Preclinical Outsourcing

The History of Drug Development - Part 2

By Steve Snyder | April 29, 2011

The influence of investor expectations

And so it was that the winds of the global Recession began to dissipate. The skies brightened as the Pharmaceutical Empire slowly began to increase spending on preclinical research. Leaders of Preclinical CRO kingdoms became cautiously optimistic at this apparent increase in the demand for their services. The Nobles of Wall Street and the Private Equity Explorers who had been appeased during the economic slowdown by aggressive cost cutting now looked again at the Preclinical CRO Empire and rubbed their hands together. The leaders of the Preclinical CRO kingdoms had listened to their demands and protected their investments.
Now business was beginning to improve, so they began to calculate their future riches using the equation FS=$ (Facility Space equals Money). Once again, they shouted, "Not only do we want more, but we expect more!" All of the leaders of all kingdoms in all of the empires began to breathe a sigh of relief. They had weathered the Recession and protected investors, and now business was beginning to improve. Still, despite these hopeful signs, the industry elder in the remote land continued to be troubled.

Something wasn't right. Why was he troubled when the Nobles of Wall Street and the Private Equity Explorers were so positive about the industry? Why was he troubled when the kings of the Preclinical CROs were cautiously optimistic about improving customer demand and relieved that they had appeased the investment empires? All of the kingdoms in all of the empires had sentries posted at their walls and no new threats were evident. Yet, something bothered him. He thought back to his observations from his recent travels across the empires.

He recalled a year earlier, when he was invited to a lavish customer appreciation event that was sponsored by a preclinical CRO from the lands to the North. Open bar, hot dinner buffet, expensive door prizes and casino-like gaming tables were among the highlights of this event that was held in an upscale hotel. Just months earlier, a well-respected management representative in the company was purged. This action was followed by additional purges in the management ranks. When the elder spoke to the leader of the preclinical CRO, the leader assured him that these actions made sense and were necessary to improve business. Management replacements were named, although they seemingly lacked broad operational experience. The industry elder remembered being troubled that so much money was spent on a customer appreciation event - where virtually no business is ever conducted - while the CRO was making desperate changes to improve its business. Now, a year later, more changes had occurred. A financial kingdom - a.k.a. a bank - had assumed control of the company and deposed the leader. The CRO from the North was in bankruptcy. All of the shareholders lost their money. The elder was sad about the outcome but not surprised. His concerns from a year ago had been realized. Now he understood that the same concerns he felt a year ago about this one kingdom were similar to the concerns that he felt today about the rest of the Preclinical empire.

The industry elder now realized that during his recent travels he had seen similar disturbing trends at other preclinical CRO kingdoms. Some had purged members of their inner leadership circles, the senior management, while some Preclinical kingdoms deposed the actual leaders, the company presidents, and named replacements . . . even if they did not have broad operational experience. As he had heard a year earlier, these moves were made to improve business. There was yet another ominous sign: some senior management leaders simply abandoned their roles and left their kingdoms. These observations alone were troubling but the elder had seen more.

He recalled that he recently attended a great gathering where representatives from all of the empires came to meet (okay, it was the Society of Toxicology (SOT) meeting). The gathering was also attended by the Nobles of Wall Street and the Private Equity Explorers.

Representatives from the Pharmaceutical and Preclinical Empires were everywhere. There were those also who had been purged and were looking for jobs. Some were among the most experienced in their field, but when their Preclinical kingdom was trying to appease the Nobles and Explorers, their high salaries meant they would be exiled. The elder was struck by the irony; just a few years ago during the Age of the Glory Days, not only were preclinical kingdoms hiring aggressively, but the strength of their scientific expertise was the backbone of their marketing strategies. Now with all of these experienced scientists purged from preclinical kingdoms, the elder wondered about the experience level of those who were left in the kingdoms to conduct the work. With the experience level in the industry now diminished since those Glory Days, how would preclinical operations perform when the workload intensified? The elder had already heard stories that the workload in some CROs was increasing beyond the staffing levels that existed after the purges. Based on historical practices, workload growth would exceed hiring. The leaders of the preclinical CRO kingdoms knew that the Nobles and Explorers were looking over their shoulders, so the last thing they would do was increase their fixed costs by hiring additional staff until they were convinced that the workload was sustainable. The elder had seen this practice before and knew that it would be a mistake now just as it was then.

