The Tufts Center for the Study of Drug Development made headlines at the beginning of the year when it released a new study: CROs Usage Associated with Faster Drug Development Speed at Comparable Quality. The study was based on an analysis of 83 NDAs and BLAs submitted to the FDA between 2000 and 2005 and provides impressive figures complementing the Contract Research Organization (CRO) industry. “Clinical outsourcing offers a development speed advantage at comparable quality,” according to Ken Getz, senior research fellow at Tufts CSDD. What it comes down to is, if a company is involved in drug development, it needs a CRO.
CROs provide substantial global capacity to drug developers and have become a critical contributor to clinical trial activity. This dynamic industry is mounting, with full-service and specialized CROs taking the biggest pieces of the pie. The CRO market size is estimated at $10 billion and growing, with revenue is increasing at an annual rate of 14–16%, according to CenterWatch estimates, World Contract Research Organiza-tions Markets, and Frost and Sullivan (2003). CROs are sowing their oats, and M&A activity has intensified, especially among the larger CROs.
Some significant growth areas for CROs in the last year include an upsurge in outsourcing from the Biopharma sector, later Phase trials, Phase I expansion and significant investments in EDC. Also, Phase IV and registry studies have increased as a result of renewed safety concerns. CROs have seen an increase in functional outsourcing from Big Pharma. And with the FDA on its “Critical Path,” committed to getting drugs through the regulatory process as quickly as possible, the pharmaceutical industry overall stands to benefit.
CROs = Faster Drug Development
Why? Quite simply it’s about specialization. Clinical trials are a CRO’s core competency just as a Pharma company’s core competency is usually developing drug pipelines and marketing. To get a better idea of the contributions CROs have made: in 2004, leading CROs managed 23,000 Phase I-IV trials worldwide, monitored more than 150,000 clinical investigators, and enrolled more than 640,000 new subjects, according to the Tufts study.
A contributing factor for this positive association CROs have with faster drug development, according to Dr. Graham Hughes, scientific director at Technomark Consulting Services, is that a Pharma company may not have recent experience with a particular therapeutic area. For example, a Pharma company that developed an antibiotic five years ago does not have up-to-date information on conducting a clinical trial in this area, whereas a CRO may have developed an antibiotic for a sponsor in the last six months. Just think of the number of Pharma/Biopharma companies that get involved in new therapeutic areas everyday that can benefit from a CROs fresh insight to these trials.
The industry continues to evolve toward a full-service model, with CROs offering services from the earliest stages of development through clinical trials and post-approval research. Several large CROs are also seeing a fair amount of bundling of services. And, with the number of new products in the development pipeline steadily increasing, there’s a greater premium on making efficient use of Resources . The demand for services across the board has increased in the last year, with an upsurge in Phase II and III trials as well as a continued growth and expansion in Phase I. Also, mounting safety concerns have given rise to Phase IV and registry trials. Subsequently, with the FDA requiring more safety data and with trial sizes increasing, Pharma is outsourcing large global mega-trials now more than ever. The need for larger trials has added to the pressures CROs face in an increasingly global market. CRO services in the Biopharma sector have also surged in the last year, creating new full-service benefits/opportunities for both sponsors and CROs.
|Figure 1: CRO Market Growth
Courtesy of Biopharm Knowledge Publishing, The Contract Research Annual Review 2006
Recent concerns regarding the productivity of Big Pharma pipelines appear to have abated as far as CROs are concerned. According to Dr. Faiz Kermani, European marketing manager at Chiltern International, Ltd., “We are seeing increased demand for clinical services across the board, with the biggest increases being seen in Phase II, III and IV as companies run extensive trials to satisfy regulators and future users of their products. In recent times concern has been growing that the productivity of the major companies has been decreasing, but there are signs that a number of new products are now coming through.”
Dr. Kermani added, “Given the new approaches being used in drug discovery there has been a surprising lag time for candidates to reach the clinical trial stage. However, at some point success is going to be achieved using new techniques such as genomics, combinatorial chemistry, and high throughput screening and so we expect a continued surge in demand for Phase I services.”
