Steve Snyder01.26.07
It has been about a year since I first discussed trends in preclinical outsourcing (Current Trends in Toxicology, Contract Pharma, November/December 2005) so I thought it was a good time to revisit this topic as we move into 2007. Again, what I share here is a compilation of my own experiences and observations as well as those that are shared with me from sponsor companies, CROs, and consultants. I try to be careful to differentiate the facts from my own opinions and I always independently confirm the experiences of others or I won't comment on them. Having explained the ground rules, here is what I see happening in 2007:
While preclinical outsourcing has historically been a cyclic business, there is no indication of downturn in demand anytime soon. Most CROs still report that they have waiting lists of sponsors who want to conduct studies at their facilities. The waiting list may be shorter for those CROs that experience study cancellations or for those that may not enjoy the reputation of top-tier providers, but it appears that most CROs are busy.
The recent decision by Pfizer to stop the development of Torcetrapib highlighted the high cost of drug development and the impact on these companies when a potential blockbuster drug fails to get to the market. Given the growing success of preclinical CROs and the amount of new facility space coming online in the coming years, will companies like Pfizer continue to maintain multiple preclinical research operations or will some of these expensive facilities be shuttered in favor of increased outsourcing? The preclinical research community remains very conservative and averse to risk, but the sheer economics of drug development, especially in large Pharma companies, could further increase the demand for outsourcing.
Many CROs have either already opened or plan to open new facility space in the coming years. As we noted above, if this increase in facility space is accompanied by a concurrent downsizing of internal capabilities in Pharma and Biopharma companies, then the additional space would quickly be consumed by demand. This is pure speculation on my behalf but multiple sources have suggested that many CROs are planning to add even more facility space beyond what they have already committed to bring on-line. While we can debate the need for additional facility space in the future to meet industry demands, it is clear that CROs currently face significant challenges to utilize their existing new facility space. It is one thing to build a new research building but quite another for this facility space to be ready for the conduct of sponsor's studies. Here are some things for a sponsor to watch for:
Does the CRO have sufficient staff run the preclinical operation? A CRO can't utilize new space unless it has scientists, technicians, and husbandry staff. What is the workload of the staff? If a CRO is opening new facility space and the staff seems to be swamped with work, is the staff just busy or is the existing staff now being stretched to manage the new facility space in addition to their previous responsibilities? How much time is the staff spending on tasks that are not related to studies? If the same staff is engaged in employee training, developing new procedures, and other operational needs, how much time are they actually devoting to watching the sponsor's studies? If the CRO is adding new facility space, does it have a recruiting plan to staff this space? CRO selection is an exercise where sponsors will assess a provider's operations to determine their risk in placing work there. Even if you are a sponsor with a well-established relationship with a CRO, you should assess the impact on its operations if that CRO is bringing new facility space on-line to be sure that your studies are not adversely impacted.
For CROs, not only is hiring staff a problem but finding or recruiting staff may be a bigger problem. From a business perspective, once new facility space has completed construction, the CRO wants to begin generating revenue out of that space as soon as possible. Does the CRO hire ahead of the need or after the need exists? If the latter, a sponsor may observe some of the concerns that were noted in the previous paragraph. Staffing is also a challenge for sponsor companies as well. Especially on the west coast, finding experienced preclinical researchers has been difficult. Furthermore, a number of highly experienced scientists are opting for retirement and are extending their careers through consulting. These circumstances make it difficult for CROs to find the experienced staff, so sponsors need to assess the overall quality of scientific and technical staff to be sure that hiring standards or background checks are not compromised in the pursuit of new revenue generation. Ironically, the unfortunate recent or pending layoffs in Pharma and Biopharma companies (e.g., Scios, Bayer, Icos, and Pfizer) may create a pool of scientific talent that may actually benefit CRO recruiting.
In addition to staff, CRO operations need to grow with the additional facility space. Are the work and communication processes that were designed for a smaller organization still effective? Are there appropriate training procedures for new staff and is sufficient time allowed before these individuals are actually conducting regulatory studies? Is there a way to assess the effectiveness of training? Is there sufficient mentoring and oversight when new staff join the workforce? Are their enough supplies, uniforms, desks, computer stations, telephones, etc? At some CROs, management teams would have you believe that the new facility space will be functional once the last screw is turned. Obviously, to those who understand the business, there is much, much more involved. Sponsor representatives are often very wary of rapidly growing organizations because many have experienced the challenges of growing their own internal research operations at some time during their careers.
