It's a buyer's market! Study prices have dropped! Preclinical CROs have ample open capacity! You make preclinical outsourcing decisions for your company. You send out an e-mail requesting a bid for when you do have something to outsource, and multiple CROs respond. All you have to do is sit back and decide which CRO gets the work and which won't. Your business life couldn't be any easier, right? I hate to burst your bubble but your preclinical outsourcing decisions are about to get a bit more complicated. Fortunately, there are a few steps that sponsors can take now to help ensure successful outsourcing experiences in the future.
In previous articles, I have noted many of the changes that have occurred in the preclinical outsourcing industry since customer demand began to fade in 2008. Layoffs, facility closures, and regulatory concerns have been among the notable occurrences during the last 12 months. We have now seen that the Achilles heel of the preclinical CRO industry is low business volume. Although it is understandable that you may be eyeing your own job security if you work for a pharma or biopharma company, paying close attention to the challenges that are currently being encountered by preclinical CROs will help your outsourcing decision-making, especially if you consider the following tips:
-Maintain an ongoing dialog with preclinical CROs � It is important to maintain communications with CROs whether you are actively outsourcing or not. Sound crazy? It is understandable that many sponsor companies diminished or suspended preclinical outsourcing so that internal funding could be directed toward later stage drug development activities. The problem is that preclinical CROs have not only experienced lower customer demand but they have also lost their ability to "see" or predict future client needs. With no reliable data to predict future business activities, many preclinical CROs have been forced to implement the cost-cutting initiatives that were mentioned above. So why maintain a dialog with preclinical CROs even if you are not actively outsourcing? If preclinical outsourcing is part of your company's drug development strategy, you want the preclinical CRO industry to be stable and successful. By routinely providing updates about your future outsourcing needs, you provide valuable information that allows CROs to better manage Resources and capacity. Understandably, it may be difficult for you or your management to spend time working on your relationships with the preclinical CRO industry while your own company is trying to survive but know that this is an essential key to your long-term success.
-Be sure to share credible information � From a CRO perspective, it's a variation of "no news is good news." No business information for planning is probably better for them than inaccurate information. Are you the type of sponsor that starts the year by scheduling studies at CROs only to cancel these studies later in the year? Trimming the preclinical outsourcing budget is an effective way for a sponsor to control costs, but canceling studies or unintentionally providing inaccurate information can have a detrimental impact on a CRO. All sponsors cancel studies at one time or another, but in this economy, those decisions can impact the economic well-being of a CRO and its staff.
-Think twice about delaying specialty toxicology work � Sponsors routinely delay more expensive specialty toxicology studies - e.g., Inhalation, Developmental and Reproductive Toxicology - as a means of controlling their preclinical outsourcing budget without shutting down outsourcing activities altogether. Many preclinical CROs are in fact reporting that the demand for specialty toxicology studies is lagging that for general toxicology studies. Specialty toxicology studies are more expensive due to their complexity, the overhead required to conduct these studies, and the need for specialized skills in CRO personnel. Preclinical CROs will not decommission these high-margin capabilities when customer demand is low, but they cannot afford to have these workers sitting around waiting for these studies to be scheduled. In those CROs that have effectively embraced cross training, the good news is that this is less of a resource management issue. The bad news is that if enough staff is redeployed to conduct general toxicology studies, these individuals may not be readily available for your ideal study start date. Specialty toxicology studies generate a higher margin for CROs. Would a CRO reject a client's requested study start date or try to "squeeze" it in regardless of current resource commitments? Again, the sooner you invite a CRO to participate in some of your scheduling discussions, the better the chance those resources will be available when you need them.
-Watch for low prices � We've touched on this one before. The good news is that you can find good prices through competitive bidding. This is currently true especially regarding specialty toxicology studies. The bad news is that if a price seems too good to be true, it probably is. Be very cautious about taking the lowest bid especially if it is significantly lower than the other bids.
-Don't count on open capacity � We continue to hear that there is significant open capacity to conduct preclinical studies in the CRO industry. If you are a sponsor and regard the term "capacity" as the availability of study rooms then, yes, there is currently open capacity in the industry. However, if your definition of "capacity" also encompasses the capability of a CRO to conduct your studies, then the amount of open capacity in the industry could be lower depending on your need. Just because a CRO has open study rooms, that doesn't necessarily mean that it has sufficient staff or expertise to conduct your study. Keep in mind that so much has changed throughout the CRO industry over the past 18 months, some scientists who were fixtures at a CRO may have moved on to other opportunities. Some CROs were so aggressive with headcount reductions that they now are unable to run the facility at optimum capacity. If you run into one of these situations, you really need to evaluate whether you can still have a successful outsourcing experience. This is an ideal introduction to our next point . . .
-Understand that your previous due diligence conclusions are probably outdated � So much has changed at many preclinical CROs over the past 18 months - and even within the past 6 months - that you may want to update your due diligence reviews.
