CROs: flexible or overstretched?

pharmafile | June 3, 2004 | Feature | |   

If only I had known then what I know now about the labyrinthine world of Contract Research Organisations (CROs). This is one of the frustrations of business, or even life in general. The problem is that, by now everyone else knows it or do they? Twenty years ago CROs were almost unknown in Europe, and the few that existed were mostly niche providers. Then in the mid-1980s the idea of getting a contractor to run a whole clinical trial took root a bit more firmly.

Clinical research managers saw this as a solution to a crisis. For this reason many CROs took on a lot of projects that were already in trouble, or so badly conceived that they were on a loser from the start. I should think that everyone who started a CRO in those days has been there, done that and got the T-shirt. It wasn't quite as terrifying as the late-1990s dot-com boom and crash, but nerves of steel were needed.

This mad market fuelled an explosion of small start-up CROs with big ideas, some of whom came and went in less than a year. All sorts of stories went round the industry. There was the one which allegedly spent its up-front investigator fee instalments on a car fleet. I heard that another one told its bank that all its proposals were confirmed contracts. Yet another recruited a team of study nurses and carried them for a year before getting a contract. Sadly it was too late, and the CRO folded. No names, no pack drill, and at least some of this may well be apocryphal. But perception is everything to the recipient, and this scenario served only to instil a sense of deep distrust of CROs into the minds of many drug company managers.

Would those late-1980s entrepreneurs do the same thing all over again? Well, they should know better by now. The clients have learned a great deal as well, and know what to look for and what to avoid. The CRO market is far more mature, with much more work being planned for contracting out, rather than to solve a crisis. The evolution of the market over the last 15 years has been interesting to watch. Yes, there has been considerable consolidation, with two main drivers of that.

Firstly, some major CROs have pursued a policy of growth by acquisition, although they have grown organically as well. Secondly, some household names have got themselves into financial trouble and been gobbled up by stronger competitors. Meanwhile, there still seems to have been the scope for start-ups and spin-offs, for example those established by CRO owners who sold off their previous companies. Some mid-sized ones have jogged along successfully for many years, generally growing with the market. Has their time come at last?

Industry growth flattening out

Let's have a look at the overall market trends. About five years ago several industry commentators were predicting that the dizzy rates of CRO growth would flatten out about now, which is exactly what is happening. At that time going for a public offering was popular, so we have ended up with most mega-CROs being publicly quoted. But people will only buy shares on the basis of future growth. Is public ownership sensible in the current climate? The managers at Quintiles did not think so, and bought back the shares. A quick look at profit margins and growth rates at a few publicly-owned CROs (Parexel, Kendle, ICON, Covance, PPD, and Inveresk) shows a varied pattern but one factor shines through: no company hits the target of a 15% profit margin which is generally considered to be healthy in other industries, and nobody seems to be increasing their growth rate from the previous year.

Admittedly, these figures can be distorted by all sorts of factors, notably the well-known 'pass-through' costs such as investigator fees. Nevertheless, the captains of other industries may well wonder what is attractive about contract research in drug development.

Gambling on new drug candidates

We must assume that the health of the pharmaceutical industry determines that of CROs, and the downturn in market launches must have had an affect. Mostly this seems to have been in phase III pivotal studies, but there has been at least a partial offset in the growth of phase IV studies. Essentially, drug companies without new products have to wring more out of their existing ones. At the other end of the development pathway, there seems little to deter the launch of new phase I CROs, despite a plethora of them already. Maybe they are gambling on pharmacogenomics bringing forth many new drug candidates.

It's easy to become disorientated by apparently conflicting statistics and statements about industry trends. According to Simon Higginbotham, vice president and chief marketing officer at Kendle International: "We are still looking at global pharmaceutical sales growth rates of 8% to 12% annually, while the CRO market is growing at 14% to 15%. Currently valued at US$9.9 billion, this is predicted to grow to US$17.5 billion by 2007."

All this is good news for CROs, yet there has been much gloom in pharmaceutical company boardrooms over the last few years. Mr. Higginbotham does not see these challenging times as negative for suppliers however, as when the going gets rough it necessary to come up with new strategies, including strategic outsourcing. Certainly, Kendle is seeing a steady shift of business toward strategic alliances between sponsor and specialist outsourcing provider, and less ad hoc contracting out.

Don't believe everything you read

A clear view of customer needs is the essential first step toward a project plan, and the business development manager should never assume that it will all be in the invitation to tender. Rule number one – don't believe everything you read.

Mr. Higginbotham shares this view, and at Kendle there is increasing emphasis on doing feasibility assessments as soon as a new proposal appears on the horizon. One advantage he identifies for 'preferred provider' deals is that the outsourcing provider gets earlier warning of these studies and thus more time to study the feasibility.