A consulting colleague informed me recently that, as a result of seeking comparative bids for preclinical studies, a sponsor was able to identify a CRO that would conduct its work for 25% less than the sponsor's long-standing CRO partner. In past articles, I have warned that the low bidder doesn't always offer the best chance of a successful outsourcing experience, but this competitive bid came from a CRO that my colleague deemed to have an acceptable performance history.
While attending the recent American College of Toxicology meeting, I learned through casual discussions that six smaller CROs had lost potential business to the same CRO low bidder in the previous example. When I asked a friend at another large CRO if they had noticed any changes in pricing trends, he responded, "Let's just say that things have gotten interesting lately." Feeling like a true investigative journalist, I approached people I knew over at "Low Bid CRO" and shared the results of my informal survey with them. The response I received was, "Really?" which was accompanied by raised eyebrows and shrugged shoulders. I noted that I was aware that they had just brought new facility space on-line and it occurred to me that the fastest way for a CRO to generate revenue out of new space was to cut prices to attract business. This was met with the response, "Huh!" This effectively concluded my stint as an investigative journalist. Regardless of the reason for this aggressive competitive pricing, the fact remains that there is pricing pressure in the industry for now and sponsors who engage in competitive bidding have the opportunity to save money as long as they are comfortable with the performance of the CRO that they select.
In addition to facility space and appropriate staffing, a ready supply of laboratory animals is critical for any research organization. Several years ago, delays in obtaining laboratory animals was the rate-limiting factor for scheduling preclinical studies. The CRO industry responded by identifying multiple animal suppliers so that their business would not be impacted by changes in availability. Where possible, animal suppliers increased breeding of purpose-bred animals to meet the demand. Sponsors learned that the best way to prevent study delays was through long-term scheduling so that CROs had sufficient time to the acquire laboratory animals. The net effect of these operational strategies significantly reduced study delays due to animal availability. Although the availability of facility space and trained staff are now regarded as primary limiting factors for CRO workload, we were reminded again in 2006 that laboratory animal supply can still be a significant issue when isolated disease outbreaks temporarily disrupted the availability of rabbits and non-human primates from some suppliers. Despite the best intentions to permanently resolve this concern, it seems that sponsors and CROs need to continue to be sure that they are engaged with multiple suppliers to mitigate the impact of unanticipated disruptions in laboratory animal supply.
I readily admit that I am no expert on this topic. What I can do is share is the multiple comments that I have received from industry colleagues who do have experience in this area. Many of these comments seem to align around common themes. Even then, a passel of similar comments does not equate to a "how to" guide for outsourcing in India or China. Rather it is an opportunity to learn from the experiences of others. As with any outsourcing experience, it is incumbent for the sponsor to thoroughly evaluate a potential outsourcing provider. Here is some of what has been shared with me:
The information in this section should not be construed as an endorsement for or against preclinical outsourcing in India or China. Conducting preclinical outsourcing in these countries is an evolving business strategy when compared to CROs in other countries where there already is an established performance history. It is not surprising that these initiatives may be met with apprehension and doubt. Ironically, many current sponsors experienced these same concerns when they first started outsourcing to those CROs they now regard as partners. It took time to establish those business relationships, so it should come as no surprise that at least the same amount of energy will be required to determine if India and China present viable preclinical outsourcing options. Herein is the basis of two emerging concerns:
For sponsors, my preceding observations and experiences may or may not confirm your own, but they may serve as a guide for future successful outsourcing experiences. For those at CROs, you can regard what was shared here as a glimpse into the mind of a sponsor - as frightening as that may be!
Some of these topics cause sponsors to worry and ultimately consume your time seeking answers. Hopefully, you now have a better understanding of what is important to sponsors. In the end, industry trends and outsourcing locations aside, it is still the quality of the sponsor-CRO business relationship and the ability to understand your partner's business needs that most significantly influence the success of the outsourcing experience.
The Demand for Preclinical Outsourcing
While preclinical outsourcing has historically been a cyclic business, there is no indication of downturn in demand anytime soon. Most CROs still report that they have waiting lists of sponsors who want to conduct studies at their facilities. The waiting list may be shorter for those CROs that experience study cancellations or for those that may not enjoy the reputation of top-tier providers, but it appears that most CROs are busy.
The recent decision by Pfizer to stop the development of Torcetrapib highlighted the high cost of drug development and the impact on these companies when a potential blockbuster drug fails to get to the market. Given the growing success of preclinical CROs and the amount of new facility space coming online in the coming years, will companies like Pfizer continue to maintain multiple preclinical research operations or will some of these expensive facilities be shuttered in favor of increased outsourcing? The preclinical research community remains very conservative and averse to risk, but the sheer economics of drug development, especially in large Pharma companies, could further increase the demand for outsourcing.
