Winning CROs look east for expansion

pharmafile | October 18, 2005 | Feature | Research and Development |   

The new onus on outsourcing has seen CROs reap the benefits of an industry striving to cut resource investment while keeping its R&D heart pumping strongly. Yet the symbiosis of the CRO/pharma relationship means the fortunes of the two businesses are intertwined – trends affecting pharma and biotech producing ripples which spread out across the entire CRO pool.

The CRO industry is currently enjoying substantial annual growth of around 23%, fuelled by a worldwide lack of resource which is imposing a rate-limiting step on drug development.

Industry analysts William Blair & Co cite new business wins, increased R&D spending by sponsors and greater funding for biotechs as valid indicators of CRO's strong position in the healthcare market.

According to Alan Boyce, European vice president at Kendle, one of the leading global CROs, many marketplace dynamics are currently affecting the CRO industry including:

• The continued double-digit increases in R&D spending through 2007
• Consolidation within the pharma industry
• Escalating costs to develop and bring new drugs to market
• The shortage of physicians and new patients for the conduct of clinical trials
• The European Clinical Trial Directive
• A few very high-profile drug recalls

"When you put them all in a pot and blend them together the resulting mixture bodes well for any CRO that can provide pharmaceutical companies with access to: best-in-class, specialised therapeutic expertise; additional capacity; patients throughout the world; strategic regulatory consulting and submission assistance; and the technology to capture, analyse and deliver information to clients in this 24/7 world in which we live," notes Boyce.

Yet there is also evidence that CROs are starting to feel the squeeze. "CROs continue to see increasing competition for business and a real need to differentiate themselves," says Steve Heath, vice president Europe at Medidata Solutions, a global provider of electronic data solutions and partner of some of the industry's largest CROs.

"They are under additional pressure from the pharmaceutical industry to reduce outsourcing costs and time associated with clinical trials, while increasing quality and patient safety."

Why outsource?

According to Cutting Edge Intelligence, pharma companies are using outsourcing as a strategic weapon to focus their resources, realising their true strength lies in building and marketing exceptional product portfolios, not building the best factory or lab.

Jeff Thomis, president of product development at global CRO Quintiles Europe, notes that pharma are shifting fixed costs to variable costs to improve their operating margins. As a result, headcount is mostly frozen and sometimes even reduced, leading to more outsourcing.

"Biotechs usually have no development capabilities and will outsource most of their development activities," says Thomis. "Proportionally, more new compounds are coming from biotech which has an additional positive effect on outsourcing."

Transatlantic cousins

In European pharma markets and across the pond in the US, CRO businesses are booming as the outsourcing revolution gathers momentum. Given the increasingly global nature of clinical development there are inherent similarities but the European market is viewed as more competitive and price-sensitive.

Different laws and regulations regarding clinical research, including labelling and reporting requirements, are also a source of differentiation. According to Fred Davenport, president of global CRO PPD, the sequential approach to drug development seen in Europe often requires that both regulatory and ethical reviews be approved before physicians become associated with individual trials.

As a result, study start-up can take upwards of four to five months. By contrast, in the US it is possible to strategically design study start-up in a manner that streamlines and overlaps some processes. With the exception of oncology research, US start-ups are usually completed within three months.

Cultural differences also set the two CRO markets apart. "North American service providers are culturally conditioned to focus on response and servicing the clients' needs," remarks Leigh Berryman, president of LAB Research, the world's fifth largest preclinical CRO.

"European service providers tend to be more introspective with more focus on internal objectives rather than client-service issues. Measure the average time to delivery of an order for a Big Mac in North America versus Europe."

Additional changes are also afoot within the European CRO business. Boyce reports that the awareness in Europe that pharma research benefits each EU country (by setting up the UK's Pharmaceutical Industry Competitive Task Force, for example) has increased confidence and reduced bureaucracy in many countries.

"The move towards standardisation and the opportunities in Central and Eastern Europe especially, outweigh the disadvantages of interacting with multiple agencies in multiple countries," he adds.

The European Clinical Trials Directive

The purpose of the EU Clinical Trials Directive was to simplify the study approval procedure leading to an accelerated study start. Yet Thomis believes that the slow and somewhat confused implementation in some EU member states has created the impression that the Directive has actually delayed study approvals.

He adds that this perception is likely to dissipate as more countries streamline their procedures but points out that, regardless, the need to obtain regulatory approval for phase I projects in the UK has reduced the number of such projects coming to this country.

At US-based PPD, the significant increase in demand for phase I services over the last year is attributed, at least in part, to the EU Directive. "Under the Directive, more regulatory rigour is being applied than previously for first-in-man studies conducted in Europe," says Davenport.

"For many US-based pharma companies, this regulatory action means conducting phase I research within US borders poses fewer logistical challenges."

On the other side of the coin, some companies believe the Directive has actually brought new trial business into Europe. Kendle reports an increased interest in running trials in Europe with the popularity of Central and Eastern European (CEE) studies spurring the company to expand its offices in CEE to meet the demand.

Regardless of the perceived impact of the EU directive on CRO market conditions in Europe, there is agreement that the transitional process has been tough and that varying implementation within individual countries has created unresolved challenges.

"During the introduction of the CTD, there was a tendency for the pharmaceutical industry to steer away from starting clinical trials in Europe to avoid the potential confusion around the transitional phase," comments Medidata's Steve Heath.

