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Taking contract research’s pulse

The last 12 months have seen the cost-cutting drive sweeping through the pharma industry move beyond sales, administration and manufacturing and start to affect R&D

GlaxoSmithKline, Sanofi, Lilly and most recently Merck & Co have all started to trim down R&D, with the latter recently unveiling an 8,500 reduction in its headcount - around 50 per cent of which will be in R&D.  The big question for contract research organisations (CROs) is whether that slimming down of internal R&D will push more work externally, or result in an overall decline in spending.

On the face of it, the industry's R&D productivity seems to be recovering after years of lacklustre output. For example, the biopharma industry submitted applications for 35 new molecular entities (NMEs) to the FDA in 2012, the most since 1998, with the proportion of biologic projects rising. 

The costs of development are not going in the right direction, however, ranging from the oft-cited estimate of $803m to a recent estimate of more than $1.3bn per approval, according to Paula Brown Stafford, president of clinical development at Quintiles, and clinical trials account for the lion's share of the R&D spend. 

“Pressure to improve performance and efficiency is being felt across the industry, which is facing mounting costs of development and demands for innovative products,” she said.

One of the key drivers for rising costs is the increasing complexity of trials, which require more sites to recruit patients, and CROs like Quintiles are trying to respond with a greater emphasis on site management.

“We're focused on increasing the number of patients per site, decreasing the number of sites that don't enrol more than one patient, and selecting sites that are committed to quality,” commented Stafford. 

For years, outsourcing has been billed as a good way for pharma companies to improve efficiencies in R&D, but Adam Dion of GlobalData, which recently published a benchmarking report on the CRO sector, notes for many years this view was not wholly justified.

“CROs have been seen in the past as not really providing any value-add to the drug development process - after all drug costs are still going up and a drug's time to market has not been any faster with them,” he told PME. “So why use a CRO?”

Fast growth
That perception is clearly changing, and the CRO sector has been showing robust growth of late - with collective turnover of the top 40 players rising 10 per cent last year to $13.6bn, according to GlobalData. A combination of high R&D costs and erosion of sales from the patent cliff has driven the market in the near term.

The biggest change in the operating environment for clinical CROs this year was arguably final FDA guidance on risk-based monitoring to improve patient protection in trials 

Among the biggest players is Covance, and chief executive Joseph Herring said recently that the industry's R&D spending, and particularly the development component in clinical trials, central laboratory and commercial services, is at a “healthy level”. 

Biopharma clients are “increasingly buoyant” as they start to emerge from the patent expiry issues that have plagued them over the last few years and start to push a new generation of products through late-stage testing and on to the market, he noted.

Contract preclinical and discovery work such as in vitro screening remains an immature market for CROs, as projects tend to be fast-throughput and somewhat intermittent

That upwards momentum is also being felt among smaller biopharma companies, according to Parexel's CEO Josef von Rickenbach. “We are starting to see the result of the improved funding environment that has prevailed now over the last year, in terms of initial public offerings (IPOs) and other funding that has flowed into the sector, and that is starting to show up in early phase contracts.”

The positive view was echoed by Steven Cutler, president of clinical research services at ICON, who said there seems to have been more large studies coming though in the biotech sector in the last 12 months, with companies showing signs of access to higher levels of funding.

Pharma-CRO relationships
A prevailing theme for the CRO sector in the last five years has been the pursuit of strategic relationships with larger biopharmaceutical companies, and there are no signs that this is abating.  

Covance was something of a pathfinder in this area when it signed a $1.6bn, 10-year strategic collaboration with Lilly just over five years ago which saw it take control of the pharma company's facility in Greenfield, Indiana.

“Top-tier CROs with the scale to meet the growing outsourcing needs of our clients should enjoy most of the benefits of this secular trend,” said Herring, adding that the deals Covance has in place with the likes of Lilly and Sanofi have been a huge benefit for the company. 

“What we've done is to help those clients transform their R&D in terms of lowering their costs, making it more variable,” he added. “It continues to open doors for us.”

Meanwhile, Parexel recently completed a survey which revealed that 85 per cent of client and non-client pharma executives said that they believe strategic partnerships have a positive impact on the client-CRO relationship. 

Benefits cited included a reduction in the level of required client oversight, keeping a higher percentage of their costs variable, access to capabilities and expertise not found internally, improved global reach and accelerated time-to-market. And 65 per cent expected their companies to increase their level of clinical trial outsourcing over the next five years.

