Steve Snyder04.02.07
The other morning I was awakened in the pre-dawn hours by an intermittent chirp. No, this was not a bird singing prior to sunrise in the early days of March but rather it was a smoke detector somewhere within our house that was signaling that it was time to change the battery. Have you ever noticed that this always seems to happen when you are trying to sleep? It seems like there are warning indicators everywhere in our lives. When I park my car, I hear a "ding" if I don't remove my keys from the ignition.
Here in the Midwest, there are sirens that wail if those experts that watch the Doppler radar detect a tornado in the area. When I compile my observations of the preclinical research industry over the past few months, I am troubled by what I have seen and heard. As I describe these observations below, you need to decide if these are simply perceptions that are rooted in my paranoia or if this article may just be the "chirp," "ding," or "wail" indicating a warning for the preclinical research industry.
Given the recent layoff announcements, it seems like preclinical drug development capacity in Pharma companies is shrinking while at the same time it has been expanding at CROs. Ironically, the Pharma layoffs actually help the CROs to meet their growing workforce needs. Reduced internal preclinical development capacity in the Pharma industry means that this work must shift to preclinical CROs. The concerns that circulated last year that there would be a glut of preclinical CRO capacity are now being replaced by speculation that there will be a buying spree among Pharma companies to reserve capacity at CROs. With this apparent decrease in preclinical capacity in the Pharma industry and a concurrent expansion of capacity in the CRO industry, will the industry realize a net increase in preclinical development capacity or is this simply a shift of this capacity from Pharma companies to CROs? At the same time, there are ever increasing expectations for Pharma companies to discover the next blockbuster drug and for CROs to meet or exceed financial expectations. If the sum of the industry's preclinical capacity cannot support the throughput demands of the industry and meet these heightened expectations, then signs of this increased pressure will become evident as weaknesses in the development process are exposed. I fear that we are already seeing indicators of an overburdened preclinical drug development industry. Consider the following:
Concern: It seems that this CRO did not have a work environment that was conducive to retaining this talented scientist. It costs a lot of time and money to recruit scientific staff. An overburdened CRO staff can increase a sponsor's risk of quality issues during their outsourcing experience. Sponsors should confirm that their studies are getting the appropriate attention from the staff at the CRO where they have outsourced their studies.
Concern: Sponsors that are familiar with the reputations of CROs can easily spot changes in quality. Unfortunately, less experienced sponsors may be drawn to these CROs on the basis of their past reputations only to end up experiencing quality issues on their studies which often require significant time and money to resolve. Changes in organizational quality can often be traced to the departure of key scientific personnel, management changes, and/or ownership changes.
Concern: While I acknowledge that this observation is not exclusive to careers in drug development, sponsors are often attracted to certain CROs due to the relationships that they have established with the scientists. Working with a familiar face at a CRO appeals to the sponsor's need for predictability and comfort. Those that I talk to in the industry don't necessarily need to retire but many advise that they have grown weary of the ever increasing demands of the business. The industry will soon see an exodus of these experienced scientists so it follows that those scientists that backfill these positions will likely be less experienced and less familiar to sponsors. It is also important to note that this observation is not exclusive to CROs as it also applies to scientists in sponsor companies who seem to share the same root cause of their discontent.
Concern: It is well known that preclinical CRO customers are very cost conscious. A CRO that undercuts its competitors to win business will likely be successful if it enjoys a reasonable reputation in the industry. This tactic is an excellent way of establishing new relationships with clients. My concern with this practice lies in the reasons for implementing this strategy. Were the CRO's services previously not attracting clients? Was the CRO losing market share to other CROs? Are the financial expectations so great that "some business" is better than "no business," even if the revenue is lower? Sponsors need to be careful; if a CRO cuts its prices, will it provide the expected level of service and accept a lower margin for those studies, or will the staffing be reduced on a study to cover the lower study price?
Concern: This is an observation where sometimes it is difficult to determine if there is a reason to be concerned or not. It is clear that there are several CROs where the departure of key management staff has resulted in less effective operations and, sometimes, diminished organizational quality. Just as investors are advised to be aware if a long-time mutual fund manager departs, sponsors should watch the operations at their CRO partners carefully if key management representatives depart.