Kendle also experienced significant growth over the past year in Phase III/IV business in particular. According to Simon Higginbotham, vice president and chief marketing officer at Kendle, some of the market drivers include increased rigor in safety requirements from global regulatory agencies, increased life cycle management programs (new indications) and in-creased post-marketing commitments.
However, some companies are moving to a functional service provider model or more of a “procurement strategy” approach, identifying a few “best-in-class” providers to assist in non-core competency drug development services, according to Mr. Higginbotham. “We are seeing other customers adopt a more traditional strategic outsourcing approach, developing relationships and preferred provider agreements with a select group of CROs to which they outsource full-service projects or even entire development programs. This approach leverages the skills and expertise of the CRO, rather than just the capacity, and maximizes the efficiencies gained in outsourcing multiple functions to one supplier. We are seeing a trend by these customers to review their preferred provider list periodically and reduce the number of CROs to those that provide global coverage,” Mr. Higginbotham remarked.
Icon is also gaining a lot of full-service work, in everything from individual stand-alone services like clinical monitoring, data management and regulatory start-up services, to a very large uptick in outsourcing activity of large trials and a lot of those services combined, according to John Hubbard, president and chief operating officer, Icon.
Stephen DeCherney, head of Global CRO Unit, Quintiles, said, “I think there will be a continuing trend toward the pure clinical development part being outsourced to CROs. We do about 20-22% of the work of clinical development, meaning Pharma companies outsource that percent of it and the rest they keep in-house. I expect that to expand to 30% or one-third over a period of four or five years. I also think we’ll see a trend toward more careful evaluation where work is done. Studies will be more closely tailored to where the disease patterns are with a better understanding of epidemiology and disease prevalence. It will be less an issue of cost than of disease patterns. I’m seeing more of that. Additionally, Biopharma companies continue to expand rapidly and that’s where a lot of the innovation is coming from,” said Mr. DeCherney.
|Figure 2: CRO Services Offered (North America)
Courtesy of Biopharm Knowledge Publishing, The Contract Research Annual Review 2006
Several of the top CROs said outsourcing from the Biopharma sector has increased dramatically in the past year. “A year ago, we were seeing a fair amount of activity but the trials didn’t seem quite as large. We’re seeing a lot of big studies now, and it’s not just big studies from Big Pharma, but big studies from Biopharma companies, which tells me there is good funding in Biopharmaceuticals right now,” said Dr. Hubbard at Icon. “In order to run these increasingly large trials if you’re a Biopharma company—studies that are approaching 1,000 patients and are global—you have to have a fair amount of assets. We’re talking studies in the $15–$40 million range. That’s a change. We didn’t see that a year ago in Biopharma. The good news is twofold: one that the drugs are moving through the pipeline, showing efficacy in Phase II moving to Phase III, which is positive, and second, they’re getting funding. Investors see the opportunities and they’re willing to provide funding for these trials. So all of that is really positive for the industry.”
The safety of pharmaceutical products has come into question as of late, so it comes as no surprise that Phase IV has become an important growth area for CROs. According to U.S. data from the PhRMA, Phase IV trials now account for 11% of the total R&D budget. Also, Phase III trials have become more thorough and larger in size in an effort to ease safety concerns.
“Given the expansion of clinical research in general and the growing number of patients included in trials, we anticipated the increase in later phase development as a result of safety issues,” said Mr. DeCherney at Quintiles. About two years ago, Quintiles created a business unit for safety research services called Drug Safety and Strategic Research for pure safety-related services. “When the Vioxx thing hit, it took off dramatically. I also think the safety issues have to do with the fact that we don’t know very much as consumers about what happens when drugs are released. We knew somebody was going to want to know about drug uses and safety, whether it was governments with Medicare or social services or just public health epidemiologists. We knew more research would be required before a drug is released,” he continued. Considering that people can potentially be taking a drug for 20 or 30 years, and having no idea what side-effects it will have in that term, opportunities to explore epidemiology have come into to focus. “Understanding health economics a lot better than we do is important. We are actively pursuing these areas in hope that this is where the market is heading,” said Mr. DeCherney.
