Steve Snyder11.09.07
In my intermittent attempts to align the content of my article with Contract Pharma's monthly theme, I have decided to take a look back at 2007 for this end-of-year issue. Yes, in the small niche of preclinical outsourcing, a lot happened in the industry in 2007 that will shape the business in the years ahead. Here is a brief look at some of the hot topics:
The word "war" may be a little strong, but have you ever noticed that when one preclinical CRO announces a plan to increase capacity, it seems like another CRO follows with a similar announcement shortly thereafter? I remember asking a friend in the CRO industry if this growth was actually being driven by market demand or by the egos of those who make these decisions (i.e., who has the largest CRO)? Fortunately for the preclinical CRO business, the market demand is robust and it shows no sign of declining. In the last year, Covance, Charles River, MPI Research, and SNBL-USA were among the CROs that either opened new capacity or announced plans to build new capacity. Even with the availability of this new or planned capacity, as I write this article today (October 2007), many CROs indicate that the next available time to start studies isn't until March of 2008. As we have discussed in the past, the successful CROs will be those that effectively manage this growth through proactive hiring, effective training, and work processes that will effectively maintain quality.
For the first time in recent memory, many preclinical CROs seemed to struggle to maintain quality in 2007. Normally the communication grapevine may have accounts of quality issues here and there but this past summer saw multiple instances across the industry. I addressed this in my article, "Quality Concerns" that appeared in the July/August issue of Contract Pharma (see print edition). It must have really hit a nerve in the industry. Some individuals at CROs didn't hesitate to let me know how irritated they were about this article. Once I acknowledged their displeasure, I asked these individuals if anything that was stated in the article was inaccurate. To date, no one has challenged the validity of my observations but I hasten to add that the frequency and severity of quality issues varies among the CROs. Sponsors need to do their homework and network with industry colleagues to understand these differences when making their CRO selection. I was heartened when one a senior manager from a CRO called me to discuss this article. He readily admitted that he felt the same irritation experienced by others, but then thought that this might be an opportunity to take a step back and view his operation from another perspective.
Anecdotal accounts of quality issues in the CRO industry suggest that the root causes of many occurrences is either the failure of CRO staff to follow established work processes or the failure of legacy work processes to keep up with operational expansion. As capacity expands and inexperienced staffs are hired, CROs will be challenged to address these root causes . . . on an ongoing basis.
As mentioned above, CROs are under pressure to hire staff to bring new capacity on line. It is now common to meet technicians working on GLP studies who have been employed at the CRO for less than three months. This is a practice that would have been unthinkable just five years ago, but market demand and new capacity have significantly altered this standard. What may be worse, those in technical supervisory positions have less and less experience as well. These are the individuals make many of the staffing decisions for sponsor's studies. During this past summer, I advised a sponsor that had encountered technical difficulties to request more experienced staff to conduct the study. The CRO was glad to accommodate that request, but this highlights a developing industry dynamic: as capacity grows, the pool of experienced technical staff is shrinking.
Ironically, many CROs would have more significant challenges in staffing their operations were it not for the layoffs that were announced by pharma and biopharma companies. Pfizer, Bayer, Amgen, AstraZeneca, and Johnson & Johnson announced 31,300 layoffs in 2007. As a result, we also saw the continuation of trend where pharma and biopharma researchers found jobs in the CRO industry instead of the unidirectional migration of workers away from CROs, the model that had prevailed previously. Some individuals facing layoffs have decided to become consultants while others are pursuing job opportunities in what I believe will be the next industry trend: "the boutique provider." A "boutique provider" is another one of my made-up terms to describe a group of individuals with a certain expertise (e.g., pathology, bioanalytical, etc.) who have elected to pursue their entrepreneurial instincts to develop a business to provide a service in the preclinical outsourcing industry. These businesses are built around the concepts of high quality and excellent customer service. By focusing on these attributes, some boutique providers have become competitive with larger legacy providers. In 2008, I plan to further explore this evolving trend through interviews with some boutique providers.