Concern: The fact that this situation is so rare is what makes it so troublesome. CRO representatives rarely discuss internal business concerns. When these issues are being voiced by management individuals, it is especially concerning to me as this suggests that employees and work processes are overburdened. I am not so nave to think that employees don't complain about their work but I am concerned when the alarm is sounded in the management ranks. Having managed research operations during my career, I am keenly aware that a consistently heavy workload will overwhelm the people and processes that maintain the quality. I am seeing this same concern in sponsor companies. Even though sponsors may be outsourcing more and more preclinical work, they now have to manage and monitor multiple outsourcing relationships from afar while still meeting all of their internal project development deadlines. Unfortunately, the American business culture does not embrace those who speak up when a research operation is truly out of control due to its workload. Complaining about being too busy is career suicide, so employees often use their evening and weekend hours to try to keep up with their workload.
Concern: I have never been accused of being a clean freak, but when a research facility is routinely dirty either there are not enough employees to keep it clean or the facility management is not paying attention to this important factor. From a sponsor's perspective, if a CRO can't keep the facility clean and orderly then one needs to consider if there is anything else that is being neglected. When a research operation begins to falter, adverse changes in facility cleanliness is often a leading indicator.
Concern: There is certainly nothing wrong with having young employees at a CRO, but if you are a sponsor, you want the most experienced technician working on your study, particularly if it is a complex design. Experience allows CRO staff to anticipate potential problems before they occur. If this experienced technician has only been with the company for less than two years, does that mean that the company has difficulty retaining technical staff? This is a significant challenge for some CROs and sponsors need to assess if they are willing to entrust their preclinical work to an inexperienced staff.
Concern: Again, the question comes down to whether the CRO staff is appropriately focused to conduct your studies. If the CRO is now under new management, do they understand the preclinical CRO business? If the CRO is for sale, is the management focused on operations or on its anticipated proceeds from the sale? Are the scientific and technical staffs focused on your studies or are they worrying about their job security?
Concern: While this is a clever recruiting tactic, you (as a sponsor) need to determine if this means that the CRO is currently understaffed. Did the management not plan appropriately to increase headcount to staff new capacity? Is the CRO experiencing attrition issues? Are its standard recruiting efforts not effective? Has the workload of the CRO staff increased to bring new capacity on-line?
Concern: When I worked in research organizations that cut expenses, it was primarily due to financial pressures on that organization. If you are a sponsor and your CRO is engaged in an aggressive cost-cutting campaign, you need to assess the financial health of that organization and determine if those initiatives could impact the quality of your ongoing work.
Concern: If supported appropriately, new management hires can breathe new life into a research organization. As a sponsor, you need to understand why a new management team was hired and why the previous management team is no longer in place. Additionally, new management individuals often have different operational philosophies, so sponsors also need to assess if this change will impact the work environment and their studies. A recent management change at one CRO has resulted in significant attrition because employees wanted a better work environment. Unfortunately, sponsors often don't realize that significant CRO attrition can be ongoing until quality issues arise on their study or when they realize that they no longer see familiar faces at the CRO.
If you consider any of observations above on an individual basis, even I would suggest that the respective concern alone may not be that significant. However, considering that these observations were compiled just within the past few months, the existence of so many concurrent concerns suggests that the preclinical drug development pipeline is experiencing considerable pressure. A quick analysis of these observations indicates that many of the concerns pertain either to the research employee's workload or management initiatives. If this is where the problems are then these are the roots of the potential solutions. I think every company in America claims to value its employees; I would suggest that the degree to which management teams actually demonstrate this value is directly proportional to the long-term success of the organization. In my opinion, it seems like there is a growing imbalance between individual career advancement and doing what is best for the organization. Have you noticed those individuals that enjoy tremendous career growth in dysfunctional research operations and then question why the organization isn't more productive?
So what do you think? Are the observations and concerns depicted above simply paranoid perceptions or do you share the same concerns? If you are in a management position in a research organization and you have determined that there is no validity to the concerns expressed here, then I have good news and bad news. The good news is that you must be feeling pretty good if you determined that these concerns don't apply to your organization. The bad news is that it doesn't matter what you think. I feel confident in telling you that it is likely that others in the industry have already arrived at the same conclusions. Still not convinced? The problem with perceptions is that they don't need to be valid to be believable. Sponsors will take their work elsewhere even if they only perceive that a CRO has operational issues.