Joshua Schultz, vice president of strategic partnerships at Parexel, told PMLiVE that in fully established strategic partnerships, speed-to-market can be accelerated by months and cost efficiencies can reach 25 to 30 per cent relative to traditional transactional outsourcing. Additionally, the partnership model offers global scalability that is not found internally at many biopharmaceutical companies. 

The cost for a sponsor to manage a CRO can be reduced through partnership-level arrangements that focus sponsor staff on key areas, provide the right data at the right time, and create concurrence on what constitutes an acceptable output. 

On average, these types of investments can increase the average sponsor oversight full-time employee (FTE) to CRO ratio from 1:3 to 1:8, or even 1:15 in more advanced partnerships. 

“This reduction in internal cost can be a significant source of value, equivalent to saving as much as 20 per cent of the CRO professional fees for a typical project,” said Schultz. 

Quintiles' chief executive Tom Pike believes however that many high-level deals are better described as 'preferred resourcing relationships', rather than truly strategic collaborations which see the CRO become an integral part of the biopharma company's development process, for example by joining research operating committees and actually improving the development process.

CROs will continue to expand regulatory affairs, patient recruitment and monitoring capabilities, as true turnkey CROs are appealing to companies of all shapes and sizes 

“For us, those partnerships are applying skills - the tools we have, the expertise we have - in addition to preferred sourcing,” he said. Quintiles was recently appointed the sole provider of Merck Serono's outsourced clinical development services, leading clinical trial planning and execution for the company's global programmes.

Dion believes the preferred provider relationships will continue to drive sector growth in the near term, although the nature of deals is starting to shift, pointing to Pfizer's 2011 collaboration with Icon and Parexel aimed at sharpening its R&D focus. 

“Pfizer is looking to leverage each vendor's strengths and scale, hoping to simplify its internal processes while clarifying accountability and minimising risk,” he said.

The nature of these big deals is there are not that many of them to go around, however, and an often-repeated phrase in CRO results statements this year has been a desire to tackle 'client concentration', and diversify customer bases. 

After all, losing a client that accounts for 5-20 per cent of turnover is a challenge for any company. Also, commentators expect the pace of strategic deals to be slower now because companies most amenable to that idea have already adopted it, although a second-wave may come now that the early adopters have started to publish metrics on the benefits. 

To that end, Parexel set up a new biopharma unit a few months ago to help the company tap into mid-sized drug developers, particularly as activity starts to pick up in terms of M&A and fundraising, said von Rickenbach.

Another prevailing theme for the CRO sector at the moment is M&A. While preparing for its IPO earlier this year, Quintiles conducted an internal survey of the CRO marketplace and found there were more than 800 companies, including many small outfits that Pike believes will struggle as pharma evolves its R&D model.

“A lot of those smaller players simply aren't going to have the skills or they are not going to have the reach or breadth to be able to do what's necessary for the clinical trial,” he said, not least because studies are increasingly international and technology-intensive.

GlobalData expects consolidation among CROs to continue over the next 2-3 years, and Dion also believes it will take the form of larger CROs scooping up the smaller niche players who have specific service or therapeutic expertise. 

“We are also seeing larger CROs spinning-off separate business units and subsidiaries to strengthen their ability to meet demand, especially at the local level in markets such as China,” he noted. “PPD did this with BioDuro and Quintiles did this with Kun Tuo - both being Chinese subsidiaries tasked with handling clinical operations in Asia.”

Ryan McGuire of Cutting Edge Information concurs with that view. “I don't expect mega-mergers in the next few years, but a steady accumulation of assets,” he said “I think large CROs will continue to expand regulatory affairs, patient recruitment and monitoring capabilities, as true turnkey CROs are appealing to companies of all shapes and sizes.”

A different way of working
Squeezing more out of a smaller R&D budget is also forcing pharma companies to look seriously at changing the way they approach drug discovery and development, with a shift towards more collaboration with academic, non-profit and outsourcing service providers.

A prevailing theme for the CRO sector has been the pursuit of strategic relationships with larger biopharmaceutical companies, and there are no signs that this is abating 

“Recognising the need for change is a critical first step in the transformation of clinical research, commented Tarek Sherif, chief executive of Medidata Solutions (MDS). Quoting an unnamed head of R&D at a top five pharma company, Sherif said: “We do science in the 21st century, then run clinical trials that Hippocrates would've been proud of.”

