The CRO industry is growing fast, ready take on more, and providers are finding that many sponsors are willing outsource more and in increasingly complex ways. Growth is expected through 2006 with an overall R&D spending increase of approximately 11% and outsourced spending increase of 16.9%, according to Quarterly Preview, Jefferies & Company. CROs are taking the service industry to a whole new level. Today’s market holds great potential for lucrative opportunities for CROs, particularly by increasing their portfolio of services. Globalization, preclinical and Phase I areas, and alliances remain on the top of the list, but the possibilities go on. Consolidation, evident in 2004 and expected to continue in 2005, is driven by increasing client need for global services, and the need to increase services offered.
Some areas significantly impacting the CRO industry today include globalization, the EU Clinical Trials Directive and EDC (electronic data capture). International markets continue to drive CROs to reach global scale. The trend persists as sponsors have an increasing need for global services. Meanwhile, the EU Directive continues to create a challenge for trials in Europe and has increased the regulatory business for some of the big CROs, adding yet another service for CROs to provide to their clients. In addition, EDC is making headway as companies look to improve the clinical trial process.
CROs are pursuing a number of opportunities in today’s market, namely preferred provider status, alliances, and gaining access abroad. Some CROs are beginning to provide services in the area of biomarkers, said to be the wave of the future with the potential to change medicine as we know it. Also, in the last year safety has become front and center and a number of larger CROs are lining up to get involved in developing and providing the safety and efficacy data now requested by sponsors and the FDA. Cardiovascular safety issues surrounding Vioxx and several other pain medications have sparked discussion from regulators in the U.S. and on an international level as well, increasing the rigor that goes into clinical development—it all adds up to more testing and more data. Also, sponsors are looking to enhance relationships with providers and as a result they are limiting the number of CROs that they work with through preferred provider lists and CROs are looking to get
on these lists.
Opportunity Knocks and CROs Answer
While the larger CROs are more likely to benefit from this growth forecast, alliances and business arrangements are presenting smaller CROs with the opportunity to gain the access they need to secure the clients they want. Smaller CROs will face the challenge of globalizing. “Whilst demand will continue for specialized niche service providers, sponsors are looking to focus on fewer, broader-based preferred providers and strategic partners. As a rule, these will be larger firms that are able to provide a portfolio of integrated services that can meet the sponsor’s needs anywhere in the world,” said Alan J. Wood, Ph.D., vice president and general manager, Late Stage Development Services, Europe and Asia Pacific, Covance, Inc.
Wheelin’ and Dealin’
Several CROs talked about establishing more alliances and business arrangements with specialty providers. “Some full service CROs have set up various co-promotion agreements with specialty CROs, or ones in which big CROs will be able
to offer the services that the specialty CROs provide. A few years ago CROs were trying to develop and market their own EDC systems whereas now, they’re doing business deals with them,” said John R. Vogel, Ph.D., drug development consultant, John R. Vogel Associates, Inc. “It’s not anything that encumbers either side. So what that means to me is that CROs are recognizing that there’s a certain credibility with these specialty providers and, rather than compete with them where winner take all or loser lose all, they’re more inclined to develop a business relationship to get a piece of the action.” With Pharma cutting back on the number of CROs they use, the fervor to get on the list of preferred providers for all the big companies is quite prevalent in today’s market. Preferred provider status has moved away from agreements to use a CRO for a certain number of projects at a certain discount to just being on a company’s list.
Another area in which CROs are expanding is biomarkers (or genomic and proteomic approaches). Understanding the molecular basis of disease has been an approach to limit failure of drugs due to incorrect biological hypotheses. This entails a fundamental shift in the decision-making standard that
currently prevails throughout the Pharma industry. According to a recent IBM study this whole industry is changing dramatically. In the past, Big Pharma was basically interested in developing so-called blockbusters, billion-dollar drugs that sell tens of millions a day. “We’re moving toward being able to understand the genetic basis of diseases and genetic subtypes of diseases. We will be able to give people personalized medicine. The drug that is the best match for their specific disease taking into account their genomic components, is something we can explore with biomarkers,” an industry expert commented. “Biomarkers will enable the development of diagnostic kits that would allow you to separate disease types, so as companies develop drugs in the future, they’re not only going to have to develop specific drugs for a specific type of patient, they’re going to have to understand and develop the biomarker kits that will be part of using the drug. It’s going to make drug development more complex but it’s going to make it all work much better.” IBM says by 2010 this is going to very much
be the case.