This remains a hot topic. The allure of low labor costs is highly appealing to those who watch expenses in pharma and biopharma companies. These firms have expended a lot of time and energy on visits to China and India in particular. Everyone seems to think that outsourcing to this region is a great idea, if it could work. It is about at this point where the strategy faces some significant challenges. There are significant cultural, communication, and philosophical differences that need to be addressed. Some believe that the time and money that would be necessary to meet these challenges would be realized in future savings. Others believe that the challenges are too significant for outsourcing to this region to be a viable option. Based solely on feedback from contacts in the pharma and biopharma community, preclinical outsourcing activities that involve analytical or bioanalytical chemistry seem to have the best opportunity for outsourcing success. At the same time, the outsourcing of preclinical toxicology studies to Asian CROs is progressing very slowly. Although sponsors and CROs continue to watch the Asian outsourcing market, significant capacity for conducting preclinical studies that matches the standards of the North American market has not yet matured in this region.
I had the opportunity to speak about preclinical outsourcing at two different conferences this year. These conferences focused on the operational aspects of preclinical outsourcing with topics that addressed research strategies, organizational productivity, outsourcing effectiveness, and more. At both conferences, many of the speakers and attendees ultimately identified the quality of the sponsor-CRO relationship as the key to a successful outsourcing experience. Some of the relationship issues are obvious. I personally got involved in a situation when a CRO study director hung up on a sponsor when they were trying to finalize a report to support global clinical trials. Obviously their relationship had broken down. Other relationship issues are less obvious but no less significant. I have seen sponsors and CRO staff think that they are aligned on a study design only to realize later that their different interpretations would have resulted in significant differences in how the study was conducted. Many of the participants at the aforementioned conferences identified the importance of the business relationship as a critical foundation for effectively addressing unanticipated scientific or quality issues. Developing and maintaining a good business relationship should be the primary risk mitigation strategy for a sponsor and a leading business development strategy for CROs.
As I look back over 2007, it seems like everything in the preclinical outsourcing industry is changing. CROs are adding capacity at a dizzying pace; they are recruiting and hiring staff like crazy to keep up with current demands and to meet future needs. We saw the CRO industry face quality issues at a frequency to suggest that market demand (workload) and inexperienced staff may be contributing to this disturbing new trend. I hope not.
I have come to accept that the experience level among a CRO staff will not be as great as in the past. Curiously, I have also noted an influx of lesser experienced staff in preclinical research in sponsor companies as well. At the same time, we are starting to see the retirement of many of those experienced scientists in sponsor companies and CROs. I know that several of my mentors have chosen that route. Accordingly, given my observation of an influx of inexperienced staff into the industry, coupled with the concurrent departure of experienced staff, I am concerned that we may be on the cusp of experiencing an industry "brain drain."
Regarding preclinical outsourcing to Asia, I will note again as I did earlier this year that the impetus for this business strategy seems to have originated among the financial operations in sponsor companies. I am all in favor of innovative business strategies but no one I know with direct responsibility for preclinical research or outsourcing is thrilled with this strategy given the current availability of services in this market. In fact, there are some industry veterans who are only now warming to the strategy of preclinical outsourcing; to them, outsourcing to Asia represents an even greater risk. Preclinical outsourcing alone is a significant change, especially to the sponsor company that has elected to downsize its facilities and/or research staff. I think it is fair to say that the development of the Asian CRO market is a work in progress.
While everything else in the preclinical outsourcing industry seems to be changing, I believe the importance of the sponsor-CRO business relationship is the one factor that will remain constant. Relationships will change as the industry changes but the existence and quality of the relationship to both parties will remain critical. Can preclinical outsourcing be conducted without a strong relationship between the sponsor and the CRO? Sure. Is this a smart approach to preclinical outsourcing? I don't think so. I am certainly no expert on relationships; my wife would roll on the floor laughing if I was to suggest otherwise. However, many other industry veterans also acknowledge the critical importance of the sponsor-CRO relationship.
In this article, we looked at some of the changes that are occurring in the preclinical outsourcing industry. These changes represent new challenges and new risks to outsourcing success. If you're a sponsor, the easy part is having a preclinical outsourcing strategy. The tough part is working effectively with one or more CROs in executing that strategy on a continual basis. If you work at a CRO, you already understand the challenges of this robust market demand and keeping up with sponsor's expectations. A sponsor wants to feel comfortable and in control when working with a CRO. While everything else in the preclinical outsourcing industry may be changing, it is highly unlikely that this basic need will ever change. If all other comparisons are equal, the most preferred CRO in 2008 will be the one that manages its sponsor relationships most effectively.