Registry studies are also on the rise. Dr. Hubbard at Icon said, “We’re seeing the tip of the iceberg with registry studies and the reason for this is driven largely out of the need for more safety data. The FDA is starting to require more patient exposure than they did in the past.” He explained that if companies run those studies traditionally, as they would a Phase III study, they would be very expensive. Registries offer an opportunity to supplement data with more observational approaches and still provide very valuable information about drug safety, yet aren’t as costly.
Registry studies are an efficient way to collect safety and efficacy data over an extensive patient population once a drug is on the market. Important patient data is collected over an extended period of time, through doctor visits and/or a pharmacist when a prescription is refilled, by asking a list of questions. Registries are designed by CROs and much of the information collected is voluntary by both physicians and patients as part of routine care. This data would provide an early warning if a patient were to experience a serious adverse reaction.
Technology has become integral part of the drug discovery and development process recently, with EDC (electronic data capture) among the major trends for the year. EDC has climbed to the forefront of industry goals. Technology, in the clinical trials arena, is proving to be an ally for saving time, accessing information easily, and reducing the cost of development and data management. Although EDC has a long way to go, the last year has proven to be exemplary for entry into the marketplace. EDC is now established in the industry, barriers have come down, and adoption is on the rise. Industry experts estimate that EDC will be fully implemented in the next 12 to 24 months. Many companies are committed to EDC and have a serious initiative to ramp up EDC usage to 100%. Those who have been resistant in the past are realizing the benefits of EDC and are getting involved.
The level of implementation varies quite a bit across the industry. The larger Pharma companies have invested a considerable amount of time and money to make a smooth transition. Dr. Hubbard said, “A lot of the Big Pharma we work with have set targets to become paperless, or at least 75-80% paperless, in the next 12-18 months.” Dr. Hubbard added that Icon, in the next 24 months, would be running 30-50% of its studies with EDC. Certainly many CROs are accepting of the technology and have also invested heavily in EDC. According to Mr. DeCherney at Quintiles, the industry is about a third of the way there in terms of EDC studies it’s conducting. “There has been a dramatic increase in the last year. Requests for EDC have gone from 10-15% to 50%,” said Mr. DeCherney. Icon has seen a significant jump in EDC proposals as well. Dr. Hubbard said that Icon responded to 25% of proposals with EDC over the last year.
According to Judy Hanover, senior product marketing manger for drug safety at Phase Forward, the ability to effectively use technology is a differentiator for CROs and enables them to produce more competitive bids for sponsors, while using technology to improve margins in executing trials. “With the increased use of EDC, CROs are able to offer lower cost trials and decrease key cycle times during trials, such as the ‘time from protocol to first patient in’ and the ‘time to database lock after the last patient visit,’” Ms. Hanover said.
“Implementation strategies vary according to the particular sponsor, but it is clear that the commitment of top management to the EDC challenge is a crucial component of success with EDC,” Ms. Hanover continued.
EDC vendors are increasingly working with both CROs and sponsors. It used to be that CROs had their own data management systems, distinct from the sponsor’s system, and at some interval during the study would have to transfer the data from their system to the sponsor’s system, which brought about a variety of integration issues (and QC) along with it. According to Glen deVries, chief technology officer at Medidata, “Today it’s possible for a CRO to work with a sponsor on a system like our RAVE, that allows a CRO to manage the study using its own resources and collaborate with the sponsor and split the work. You didn’t see that a year ago.” Now, CROs can provide services on an EDC platform that is owned and operated by the sponsor. Mr. deVries said, “The industry has ‘crossed the chasm’ and is established with a proven track record. There’s not a steady increase in the move to EDC, there is a dramatic increase in companies that are taking a serious initiative and are committed to going virtually all EDC in a 12-24 month timeframe.”
Competition, Consolidation and Globalization
Competition and differentiation may very well be a CRO’s toughest challenge. In today’s market, full-service CROs need to maintain a cost-competitive position, while mid-sized CROs need international alliances and smaller CROs need to be more and more specialized and experienced, and maintain global alliances.