Late phase and peri-approval service areas also continue to grow. For example, Phase IIIb studies (late pre-approval studies) tend to be focused more around marketing issues and generally there’s less risk associated. Pharma wants to get as much good data in place before they finally get approval from the FDA, such that when it is approved they’ve already got the promotional data in place to hit the ground running. With the period of exclusivity having been reduced to months rather than years in some cases, the marketplace is much more competitive. The late phase arena also presents significant growth opportunity as a result of calls for increased drug safety testing and more patient data in the wake of recent concerns about widely prescribed, popular drugs. Some major CROs contend that large, simplified registry trials and post-marketing approval and surveillance trials, in addition to regulatory and safety expertise, will be areas of strong incremental growth now and in coming years.
Early development and Phase I activity remains strong. Investments in early research seem to be bearing some fruit for Pharma and the number of targets that they have to put into clinical development pipelines has greatly increased. According to Simon S. Higginbotham, vice president and chief marketing officer, Kendle, “Pipeline trends highlight preclinical and Phase I as the fastest-growing areas of drug development during the last two to three years. One of the factors driving this growth is a greater focus on eliminating drug candidates at an earlier and less costly stage of development.”
Greg Holmes, executive vice president of Clinical Operations, SFBC, commented, “There’s a huge surge right now and I think in terms of supply and demand, there’s more demand.” It’s a great time to be a CRO. In turn, the number of drugs being developed through Phases II-IV has also increased but the timeline, of course, lags. Kendle is among the many companies expanding in the early development area, with early stage testing capabilities through Phase I units in Morgantown, West VA, and Clinical Pharmacology Unit (CPU) located in Utrecht, The Netherlands.
Tactical to Practical
The Pharma industry is catching on, moving from short-term tactical to longer-term strategic decisions around outsourcing. Sponsors are more open to integrated services and, as a result, are more inclined to look for partners who can provide broader portfolios of services. As this change takes place, CROs must be prepared to contribute value to the sponsor’s needs. According to Covance’s Mr. Wood, “CROs must demonstrate competence across the
complete drug development process and a resulting CRO focus therefore must be on building and retaining expertise and experience of their people. Pharmaceutical outsourcing
is maturing in the same way IT outsourcing did. Leading
edge clients are moving beyond tactical, cost-and capacity-driven outsourcing towards relationship-driven strategic
As a result of this shift, CROs are being brought into development discussions a lot earlier. However, there’s an inherent risk early on that can lead to delays and cancellations. According to John Hubbard, president and chief operating officer, Icon Clinical Research, “Often the sponsor hasn’t gone to the FDA yet, they haven’t discussed protocol with the FDA, and there may be changes. So what we find is, we do a lot more hedging in terms of our assessment of timelines based on questions we ask sponsors. Have you been to the FDA? What has the feedback been? Have you done similar trials? Do you have clear funding for this project? These are things we would have never asked before because we would have been brought in after all those decisions were made. The good news is we have better visibility into what’s happening; the challenge is managing the inherent risk within that period of time while companies are trying to determine how they’re going to move forward.”
To help reduce some of the volatility in today’s market, CROs are broadening their portfolio of clients and establishing preferred relationships and agreements with Big Pharma and Biopharma. “It’s important to have revenue from large, stable sponsors. On the other hand, you don’t want to put all your eggs in one basket. Having relationships with smaller, more nimble companies that can make quick decisions is also very important,” one provider remarked. In some cases this means increasing in-house staff—although working with site management organizations has proved somewhat more beneficial. One provider remarked, “It’s a commitment to Resources but it’s what our clients are demanding and we have to respond to that.” Another provider mentioned, “Historically, larger biopharmaceutical companies have tended to outsource primarily for additional capacity and to support non-core activities. This customer segment often leverages a sophisticated procurement approach, with increasing trends toward more preferred provider arrangements, functional service provider contracts and reverse bidding to reduce to a more manageable level their number of CRO partners.”
Keep an Eye Out
If CROs are to continue their success, they will need to keep on top of the challenges they face in today’s market. Three of the biggest are commoditization, staffing companies, and functional outsourcing. One industry expert feels that these three areas are eminent threats to the revenue streams of big CROs right now. “More and more, CRO services are viewed as being ‘the same’ and there’s a lot of pressure on them to reduce their prices. The price negotiation part of contracting with CROs is moving away from the scientists at the sponsor side and moving either towards the contract manager department or even to the purchasing department,” said John Vogel. “Phase I is a commodity basically; from a sponsor’s point of view it doesn’t matter where you do it, as long as it’s a normal healthy volunteer and they don’t give them the wrong dose, ‘what difference does it make,’ you’re going to go for price.”
For the Pharma companies that don’t want to put a whole lot of time and effort into building a relationship with a CRO, staffing companies are presenting some competition. Traditionally, the Pharma industry perceives CROs as a way to get additional manpower if and when they need it. For Pharma companies still stuck in the transactional stage, there are worldwide staffing companies that provide many of the services that CROs do, such as study monitors. Monitoring and data management are very large segments of the business. CROs have also begun using these staffing companies as their own resource for obtaining less expensive manpower.