"However this was only temporary, and the market now appears to have stabilised. Still, the CTD has changed the market requirements for successful CRO operation within Europe. CTD expertise and experience is now a mandatory asset and plays a key role for a CRO in successful bidding for, and winning, a clinical trial programme."

Fulfilment and implementation of EU Directive goals is an evolutionary process concludes Davenport. Further clarity may be required from the Directive itself before full compliance can be achieved.

Expanding horizons

Looking further afield from the traditional trial haunts of Western Europe and the US, CROs are increasingly recognising the importance of having a presence in other significant regions of the clinical world.

"Access to the right patients at the right time is crucial for effective completion of clinical trials," says Quintile senior vice president Jane Eisner, responsible for Access to Patient Services.

"At Quintiles we have had a presence in Eastern Europe, Latin America, India and China for a number of years and are seeing our customers taking advantage of these high-recruiting geographies. Clearly this trend will continue with the markets in Eastern Europe growing at 12.4% compared to 5.7% for the rest of Europe; and China outgrowing all geographies at 28%. In Eastern Europe and the Baltics we have a presence in 20 countries and patient recruitment in these countries accounts for 60% of the total European clinical trial patient recruitment."

Medidata's Steve Heath describes how global CROs are rapidly opening offices or establishing partnerships with CROs in Eastern Europe, South Africa, India, China and other parts of Asia. In addition, CROs are realising that access to the investigators, and hence the patient populations, in these regions is key. By establishing sole relationships with SMOs or large hospital organisations, in return for training and clinical trials business, CROs are looking to capture these markets for themselves and prevent the competition from following on and gaining a foothold.

The focus on recruitment and training of clinical investigators is echoed by PPD as an important means of fostering growth of patient populations in markets such as Eastern Europe, Asia, the Pacific Rim and India.

"In all these markets we are working actively within medical communities to provide new investigators with the appropriate tools and training resources they need to manage studies to the highest industry standards," notes Davenport.

As well as meeting the patient recruitment needs of its pharma and biotech customers, CROs with global visions are rewarded with access to low cost foreign environments. A fresh supply of relatively drug-naive patients is another highly desirable asset in the clinical CRO world. Yet, as LAB's Leigh Berryman warns, there are also potential stumbling blocks. "As always, credibility and acceptability of work performed outside of a western environment is an issue, but one which is decreasing in importance."

More to offer?

In addition to attending to the needs of new, foreign patient recruitment markets, CROs are also expanding their offerings in other areas. Electronic data capture and coherent technology-based service solutions and are among the many ways in which CROs are striving to boost business.

"According to customer research, a global footprint with access to patients, therapeutic expertise and outstanding project management are the future key differentiators," says Quintiles' Thomis.

"The CRO industry will increasingly invest in these areas. Government, and foundation spending is on the increase in certain areas and some CROs will position themselves to be attractive in these areas."

According to several large CROs, the late phase arena represents a significant growth opportunity in response to calls for increased drug safety testing and more patient data in the wake of recent concerns about widely-prescribed, popular drugs. Large, simplified registry trials and post-marketing approval and surveillance trials may provide areas of strong incremental growth if CROs can tighten up their service provision.

CROs have also started gearing up for strategic partnerships and collaborations to offer customers smarter, more efficient and effective ways to spend their R&D dollars.

Future outlook

An S G Cowen report indicates that by 2009, a mere five therapeutic areas –  cardiology; cancer, oncology, haematology; antibiotics/antivirals; central nervous system; and arthritis/inflammation – will represent about 70% of the potential market. Hence the proper alignment of medical resources and expertise will prove critical for long-term survival of any CRO.

When it comes to business focus, biotechs look set to be the key CRO customers of the future, reflecting the recent move of research and early development away from global pharma to the more lean, cost-effective and focused biotech industry.

"As large CRO service users, the diversity of the biotech industry has meant that the  five-year cycle of ebb and flow prevalent to the industry up to five years ago appears to be now superseded by linear growth and consistent demand," says Berryman.

Future competition also looks set to be fierce, particularly in patient recruitment. According to Thomis, traditional pharma will be looking to reduce their number of providers and carry out less transactional outsourcing, while forging closer relationships to increase efficiencies and quality delivery.

In addition, Thomis believes that consolidation in the global CRO industry will continue with the rest forming networks to stay competitive as pharma continues to exert pressure on operating margins by bringing in procurement staff to buy development services.

Berryman agrees, saying: "The large, single-site bureaucratically heavy CRO with expensive overheads is unable to respond quickly to client need/demand and the ability to centrally co-ordinate is also impaired."

Many CRO businesses believe eDC will be one of the burgeoning trends of the future, speeding the flow of more accurate, cost-effective clinical reporting and offering long-term cost savings in traditional clinical monitoring processes.

With the fortunes of CROs and their customers so intrinsically linked, one thing is certain – future trends affecting pharma and biotech will prove of wide-reaching relevance to the CRO industry. In the drug development world, CROs have undoubtedly prospered and this growth looks set to continue. To what extent the ebb and flow in fortunes of its pharma and biotech customers will buffet the overall CRO business remains to be seen, but by flexibly and seamlessly fitting into the future clinical development climate, CROs look set to remain a key outsourcing service solution.