Small CROs position themselves as having a lot to offer a sponsor, namely, therapeutic expertise, personal attention and less overhead. They contrast this with the perception that large CROs are busy with Big Pharma’s big trials. However, it’s still the opinion of some industry experts that mid-sized CROs will feel the weight of competition the most. There’s no question that if these mid-sized CROs are to grow, they need to go global and/or intensify expertise. According to Dr. Hubbard at Icon, if a company is not getting the large, global opportunities to bid on, it means they have to do a lot of their growing through small studies, and it takes more work from a project management perspective to manage 100 small studies, as opposed to 30 large studies. “It’s just more cost effective. So I think we’ll see consolidation in the CROs that are anywhere between 250 and 1,000 employees,” he remarked.
On the other hand, Kelly Alberts, president, IT&E Inter-national, feels that there will be fewer small CROs as consolidation continues, and more mid-sized CROs with global reach that will become alternatives to the big public CROs. She contends that, while smaller CROs will not disappear, there will be less of them.
“By far, the greatest opportunity in the market today is consolidation through creating a mid-sized CRO that is more flexible and customer focused with less bureaucracy, that can deliver superior service for sponsors,” said Peter R. Sollenne, chief executive officer, IT&E International Group. “We are investing heavily in our corporate M&A strategy, both in the U.S. and abroad, to acquire ‘best of breed’ CROs and integrate them to become a premier mid-sized global CRO with specialty focus in four therapeutic areas,” he continued. IT&E is looking to create sustainable differentiators in the areas of quality, flexibility, technical leverage, global capabilities, customer service, and price, and is fast becoming an active player in the consolidation of the CRO industry.
Global capabilities are a must in today’s CRO market. Establishing global reach, via expansion, acquisitions or alliances, has become a necessity for CROs big and small. More and more trials are increasing in size and going offshore, so sponsors demand these capabilities. Driven by an extensive, untapped patient population, a high level of expertise and the cost efficiency, this globalization trend is likely to continue, and more CRO consolidation will likely be the result.
“With a lot of trials going oversees, I see companies scrambling to get international contacts,” said Jim Worrell, contract representative at Pharma Services Network. “I also see companies specializing more and more, especially small and medium-sized CROs. With Pharma companies working on their drug pipelines and in-licensing so many products that are not in their therapeutic area, they need CROs more than ever. A Pharma company could invest a lot of time and money building a clinical team, but if the drug fails, or when that trial is over, the result is a loss of flexibility and too much overhead. What’s happening is Pharma is working more on drug pipelines and marketing and letting what the CROs do what they do best, which is clinical trials. They have the knowledge, the specialization, the personnel, and the core competence,” Mr. Worrell continued.
There are a lot of companies jumping into the CRO arena and those that are already in it have to get more aggressive in order to continue growing. Over the past few years the industry has grown very rapidly. CROs typically grew through repeat business and word of mouth, but that’s not the case anymore. According to Mr. Worrell, “It’s getting so competitive that CROs have to embrace business development and marketing. One of the biggest issues is competition. The small CROs, typically started by scientists or doctors, have had to learn business development and marketing skills or they have had to hire them. Also, how companies position themselves in the marketplace is important in order to differentiate them. To a sponsor, a lot of CROs look the same,” he remarked.
More than ever, Pharma companies have recognized the value of CRO services and are beginning to take full advantage of them, much like their peers in the Biopharma sector. There isn’t an area that CROs aren’t seeing growth in. Whether it’s Phase I-IV trials or functional outsourcing of data and clinical trials management, sponsors don’t have to go far to obtain quality services. Also, with safety becoming more and more of a concern in the industry, trial sizes have increased throughout all phases of development, driving the demand for large global trials. In particular, an increase in Phase IV trials was evident in the last year. Regardless of what service area sponsors are outsourcing, whether it’s functional or full-service, they are all asking for EDC. This technology, with all of its potential, is driving many CRO/Sponsor relationships of late.
In the race to the finish—following the war of consolidation—will more mid-size CROs emerge or less? Only time will tell. Acquisitions, alliances, partnerships and expansion are not likely to decrease in the next year. CROs that provide global services are definitely in the running, alongside specialty CROs. As far as the mid-sized CROs, perhaps we will see more global capabilities with increased specialization. In the meantime, the numbers indicate that it’s good time to be a CRO.