Functional outsourcing may be encroaching CRO territory as well. There are two ways a sponsor can outsource: set up a full-service contract that includes helping sponsors develop a drug, find study sites, oversee those sites, perform data management, analyze data and write the report, or outsource a specific function entirely. For example, Wyeth made the decision to eliminate data management as something it did not want to be in the business of doing and outsourced it to a consulting company. According to one industry source, “Wyeth basically determined that data management was not critical to them, but monitoring is critical to Wyeth. They would want their own people to handle that aspect. Conversely, Amgen outsources monitoring for many of its studies. So it’s different for different companies. Functional outsourcing refers to a company saying, across the board, we’re going to outsource this particular activity to a single provider. So when Wyeth uses another CRO for a project, the data management component would be extracted.” Functional outsourcing creates the risk of taking a piece out of the bundled services for every project for a particular sponsor. By offering the best of everything and providing services in a variety of areas, CROs are better equipped to combat these competitors.
EDC and CROs
There’s no question CROs and their sponsors need to consider innovative ways of collecting and sharing data, including proprietary data. EDC appears to present an opportunity for differentiation. “Certainly we all know we have to be there sometime in the future,” said SFBC’s Mr. Holmes. “CROs have had a response to trying new technologies because they want the communication process to improve. Putting the right communication systems in place is essential, EDC or realtime data from the clinical lab standpoint so that sponsors can log in and see lab results of studies as they develop. They’re putting themselves in a position to capture the business and I think a lot of it will be there in terms of having either remote data entry EDC on site or a form of research project management tools. We’re also looking to see if we can adapt EDC technology for our Phase I programs.” Most organizations are trying to maximize the use of technology and minimize requirements for travel and field monitoring and many companies are moving towards EDC.
CROs are increasingly using EDC to conduct outcomes research. This is an area of the market that has been increasing as more evidence-based information and safety information is needed. “Although these studies are simpler, they’re very large logistically, and tracking and managing them on paper is very difficult,” said Martin Young, vice president of services, Phase Forward. “Once the larger companies use it and use it extensively, others will follow suit in the next three to four years.” With GSK, Lilly and Quintiles already there, we should see a significant increase in use of EDC by 2008.
With any new technology, obstacles remain with EDC adoption and implementation. “The general response has been to jump on the bandwagon after the fact because sponsors are typically very conservative in adopting new practices or technologies. New technology is further challenged because CROs face a diverse customer base with diverse preferences—as many as 10 different types of EDC platforms. A CRO cannot impose a choice based on its own capitalization commitments,” said Lawrence A. Meinert, M.D., MPH, global senior vice president, Global Clinical Operations, Covance, Inc.
According to one provider, one of the reasons some are slow to adopt EDC is because the FDA has not commented on it. The FDA does not formally approve or disapprove products and services that enable regulated companies to comply with FDA requirements. For example, the CRF (case report form) process, data collected from subjects during a clinical trial, is an activity highly regulated by the FDA, and using EDC in this area—as opposed to the formal, pen and paper route—is an adjustment and a concern for some companies.
The biggest change with the use of EDC is in the clinical area. With EDC everything is visible as it’s entered at the site and you don’t have to go to the site to see that info. “So they need to move to a philosophy of remotely reviewing what’s going on at the site from wherever they’re based. That’s a mind-set change,” according to Mr. Young at Phase Forward. “It’s the hardest area to change, and it’s the one we’re focusing on most in the last year. However, there’s a second piece that goes with that. If you look at a typical study, often people will be going to a site and there’s nothing to do because they haven’t recruited another patient, or no visits have gone on. Based on reviewing data remotely, they plan visits when the sites have data to review and start to focus their efforts on sites that need it. It becomes a much more effective way of monitoring and keeping on top of studies.”
However, John Hubbard, at Icon had this to say, “Using EDC the way it was intended may minimize the amount of field work you have to do. You have more visibility into the data before it actually comes in-house, so you can be more effective when you go into the field because you’re looking at the info as it’s coming in. You can see trends and focus on those areas where the investigator or the coordinator has questions or issues in terms of how they’re completing the info. I think a lot of it is built around greater efficiency and better utilization of manpower. The more CROs can do in-house before you actually send folks out in the field, the better.”
Another source brought up the following point with EDC use, “I think it’s going to change the face of the industry in the
sense that you’re going to see more hybridization between field monitoring and in-house data management. Those roles are going to become similar as people in house review data as it comes in through EDC and will likely be the ones going out in the field. The separation between ‘clinical’ and ‘data’ is going to become less clear. Those roles are going to become part and parcel of the same job. You can see that evolution happening over the next few years.”