-Personnel: As mentioned above, many CROs have lost key personnel due to layoffs and/or new career opportunities. Scientific, management, and/or operational leaders have departed from preclinical CROs across the industry. If one of your primary criteria for selecting a CRO was because of its experienced staff, you may want to check that the same individuals are still in place at that CRO. CROs generally don't announce the departures of key personnel, so the responsibility to check on this belongs to the sponsor.
-Training: If you discover that there has been a turnover in personnel at a CRO, are the replacements sufficiently trained scientifically, technically, and from a regulatory compliance perspective?
-Regulatory Status: In 2010, the FDA cited several CROs for allowing sponsors and study directors to comment and edit the reports of contributing scientists. At least two industry groups have requested that the FDA rescind this broad interpretation of the Good Laboratory Practice regulations. Of the CROs that were cited by the FDA, some have complied with this regulatory guidance while others have reportedly indicated that they will not change their reporting procedures. Those CROs that haven't been cited by the FDA don't know if they will soon be the recipients of similar regulatory guidance or not. This is a real hot topic in the drug development industry. As a sponsor, you need stay connected to industry groups and colleagues so that you have the most up to date information on any regulatory initiative. To that end, you need to understand the regulatory status of each preclinical CRO that you do business with and you need to understand how the management team has responded to regulatory guidance, if any. Regarding the regulatory initiative on the report process, you need to understand how your CRO is processing reports and if there are any changes that would limit your ability to review the reports.
-Business Changes: How has your CRO weathered the past 24 months of slow client demand? Are their signs of internal economic stress? Have you seen a decline in communication or customer service? Is the facility clean? Have you seen changes in technical quality? Is the business for sale? Your goal is to mitigate your risk and the only way you can do that is to ask questions and observe.
- When the CRO business picks up, watch for Quality Issues: Because of many of the aforementioned points, enough has changed over the last 24 months in the CRO industry that conditions are ripe for the emergence of a new round of quality issues. As I write this, I am flashing back to a time when the business environment in the CRO industry was healthier and yet I was warning about quality issues back then as well. Therein is the problem; the potential for quality issues in a CRO exists all of the time. Two years ago, CROs were so busy that I was concerned that this environment was conducive to quality issues. Two years later, my concern is that many CROs have been so absorbed, understandably so, with surviving a poor economy that the checks and balances that were designed to ensure quality may no longer function effectively especially if some of the key individuals who championed quality have since departed.
-Study Monitoring: When budget cuts occur at sponsor companies, the travel budget is almost always the first to be cut. That usually means curtailing study-monitoring activities. Budget cuts are inevitable but remember that study monitoring is a primary risk mitigation tool. At CROs over the last two years we have seen multiple layoffs, the departure of key personnel, new regulatory initiatives, and spending reductions. While those who make the decision to cut travel budgets may not appreciate it, this is not the business environment during which a sponsor should reduce its oversight of outsourcing activities.
-Network, network, and then network some more � As a sponsor, networking is one of the most important activities to understand the latest happenings in the preclinical CRO industry. The information that you gain from networking is not written down anywhere but it can help to guide outsourcing decisions, due diligence activities and study monitoring strategies. Learn from the experiences of others. The Society of Toxicology (SOT) and the American College of Toxicology (ACT) annual meetings are excellent venues to learn more about the industry. LinkedIn is an excellent social networking site that provides additional opportunities. Sponsors should routinely check with friends and colleagues in the industry.
-Regardless of the economy and business environment, get your drug to the CRO on time � This is another tip from my archives but, especially on this topic, a little reminder never hurts. Not getting the drug (test article) to the CRO in sufficient time prior to the start of a study is an issue that has plagued the industry since the beginning of outsourcing and it still persists. The best way to mess up the operations surrounding your study and to invite a greater risk of quality issues is to be so late in sending your drug to the CRO that the personnel there need to rush to make up for your delay.
Finally, when sponsors talk about their preclinical outsourcing strategies, many will refer to their CRO partners. When things go wrong at a preclinical CRO, you don't always hear the same strong endorsement of this partnership from the sponsor. Despite best efforts, things will go wrong at preclinical CROs. As a sponsor, I never wanted to hear that from a CRO because it almost seemed like a preemptive excuse. Over the years, I learned that there were things that I could do as a sponsor to improve the likelihood of a successful outsourcing experience. Okay, I'll say it. I realized that I had to be responsible too! I have shared several of these tips in this article. Yes, these are smart moves for 2011 but actually, they are smart moves for any time a sponsor does preclinical outsourcing. Oh, and regarding that "partnership" concept? If you are a sponsor, try to remember that you need to act like a partner in order to truly have a CRO business partner.
Steve Snyder is a consultant with more than 25 years of experience in preclinical toxicology as an outsourcing customer and provider. He can be contacted at firstname.lastname@example.org.