The Capacity Conundrum
Many CROs have either already opened or plan to open new facility space in the coming years. As we noted above, if this increase in facility space is accompanied by a concurrent downsizing of internal capabilities in Pharma and Biopharma companies, then the additional space would quickly be consumed by demand. This is pure speculation on my behalf but multiple sources have suggested that many CROs are planning to add even more facility space beyond what they have already committed to bring on-line. While we can debate the need for additional facility space in the future to meet industry demands, it is clear that CROs currently face significant challenges to utilize their existing new facility space. It is one thing to build a new research building but quite another for this facility space to be ready for the conduct of sponsor's studies. Here are some things for a sponsor to watch for:
Staffing
Does the CRO have sufficient staff run the preclinical operation? A CRO can't utilize new space unless it has scientists, technicians, and husbandry staff. What is the workload of the staff? If a CRO is opening new facility space and the staff seems to be swamped with work, is the staff just busy or is the existing staff now being stretched to manage the new facility space in addition to their previous responsibilities? How much time is the staff spending on tasks that are not related to studies? If the same staff is engaged in employee training, developing new procedures, and other operational needs, how much time are they actually devoting to watching the sponsor's studies? If the CRO is adding new facility space, does it have a recruiting plan to staff this space? CRO selection is an exercise where sponsors will assess a provider's operations to determine their risk in placing work there. Even if you are a sponsor with a well-established relationship with a CRO, you should assess the impact on its operations if that CRO is bringing new facility space on-line to be sure that your studies are not adversely impacted.
For CROs, not only is hiring staff a problem but finding or recruiting staff may be a bigger problem. From a business perspective, once new facility space has completed construction, the CRO wants to begin generating revenue out of that space as soon as possible. Does the CRO hire ahead of the need or after the need exists? If the latter, a sponsor may observe some of the concerns that were noted in the previous paragraph. Staffing is also a challenge for sponsor companies as well. Especially on the west coast, finding experienced preclinical researchers has been difficult. Furthermore, a number of highly experienced scientists are opting for retirement and are extending their careers through consulting. These circumstances make it difficult for CROs to find the experienced staff, so sponsors need to assess the overall quality of scientific and technical staff to be sure that hiring standards or background checks are not compromised in the pursuit of new revenue generation. Ironically, the unfortunate recent or pending layoffs in Pharma and Biopharma companies (e.g., Scios, Bayer, Icos, and Pfizer) may create a pool of scientific talent that may actually benefit CRO recruiting.
Infrastructure
In addition to staff, CRO operations need to grow with the additional facility space. Are the work and communication processes that were designed for a smaller organization still effective? Are there appropriate training procedures for new staff and is sufficient time allowed before these individuals are actually conducting regulatory studies? Is there a way to assess the effectiveness of training? Is there sufficient mentoring and oversight when new staff join the workforce? Are their enough supplies, uniforms, desks, computer stations, telephones, etc? At some CROs, management teams would have you believe that the new facility space will be functional once the last screw is turned. Obviously, to those who understand the business, there is much, much more involved. Sponsor representatives are often very wary of rapidly growing organizations because many have experienced the challenges of growing their own internal research operations at some time during their careers.
Pricing
A consulting colleague informed me recently that, as a result of seeking comparative bids for preclinical studies, a sponsor was able to identify a CRO that would conduct its work for 25% less than the sponsor's long-standing CRO partner. In past articles, I have warned that the low bidder doesn't always offer the best chance of a successful outsourcing experience, but this competitive bid came from a CRO that my colleague deemed to have an acceptable performance history.
While attending the recent American College of Toxicology meeting, I learned through casual discussions that six smaller CROs had lost potential business to the same CRO low bidder in the previous example. When I asked a friend at another large CRO if they had noticed any changes in pricing trends, he responded, "Let's just say that things have gotten interesting lately." Feeling like a true investigative journalist, I approached people I knew over at "Low Bid CRO" and shared the results of my informal survey with them. The response I received was, "Really?" which was accompanied by raised eyebrows and shrugged shoulders. I noted that I was aware that they had just brought new facility space on-line and it occurred to me that the fastest way for a CRO to generate revenue out of new space was to cut prices to attract business. This was met with the response, "Huh!" This effectively concluded my stint as an investigative journalist. Regardless of the reason for this aggressive competitive pricing, the fact remains that there is pricing pressure in the industry for now and sponsors who engage in competitive bidding have the opportunity to save money as long as they are comfortable with the performance of the CRO that they select.