Evidence of the change is already apparent,. CROs are reporting growth in service areas such as adaptive trials and programmes for personalised medicines as well as rare diseases, with gains for biomarker and genomics studies. 

They are also seeing increased demand for pharmacoeconomic end points in trials and comparative effectiveness research (CER) to help meet payers' increasing demands on patient outcomes.

CROs are also starting to invest more in information technology beyond the basics of electronic data capture (EDC). For example, Covance is currently spending $30m a quarter above its usual rate as it builds the informatics systems needed to improve the flow of data between clinical sites and central lab operations and move away from legacy systems with elements of paper and spreadsheet reporting.

“A key focus for our industry is modernising information technology infrastructure,” commented Sherif. “This means sweeping away decades of brittle legacy technology deployment that support inefficient manual and silo processes and replacing them with modern cloud-based solutions,” he added.

Other trends of note include greater interaction with social networks and patient communities - such as inVentiv Health's recently-signed deal with PatientsLikeMe that allows the site's 200,000 members to view and apply for clinical studies.

The eClinical Trial market continues to evolve with an increase in the number of software applications and informatics tools for managing the clinical trials process, although at the moment these independent systems suffer from incompatibilities, forcing sponsors and investigators to enter the same data multiple times in different applications. 

“This disrupts optimal workflow, resulting in an unintended loss of productivity,” according to Dion.

However, significant progress is being made by CROs to offer fully integrated eClinical solutions and cloud/web-based software as a service (SaaS) platforms that simplify the clinical trial process. 

Early-stage R&D still under pressure
Contract preclinical and discovery work such as in vitro screening remains an immature market for CROs, as the projects tend to be fast-throughput and somewhat intermittent with pharmaceutical companies still opting in many cases to carry out this kind of work in-house. 

Taking that into an outsourcing environment - particularly on a strategic rather than transactional level - remains a challenge, according to Herring. The workload is less predictable for CROs trying to make the best use of resources, but he noted there remains pressure to save some of the estimated $5bn-$6bn annual industry spend in this area.

“We are seeing a continued decline in preclinical work due to pharma being more selective with which projects to bring forward into the clinic,” according to Dion.

James Foster, CEO of early-stage R&D-focused CRO Charles River Laboratories, has a different view, however, saying that the company currently makes around 25 per cent of its sales from strategic relationships and is actively looking for acquisition targets to help it serve additional technological and therapeutic areas as well as increase its geographic reach. 

“Outsourcing has become essential to our clients' successful navigation of the drug discovery and development process,” he said. “Over the next few years sales growth will continue to improve.”

Risk-based monitoring
The biggest change in the operating environment for clinical CROs this year was arguably the FDA's publication in August of final guidance on risk-based monitoring (RBM) to help improve patient protection in trials and the quality of the data they generate.

At its heart is a shift away from on-site monitoring - eg oversight based on 100 per cent site data verification (SDV) - to more targeted, remote monitoring, and this has forced clinical researchers to consider issues such as variability in clinical investigator experience, increasing use of electronic health records (EHRs) and new statistical assessments.

“Pharma companies are obviously intrigued by the cost-saving potential, but still find it a little unnerving to rely on RBM for phase III trials,” said McGuire.

Meanwhile, the guidance has also been something of a culture shock for CROs, who have been wedded to the on-site model and in some cases make significant revenues from in-person SDV, he added. 

Some larger CROs see it as a competitive opportunity, however, helping to reduce clients' costs without necessarily eating into CRO margins as part of a higher value-added offering. “We're seeing a lot of interest in risk-based monitoring,” said Cutler, although he noted the area is “relatively nascent within the industry. 

“There's a lot of people talking about it, [but] not a lot of people doing it yet,” he added.

Meanwhile, Stafford said she believes that the ongoing reassessment of benefit/risk/value will also have a massive impact on the new medicine review processes in regulatory agencies around the world.

“The head of the EMA recently highlighted the gap observed between efficacy as demonstrated by clinical trials and effectiveness when a medicine is used in clinical practice,” she noted. 

“We believe real-world evaluation is going to become increasingly important.”

This article was originally published in the PME supplement Inside: CROs (2013/2014)

Article by
Phil Taylor

a freelance journalist specialising in the pharmaceutical industry

28th January 2014

From: Research



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