During this great gathering of individuals across the empires, the elder reflected on a conversation that he had with a representative from the Pharmaceutical Empire. It turned out that this individual would only do work with some preclinical kingdoms but not others. The representative told a story of how he approached one preclinical kingdom but had been arrogantly rebuked when he would not pay the higher costs to do work with that kingdom. The representative wondered why a preclinical kingdom would act in such a way. "In this economy, don't they want my business?" he asked. The elder listened and recalled that he had heard similar stories years ago.

As the elder continued to reflect on what he had learned from his travels, he thought about the recent impact of the most powerful army in the land. The Knights of the Regulators ultimately controlled the Pharmaceutical and Preclinical Empires. Each year, the Knights would visit preclinical and/or pharmaceutical kingdoms to make sure that they were following the Rules (FDA guidelines). During the past year, the Knights had visited preclinical kingdoms and cited new Rules that no one had ever heard of before. The Pharmaceutical and Preclinical Empires were shocked. If they were enforced, they would change the way that the kingdoms do business, and slow down drug development. Some preclinical kingdoms said that they would comply with the new regulatory guidance while others chose to challenge the Knights. What many of the kingdoms missed during this unrest was that the Knights of the Regulators had also cited a preclinical kingdom to the West about significant compliance issues. Regarding this latter point, the elder recalled that he had heard of similar regulatory action many years ago.

The elder was perplexed. Much of what he had seen from his recent travels was similar to observations that he had made in years past: senior management purged, key individuals voluntarily walking away from their jobs, potentially insufficient operational and scientific experience, workload out of synch with staffing, institutional arrogance, and significant regulatory compliance issues. Furthermore, preclinical leaders were being deposed and replaced, no doubt as another attempt to appease the Nobles of Wall Street and the Private Equity Explorers.

Suddenly it hit him. The elder realized that much of what he had seen recently had occurred years before, when Preclinical kingdoms were struggling to be accepted by the Pharmaceutical Empire. Back then, the preclinical kingdoms went to great lengths to address the concerns and gain the trust of the Pharmaceutical Empire. They addressed their deficiencies by developing strong management teams, hiring recognized scientists and operational experts, increasing salaries to attract and retain key personnel, and developing work processes that addressed compliance issues. These were the actions that led to the formation of the Preclinical Empire, but now it seemed that it was starting to come undone (at least in some kingdoms). The elder wondered how all of this could have happened, when everything became clear.

He believed that in some Preclinical kingdoms, there had (knowingly or unknowingly) been a fundamental shift in the way that they did business. The Age of the Glory Days of the Preclinical Empire were typified by massive building projects, extreme revenue growth, high study prices, and, in some kingdoms, the emergence of institutional arrogance. What the elder now understood was that the Glory Days actually marked the beginning of the Age of Investor Appeasement. Some kingdoms had seemingly ventured away from the business basics that made them so successful and now instead managed to the expectations of the Nobles of Wall Street and Private Equity Explorers. He understood the need for investor appeasement, but he realized that it had to be delicately balanced with operational effectiveness. He knew that the leaders in some preclinical kingdoms understood this concept while others didn't, as evidenced by his observations from across the industry. While some leaders suggested that they had transitioned their kingdoms into leaner, more responsive CROs, the elder believed differently. He believed the Age of Investor Appeasement had weakened some preclinical kingdoms and, to some extent, the empire as a whole. It had taken years for preclinical outsourcing to be accepted by the Pharmaceutical Empire, now the realm faced operational challenges that were alarmingly similar to those seen in its formative years. What worried the elder the most was that - at least in some kingdoms - he believed that the conditions were ripe for another catastrophic failure, just like what happened at the CRO in the land to the North.

So while all of the sentries in all of the preclinical kingdoms in all of the lands looked outward for signs of threats, the elder knew the identity of the real enemy. He knew that if his wisdom was embraced by the preclinical leaders and if each kingdom was then managed accordingly, those preclinical kingdoms would survive. He also knew it was likely that those preclinical leaders that did not embrace or understand the industry intelligence were destined to be subject matter for future Contract Pharma articles.

And so it was, in The History of Drug Development - Part 2, that the identity of the real threat to the industry was revealed to the Preclinical Empire. One brave preclinical sentry, who spoke under the condition of anonymity because he feared being purged, summarized it the best:

"We have seen the enemy and it is us."

In the end, the ultimate key to success was not to look outward but to look inward.

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