Laboratory Animal Supply
In addition to facility space and appropriate staffing, a ready supply of laboratory animals is critical for any research organization. Several years ago, delays in obtaining laboratory animals was the rate-limiting factor for scheduling preclinical studies. The CRO industry responded by identifying multiple animal suppliers so that their business would not be impacted by changes in availability. Where possible, animal suppliers increased breeding of purpose-bred animals to meet the demand. Sponsors learned that the best way to prevent study delays was through long-term scheduling so that CROs had sufficient time to the acquire laboratory animals. The net effect of these operational strategies significantly reduced study delays due to animal availability. Although the availability of facility space and trained staff are now regarded as primary limiting factors for CRO workload, we were reminded again in 2006 that laboratory animal supply can still be a significant issue when isolated disease outbreaks temporarily disrupted the availability of rabbits and non-human primates from some suppliers. Despite the best intentions to permanently resolve this concern, it seems that sponsors and CROs need to continue to be sure that they are engaged with multiple suppliers to mitigate the impact of unanticipated disruptions in laboratory animal supply.
Outsourcing To India and China
I readily admit that I am no expert on this topic. What I can do is share is the multiple comments that I have received from industry colleagues who do have experience in this area. Many of these comments seem to align around common themes. Even then, a passel of similar comments does not equate to a "how to" guide for outsourcing in India or China. Rather it is an opportunity to learn from the experiences of others. As with any outsourcing experience, it is incumbent for the sponsor to thoroughly evaluate a potential outsourcing provider. Here is some of what has been shared with me:
- There is little debate that Pharma and Biopharma companies can save a significant amount of money by placing work in India or China, as long as it is of acceptable quality and it meets applicable regulatory standards.
- In past articles, I have discussed that many scientists don't like to outsource work because they don't have the sense of feeling in control. It should come as no surprise then that scientists seem less than thrilled about outsourcing to India or China. Many understand that this is a business strategy that is being tested by their companies, but some wonder how the research will be monitored effectively.
- Both countries seem to offer significant opportunities for the successful outsourcing of chemical research activities (bioanalytical and analytical).
- Several companies are looking into the prospects of conducting toxicology testing in both countries. Cultural and language issues are emerging as concerns in conducting this work more for China than for India. Some quality assurance professionals advise that, in their opinion, it will take years before an acceptable level of regulatory compliance is achieved in China. Scientists and quality assurance personnel have noted that Chinese scientists don't seem to like U.S-based clients telling them how they would like their research to be conducted. I imagine if the roles were reversed, the outcome would be the same.
- In past articles, I have discussed that many scientists don't like to outsource work because they don't have the sense of feeling in control. It should come as no surprise then that scientists seem less than thrilled about outsourcing to India or China. Many understand that this is a business strategy that is being tested by their companies, but some wonder how the research will be monitored effectively.
- Both countries seem to offer significant opportunities for the successful outsourcing of chemical research activities (bioanalytical and analytical).
- Several companies are looking into the prospects of conducting toxicology testing in both countries. Cultural and language issues are emerging as concerns in conducting this work more for China than for India. Some quality assurance professionals advise that, in their opinion, it will take years before an acceptable level of regulatory compliance is achieved in China. Scientists and quality assurance personnel have noted that Chinese scientists don't seem to like U.S-based clients telling them how they would like their research to be conducted. I imagine if the roles were reversed, the outcome would be the same.
The information in this section should not be construed as an endorsement for or against preclinical outsourcing in India or China. Conducting preclinical outsourcing in these countries is an evolving business strategy when compared to CROs in other countries where there already is an established performance history. It is not surprising that these initiatives may be met with apprehension and doubt. Ironically, many current sponsors experienced these same concerns when they first started outsourcing to those CROs they now regard as partners. It took time to establish those business relationships, so it should come as no surprise that at least the same amount of energy will be required to determine if India and China present viable preclinical outsourcing options. Herein is the basis of two emerging concerns:
1) Will the cost savings realized by outsourcing to India and China be negated by the time and travel costs needed to manage these activities?; and
2) Will prices increase for preclinical research in India and China as more sponsors seek to place work in these countries thereby diminishing the cost effective basis of this business strategy?
2) Will prices increase for preclinical research in India and China as more sponsors seek to place work in these countries thereby diminishing the cost effective basis of this business strategy?
For sponsors, my preceding observations and experiences may or may not confirm your own, but they may serve as a guide for future successful outsourcing experiences. For those at CROs, you can regard what was shared here as a glimpse into the mind of a sponsor - as frightening as that may be!
Some of these topics cause sponsors to worry and ultimately consume your time seeking answers. Hopefully, you now have a better understanding of what is important to sponsors. In the end, industry trends and outsourcing locations aside, it is still the quality of the sponsor-CRO business relationship and the ability to understand your partner's business needs that most significantly influence the success of the outsourcing experience.