding sites and providing research results that can be pooled with data from the United States or Europe and ultimately submitted to agencies such as the FDA or the EMEA. Every one of those steps has different challenges to it, including ensuring the quality of research and the safeguarding of patient safety. Additionally, approximately 80% of new trials use electronic data capture, and CROs need to provide the right IT to effectively facilitate trials.
Eshelman: There are currency fluctuations, which can be good or bad. And of course, in certain parts of the world you have labor laws that are, at least today, worse than what we have in the United States, so it makes doing business a little bit more difficult.
Herring: With the global marketplace growing so rapidly, a significant challenge will be the need to keep pace with the increasing demand for scientific talent.
LSL: Pharmaceutical and biotech firms face difficult decisions when contemplating the scale of their outsourcing model. Questions about a comprehensive approach versus a more selective outsourcing model have been considered for years. Can one CRO be all things to all clients?
Kendle: In the early stages of development, these firms may do best to select a CRO with a more narrow focus. However, the larger biopharmaceutical companies may be in a better position to take advantage of a broader-based outsourcing firm, although it is best to ensure the services of the provider match the client’s regulatory application.
Oostdyk: It has proven to be very difficult for a CRO to provide a one-stop shop, delivering outstanding value in a full range of services. We’ve not seen anybody that has emerged as being great at all segments. It is therefore most effective for clients to pursue a best-in-class approach for each segment of services. Our model will be to continue to focus on expanding our market share position in our specific area of expertise (comprehensive lab services to pharmaceutical and biologics companies), as opposed to being a full-service provider in a smaller segment of the market.
Williams: We have found that a comprehensive approach, in which everything from clinical development to final FDA submission is outsourced, may be more effective. What makes this approach exciting is that our staff are engaged with a project from beginning to end. However, it is important for a CRO to do what it does best and to ensure specific talent is developed prior to offering a service. I would hope that any CRO providing a comprehensive approach would bring in experienced professionals who have the expertise needed.
LSL: Functional outsourcing is an interesting service model provided by some CROs. This model allows companies an opportunity to pick and choose individual functions for outsourcing to a CRO, while maintaining a larger portion of a project in-house. Often these functions are less technical, such as data entry, statistical analysis, or medical writing. How does functional outsourcing and, to a larger degree, strategic partnering provide companies with opportunities to streamline operations through partnerships with the CROs?
Kendle: Functional outsourcing is evolving to become more of a strategic partnering model. An example of strategic partnering might be where a CRO is contracted to handle an entire specific therapeutic area, such as oncology. We see a great opportunity to drive significant productivity by employing a combination of functional outsourcing and strategic partnering. Mixing all these models offers huge cost savings through transaction of the trial, by reducing the cycle time of the trial, and by being able to reach out to so many patients around the globe.
Herring: A great example of strategic partnering is one that resulted in a win-win situation between Covance and Eli Lilly. In addition to reducing development timelines for Lilly, this partnership helped the company convert fixed costs to variable through the transfer of an early development facility and 260 scientists.
Eshelman: PPD purchased a vaccine facility from Merck and took on the employees in exchange for a multiyear deal for PPD to complete the vaccine testing. This allowed Merck to move some fixed costs off its balance sheet while providing PPD with an opportunity to grow capabilities and profitability.
LSL: Although there are challenges CROs are facing, this group sees great opportunities in those challenges. Where do you see the industry heading?
Eshelman: We’re entering a new era from a regulatory standpoint, from a structural standpoint, from the way drugs are developed, from a reimbursement standpoint, and so forth. So, although many people see these times as chaotic, you could also view this as a time of great opportunity for CROs.
Herring: I expect to see more fully integrated drug development outsourcing and strategic partnerships between pharma and CROs, resulting in more value for clients by reducing their fixed-cost infrastructures and spending timelines.
Kendle: Customers will buy a broader range of services from CROs in order to gain more leverage on the dollar. I also see some consolidation in the industry among the smaller players, but overall I think the major CROs will continue to see growth.
von Rickenbach: There is an opportunity for CROs to partner more closely with pharma clients in the near future. As patented drugs move to the generic pipeline, customers seek new and more efficient ways of working with CROs to reduce costs and increase the efficiencies and productivity of their own research.
Williams: As demonstrated by the acquisition of Wyeth by Pfizer, I believe the larger pharmaceutical companies will be looking to acquire new pipelines, which presents opportunities for CROs. I also see adaptive clinical trials (ACTs) as an up-and-coming strategy. ACTs provide shorter decision points in the trial process, which allows the project to adapt more quickly and more fluidly. With ACT there is a more rapid approval process, enabling compounds to get to market sooner, followed by more aftermarket studies.