Steve Snyder is a consultant with more than 25 years of experience in preclinical toxicology as an outsourcing customer and provider.
"The Capacity War"
The word "war" may be a little strong, but have you ever noticed that when one preclinical CRO announces a plan to increase capacity, it seems like another CRO follows with a similar announcement shortly thereafter? I remember asking a friend in the CRO industry if this growth was actually being driven by market demand or by the egos of those who make these decisions (i.e., who has the largest CRO)? Fortunately for the preclinical CRO business, the market demand is robust and it shows no sign of declining. In the last year, Covance, Charles River, MPI Research, and SNBL-USA were among the CROs that either opened new capacity or announced plans to build new capacity. Even with the availability of this new or planned capacity, as I write this article today (October 2007), many CROs indicate that the next available time to start studies isn't until March of 2008. As we have discussed in the past, the successful CROs will be those that effectively manage this growth through proactive hiring, effective training, and work processes that will effectively maintain quality.
Quality
For the first time in recent memory, many preclinical CROs seemed to struggle to maintain quality in 2007. Normally the communication grapevine may have accounts of quality issues here and there but this past summer saw multiple instances across the industry. I addressed this in my article, "Quality Concerns" that appeared in the July/August issue of Contract Pharma (see print edition). It must have really hit a nerve in the industry. Some individuals at CROs didn't hesitate to let me know how irritated they were about this article. Once I acknowledged their displeasure, I asked these individuals if anything that was stated in the article was inaccurate. To date, no one has challenged the validity of my observations but I hasten to add that the frequency and severity of quality issues varies among the CROs. Sponsors need to do their homework and network with industry colleagues to understand these differences when making their CRO selection. I was heartened when one a senior manager from a CRO called me to discuss this article. He readily admitted that he felt the same irritation experienced by others, but then thought that this might be an opportunity to take a step back and view his operation from another perspective.
Anecdotal accounts of quality issues in the CRO industry suggest that the root causes of many occurrences is either the failure of CRO staff to follow established work processes or the failure of legacy work processes to keep up with operational expansion. As capacity expands and inexperienced staffs are hired, CROs will be challenged to address these root causes . . . on an ongoing basis.
People
As mentioned above, CROs are under pressure to hire staff to bring new capacity on line. It is now common to meet technicians working on GLP studies who have been employed at the CRO for less than three months. This is a practice that would have been unthinkable just five years ago, but market demand and new capacity have significantly altered this standard. What may be worse, those in technical supervisory positions have less and less experience as well. These are the individuals make many of the staffing decisions for sponsor's studies. During this past summer, I advised a sponsor that had encountered technical difficulties to request more experienced staff to conduct the study. The CRO was glad to accommodate that request, but this highlights a developing industry dynamic: as capacity grows, the pool of experienced technical staff is shrinking.
Ironically, many CROs would have more significant challenges in staffing their operations were it not for the layoffs that were announced by pharma and biopharma companies. Pfizer, Bayer, Amgen, AstraZeneca, and Johnson & Johnson announced 31,300 layoffs in 2007. As a result, we also saw the continuation of trend where pharma and biopharma researchers found jobs in the CRO industry instead of the unidirectional migration of workers away from CROs, the model that had prevailed previously. Some individuals facing layoffs have decided to become consultants while others are pursuing job opportunities in what I believe will be the next industry trend: "the boutique provider." A "boutique provider" is another one of my made-up terms to describe a group of individuals with a certain expertise (e.g., pathology, bioanalytical, etc.) who have elected to pursue their entrepreneurial instincts to develop a business to provide a service in the preclinical outsourcing industry. These businesses are built around the concepts of high quality and excellent customer service. By focusing on these attributes, some boutique providers have become competitive with larger legacy providers. In 2008, I plan to further explore this evolving trend through interviews with some boutique providers.