It's all part of long-term collaboration. This would require 100% confidence that the CRO would share the sponsor's view of the objectives, as defined in the target product profile, and that the sponsor would have the confidence to contract out whole development projects. Mr. Higginbotham thinks the biggest barrier to strategic outsourcing is the customer's fear of loss of control and dilution of internal expertise.

However, he thinks these barriers can be overcome through communication.

"The most successful relationships are those in which the pharmaceutical company gets the CRO involved early on in the development process and the two sides work together to establish clear outsourcing objectives and measurements for success," he says.

Key individuals among both clients and contractors agree that people are the critical success factor for CROs. This is not at all surprising, as they are service companies, but let's dig a little deeper.

Dr Nick Meyers, product development manager at Alizyme Therapeutics, points out that "claims of CRO corporate experience can be misleading. For example, good people you have worked with before may have moved on and taken their experience with them. At bid meetings you may be offered or even assured high quality, experienced project managers, but is there any guarantee that you will get them once the contract is signed?"

People are the critical success factor

In the experience of many managers, commissioning clinical contracts, technical expertise is not quite so critical anyway. When things go wrong it's mostly because of management failures.

Dr Faiz Kermani, marketing executive at Chiltern International, agrees. He feels that Chiltern's recent success in getting more invitations to tender from large clients is related to the 'people' dimension.

"Communications within CROs are often insecure," he says, "at least partly because people sitting virtually next to each other communicate via email." Dr Kermani is convinced that face-to-face meetings at the earliest stage of a new contract are essential, one of the primary purposes being to focus on the study requirements and not to present the client with standardised corporate material.

I can certainly empathise with these views, from my own experience on both sides of the fence. I have often wondered why a CRO is charging me maybe 15% of the contract fees for project management, when I have ended up giving them a telephone tutorial on how to update a project plan. Don't laugh, it really happened, and this was a global CRO.

Keeping track of progress is one of the most vital elements of communications in clinical trials, not least because of the highly dispersed nature of the work. Dr Kermani considers that the online project management facility, as offered by Chiltern International, is an important attraction for new clients. That anguished Friday afternoon rush around to find out what sites had how many patients, or even how many pre-study visits had been done, was a significant generator of the grey hairs I have now. That's why I started automating the process 10 years ago.

Notwithstanding the potential for sophisticated IT solutions, it's surprising how often the simplest things are missed. Even large CROs can be rendered apparently impotent when the appointed project manager is out of contact. It's a step in the right direction to appoint a deputy, but commonly they are not up to speed on the study and can make informed decisions.

Keep it simple service standards part of contract

One small improvement I put in place for a sponsor recently was a list of CRO service standards, to be a part of every contract. Among quite a long list, there were items like ensuring a project manager could be contacted while travelling; appointing a trained deputy; sending progress information without being prompted; and informing the client of problems as soon as they arise (or ideally before).

All quite obvious really, but the list only came about because somebody somewhere was not doing what was obvious. These are just some of the items which should be in every project-specific communications plan.

It's very easy to criticise contractors, and some clients love doing it, but they do quite often get things right. There is a groundswell of opinion among sponsors that things go well when a contractor is proactive. For example, I just mentioned acting on problems before they arise. Remember the study focus we encountered earlier -standard approaches will not warn project managers of everything which might happen. From my days as a contractor, I know that risk management is a very touchy subject. It's not easy to submit a bid along with a list of possible risks.

"What, do you mean something can go wrong?" the client would say.

Have a contingency plan in place

I have never known a study where nothing went wrong, and the trick is to have a contingency plan in place. Any CRO which can do that successfully is ahead of the pack, and indeed some of them do this. Being consistent is more difficult -which means doing it most of the time!

Dr Sidonie Knight, latterly clinical operations director at GSK, points out that this requires planning, rather than optimism that things will work themselves out and that problems will go away. She emphasises that a key component of this planning is to have the right people in place where they are needed, and to get them working as an integral part of the sponsor project team.

To be fair, sponsors commonly do not allow contractors enough time for planning. This is endemic in the pharmaceutical industry. Other technology-based industries spend far more time on planning R&D projects, and have more formalised procedures for engaging contractors (usually in the form of a project purchasing plan).

Finding out what the client wants is critical

Despite the last 20 years of learning, as an industry we still have a long way to go. Any CRO should be able to see that finding out what the client wants is the most critical stage and the most difficult.