The EU Clinical Trials Directive (EUCTD) broadly covers compliance issues in the Member States of countries in the European Union. However, widely varying interpretations of regulatory standards create a challenge when conducting clinical trials in the EU. As a result, the Directive has sparked the need for CROs to guide sponsors through the regulatory mire of late. Several larger CROs mentioned the increase in European regulatory business because of the need to provide knowledge to sponsors of the changing regulatory requirements. For example, Covance has a multi-departmental EUCTD task force to address the impact of the EUCTD.
Several providers mentioned getting more questions about individual country requirements, timelines, and the need to have a presence in the country where the trial is conducted. In fact, in most cases the EUCTD requires that companies have a physical presence in that country before doing work in that country. CROs are seeing a good deal of interaction on this level. For example, if a CRO is working with a sponsor that does not have a presence and the CRO does, the sponsor will delegate power of attorney to the CRO and in turn the CRO can do the trial on its behalf in that particular country.
Griet Goddemaer, global head, Regulatory Center of Excellence, Covance, said, “The EU Clinical Trial Directive is one of the most significant changes to the regulatory environment in a single region in the last 30 years and has affected total of 28 countries. The impact is not just on North American companies but on the Pharmaceutical industry as a whole, on the Competent Authorities (CA), Ethics Committees, Phase I units, non-pharma-initiated studies, CROs, consultants, etc.” Mr. Goddemaer also mentioned that, for companies outside the EU, the first step is to ensure they have appropriate legal representation within the EU. He said, “Probably one of the largest impacts is that, although the intent is to harmonize submission processes, differences still exist among Member States. Therefore in order to stay current with the latest changes, it is essential that sponsor companies have regulatory support or consultancy within the EU. An advantage is that much of the compilation effort for submission of a particular protocol in one EU country can serve as a foundation for CA (Competent Authority) submission in other EU countries.”
Clinical trials go beyond the U.S. and Europe, and the global nature of R&D has fueled expansion in developing countries. Obtaining the number of patients required to run a study is perhaps the most difficult aspect of clinical trials, so why not set up shop where the patients are? Developing regions such as Asia Pacific, Eastern Europe and India may have the patient populations, but the big challenge for CROs is retaining patients. Then there’s the issue of ethics in these trials in developing countries. With the EU Directive clouding regulations for various countries, and the ethical issues in developing countries, these new markets offer opportunities and obstacles.
According to one industry expert, “Patient recruitment is the hottest area in drug development where probably the least progress has been made.” Venturing abroad can be a challenge. Some CROs are taking a local approach. Kendle’s Mr. Higgin-botham said, “Our local approach to providing global solutions allows us to work effectively within the culture, language, regulatory and medical environment. As a result, we’re able to offer a more tailored and global solution for our customers.”
It has become increasingly difficult to conduct placebo-controlled trials in the U.S. Some areas remain strong in the U.S. in terms of patient recruitment, such as obesity and diabetes, but there are other therapeutic areas where it has become very difficult. For example, it’s much easier to do HIV studies outside of the U.S. because of the availability of treatments. Moving trials to remote areas where patient populations are larger appears to be the only way out. “Enhancing our global reach and access to countries where we can find patients, especially treatment-naïve ones who have not been exposed to more modern medications is essential. Of course globalization and going into remote areas like India, Southeast Asia, and China puts demands on infrastructure, organizational and management structure,” said Mr. Hubbard.
“A lot of our business is driven from the U.S. and North America but they continue to diversify. We find that it’s necessary to run clinical trials on all continents; it’s just part of the regulatory package. Therefore, part of our strategy is to be able to expand into these continents. There’s certainly a drive to get into Asia because of the patient populations that aren’t readily available in the U.S. and Europe anymore,” said Mr. Holmes. As far as international markets, SFBC just opened an office in Moscow and India and is looking into Singapore as part of its strategy with recently acquired PharmaNet. To this end, sponsors are likely to look to a single-source CRO that can help them do all that is necessary to get from point A to point B in the drug development process, those that have a broad portfolio of services on a global basis.
Services are what CROs are made of and today’s promising market certainly has the potential to keep them busy. Drug development demands that have been boosting early research in Phase I studies are feeding into a growing late phase arena. Alliances, acquisitions, and enhanced global reach are all areas that continue to grow, as does EDC usage, which seems to be approaching the halfway mark. Competition among CROs has led to bet hedging by spreading out. The more services to more diverse clients, in more areas, the merrier. In addition to these organic trends, the biomarker arena and other specialty segments may spur new growth. With all of these opportunities for growth, the industry appears prepared to surge.