Outsourcing in Asia
This remains a hot topic. The allure of low labor costs is highly appealing to those who watch expenses in pharma and biopharma companies. These firms have expended a lot of time and energy on visits to China and India in particular. Everyone seems to think that outsourcing to this region is a great idea, if it could work. It is about at this point where the strategy faces some significant challenges. There are significant cultural, communication, and philosophical differences that need to be addressed. Some believe that the time and money that would be necessary to meet these challenges would be realized in future savings. Others believe that the challenges are too significant for outsourcing to this region to be a viable option. Based solely on feedback from contacts in the pharma and biopharma community, preclinical outsourcing activities that involve analytical or bioanalytical chemistry seem to have the best opportunity for outsourcing success. At the same time, the outsourcing of preclinical toxicology studies to Asian CROs is progressing very slowly. Although sponsors and CROs continue to watch the Asian outsourcing market, significant capacity for conducting preclinical studies that matches the standards of the North American market has not yet matured in this region.
The Sponsor-CRO Relationship
I had the opportunity to speak about preclinical outsourcing at two different conferences this year. These conferences focused on the operational aspects of preclinical outsourcing with topics that addressed research strategies, organizational productivity, outsourcing effectiveness, and more. At both conferences, many of the speakers and attendees ultimately identified the quality of the sponsor-CRO relationship as the key to a successful outsourcing experience. Some of the relationship issues are obvious. I personally got involved in a situation when a CRO study director hung up on a sponsor when they were trying to finalize a report to support global clinical trials. Obviously their relationship had broken down. Other relationship issues are less obvious but no less significant. I have seen sponsors and CRO staff think that they are aligned on a study design only to realize later that their different interpretations would have resulted in significant differences in how the study was conducted. Many of the participants at the aforementioned conferences identified the importance of the business relationship as a critical foundation for effectively addressing unanticipated scientific or quality issues. Developing and maintaining a good business relationship should be the primary risk mitigation strategy for a sponsor and a leading business development strategy for CROs.
As I look back over 2007, it seems like everything in the preclinical outsourcing industry is changing. CROs are adding capacity at a dizzying pace; they are recruiting and hiring staff like crazy to keep up with current demands and to meet future needs. We saw the CRO industry face quality issues at a frequency to suggest that market demand (workload) and inexperienced staff may be contributing to this disturbing new trend. I hope not.
I have come to accept that the experience level among a CRO staff will not be as great as in the past. Curiously, I have also noted an influx of lesser experienced staff in preclinical research in sponsor companies as well. At the same time, we are starting to see the retirement of many of those experienced scientists in sponsor companies and CROs. I know that several of my mentors have chosen that route. Accordingly, given my observation of an influx of inexperienced staff into the industry, coupled with the concurrent departure of experienced staff, I am concerned that we may be on the cusp of experiencing an industry "brain drain."
Regarding preclinical outsourcing to Asia, I will note again as I did earlier this year that the impetus for this business strategy seems to have originated among the financial operations in sponsor companies. I am all in favor of innovative business strategies but no one I know with direct responsibility for preclinical research or outsourcing is thrilled with this strategy given the current availability of services in this market. In fact, there are some industry veterans who are only now warming to the strategy of preclinical outsourcing; to them, outsourcing to Asia represents an even greater risk. Preclinical outsourcing alone is a significant change, especially to the sponsor company that has elected to downsize its facilities and/or research staff. I think it is fair to say that the development of the Asian CRO market is a work in progress.
While everything else in the preclinical outsourcing industry seems to be changing, I believe the importance of the sponsor-CRO business relationship is the one factor that will remain constant. Relationships will change as the industry changes but the existence and quality of the relationship to both parties will remain critical. Can preclinical outsourcing be conducted without a strong relationship between the sponsor and the CRO? Sure. Is this a smart approach to preclinical outsourcing? I don't think so. I am certainly no expert on relationships; my wife would roll on the floor laughing if I was to suggest otherwise. However, many other industry veterans also acknowledge the critical importance of the sponsor-CRO relationship.
In this article, we looked at some of the changes that are occurring in the preclinical outsourcing industry. These changes represent new challenges and new risks to outsourcing success. If you're a sponsor, the easy part is having a preclinical outsourcing strategy. The tough part is working effectively with one or more CROs in executing that strategy on a continual basis. If you work at a CRO, you already understand the challenges of this robust market demand and keeping up with sponsor's expectations. A sponsor wants to feel comfortable and in control when working with a CRO. While everything else in the preclinical outsourcing industry may be changing, it is highly unlikely that this basic need will ever change. If all other comparisons are equal, the most preferred CRO in 2008 will be the one that manages its sponsor relationships most effectively.