Back to the study focus again. I have sat on the sponsor side in a bid defence meeting and tried in vain to get in a word, against a barrage of corporate-speak from the CRO. You name it, they did it, and all the time they were 'very flexible'. Not so flexible that they could stop talking for a minute and listen to what I wanted. So, let's pretend that we are back in 1985 and are thinking about starting a CRO. Let's also assume that we do know what we know now. What business model should we use? I am not going to answer that question because there are various business models out there right now and I'm still not sure of the best one. How many of these businesses actually pursued a clear model, or just developed opportunistically? In the words of John Lennon: "Life is what happens while you're planning other things."

Dig beneath the surface

Again, it's important to dig beneath the surface, because that impressive global structure and organisation might not be quite what it seems. I have recently been auditing some work from a major, international CRO, and found that in one country the general manager was doing monitoring visits. Also there didn't seem to be anyone to check and countersign visit reports (not surprising if the top man was doing some of them).

I might expect this from a very small, national CRO, but here the sponsor was paying premium rates to a company claiming global presence. The explanation was that this was an acquisition of a small, national company, whose practices and resources had changed very little from their independent days.

I'm quite sure that this was not the level of service which the parent company planned to deliver, but it what the sponsor got. So the business model which arose in this case was that of a network of fairly discrete organisations, of various sizes and complexities, but presented as a global entity.

Ideally, in 1985 I would have liked to use such a business model, but with honesty about its structure, and the means to support its weaker modules. But I might have been wrong. What I am trying to say here is that in 1985 we did not know how the market would develop, so we did not know how to meet its future needs. The process has been almost entirely evolutionary for both customers and suppliers, and I am not sure there have been 'movers and shakers' who have moulded this market. But some people have been very good at spotting opportunities.

And this is what the successful niche players do well; a good example is the emergence of CROs specialising in developing markets. About a decade ago the place to be was over what remained of the Berlin Wall, rooting around among all those patients yearning for western medicines and queuing up to get into clinical trials.

The frontier is being pushed progressively eastwards and southwards, with burgeoning CROs in India, China, South America, and South Africa. Although we need to think carefully about bridging clinical data between ethnic groups, the potential is being exploited.

But some sponsors are still wary, and have concerns about quality and management control. These are the issues which these niche CROs must nail down from the beginning. Confident assurances will not do; they will need to have solid resources and systems in place to meet these challenges.

Then there are the technical specialisms: these have been going on for years, such as offering special expertise in central nervous system or anti-infectives. Commonly these are linked to proprietary technology such as cognitive testing or associated laboratory facilities. Potential conflicts of interest can be a problem for these companies, as they are likely to be engaged by competing clients – an important point for sponsors to check.

Emerging approaches to patient recruitment

A lot of success in this business boils down to exploiting opportunities, and what a coup someone would have pulled off if, in 1985, they had foreseen the opening up of central and eastern Europe and put all the right resources in place before anyone else.

But another approach to patient recruitment has emerged, without the need to go so far afield. There are now several companies who specialise in managing groups of investigators – the site management organisations (SMOs). These have been around for a few years now, but already the boundaries between them and traditional CROs are beginning to blur. For example, Profiad, originally a general practice based SMO, offers services previously associated with clinical CROs.

Jenny O'Neill, Profiad's head of sales and marketing, says that this 'full service SMO' format, launched in January 2004, resulted from client demand and required substantial planning. The company has already won business from major drug companies on this basis. The additional services are currently focused on pre-study activities, especially ethics committee submissions and other approvals, plus study management and site monitoring. Post-study support is also offered, such as biometrics carried out via an exclusive partnership with Statwood, the largest independent data management company in Europe.

All this means that Profiad can offer a single solution for UK-based studies. Of course, the company has worked with conventional CROs for years, and as Profiad's head of proposals and contracts, Denis McMillan, points out, the quality of the project manager is the critical success factor: Profiad has therefore invested in employing its own, very experienced people. He sees any perceived difference between CROs as secondary to the actual people they assign to the project.

I think I have done well to write this much without discussing the role of information technology, which is something of an obsession with me. I'll get it off my chest by giving you a bit of history. Over the years as a contractor, my team of talented IT wizards would steadily churn out very clever computer tools for saving us time and money when running clinical trials.

We never bought in any applications for that, we always wrote our own. I used to say to potential clients: "you really must come and see our latest system, it's really clever,and of course they looked at it and said: "Yes that's really clever, I'm most impressed."

We did win business on that basis, but not as much as we expected. I know more now than I did then, and I think it's because we didn't focus on outcomes sufficiently. Chiltern's online project management facility is probably getting business because they are selling its benefits rather than the system itself.

Every CRO business development manager needs to be constantly focussing on identifying and defining customer needs, and matching these to available resources. Reversing this is a recipe for disaster.