Pharma and Biopharma companies are "graded" by investment analysts based largely on the "strength" of their drug development pipeline (i.e., the number and quality of the compounds that are in development). Many of these companies subscribe to an ice hockey analogy: the greater the number of shots on goal, the greater the likelihood that a team will score a goal. Therefore, these companies believe that the more compounds that they have in development, the greater the likelihood that one or more will eventually become a revenue-generating drug. It follows then that these companies are trying to move more and more compounds through their drug development pipeline.
I believe there is another consideration that has been forgotten along the way. If you think of the oil industry, there is only so much oil that can go through a pipeline at any one time. It is my contention that in the drug development industry, the pipeline is the people. Every employee in a research organization contributes to drug development in one way or another whether they work in Pharma, Biopharma, or at a CRO. I believe that the availability of experienced people is the true limiting factor in drug development. New facility space or capacity is useless if there is not enough experienced staff to advance compounds through the development pipe-line. In my opinion, if people are the strength of the pipeline then they can also be the areas of potential weaknesses as well.
The observations and concerns that I shared above are all about people. Ever wonder how the senior management in Pharma and Biopharma companies or at CROs know when they are packing too much into the drug development pipeline? They are surrounded by very career-minded, upwardly mobile individuals that generate very impressive metrics and spreadsheets so management can make "informed" decisions. Gee: then why have I seen what I described above? Even the oil industry periodically checks its pipelines for structural integrity. Perhaps it is time for some preventative maintenance on the preclinical drug development pipeline. After all, have you noticed that whenever there is a break in a water main or a pipe in your home, there is never a warning sign and there is always a big mess to clean up?
Here in the Midwest, there are sirens that wail if those experts that watch the Doppler radar detect a tornado in the area. When I compile my observations of the preclinical research industry over the past few months, I am troubled by what I have seen and heard. As I describe these observations below, you need to decide if these are simply perceptions that are rooted in my paranoia or if this article may just be the "chirp," "ding," or "wail" indicating a warning for the preclinical research industry.
Given the recent layoff announcements, it seems like preclinical drug development capacity in Pharma companies is shrinking while at the same time it has been expanding at CROs. Ironically, the Pharma layoffs actually help the CROs to meet their growing workforce needs. Reduced internal preclinical development capacity in the Pharma industry means that this work must shift to preclinical CROs. The concerns that circulated last year that there would be a glut of preclinical CRO capacity are now being replaced by speculation that there will be a buying spree among Pharma companies to reserve capacity at CROs. With this apparent decrease in preclinical capacity in the Pharma industry and a concurrent expansion of capacity in the CRO industry, will the industry realize a net increase in preclinical development capacity or is this simply a shift of this capacity from Pharma companies to CROs? At the same time, there are ever increasing expectations for Pharma companies to discover the next blockbuster drug and for CROs to meet or exceed financial expectations. If the sum of the industry's preclinical capacity cannot support the throughput demands of the industry and meet these heightened expectations, then signs of this increased pressure will become evident as weaknesses in the development process are exposed. I fear that we are already seeing indicators of an overburdened preclinical drug development industry. Consider the following:
Observation: A highly recruited and well-respected scientist leaves a CRO after a short time with the company because he doesn't want to work in a "sweatshop."
Concern: It seems that this CRO did not have a work environment that was conducive to retaining this talented scientist. It costs a lot of time and money to recruit scientific staff. An overburdened CRO staff can increase a sponsor's risk of quality issues during their outsourcing experience. Sponsors should confirm that their studies are getting the appropriate attention from the staff at the CRO where they have outsourced their studies.
Observation: Some CROs that once enjoyed excellent reputations in the sponsor community now struggle to maintain an acceptable level of quality in their work.
Concern: Sponsors that are familiar with the reputations of CROs can easily spot changes in quality. Unfortunately, less experienced sponsors may be drawn to these CROs on the basis of their past reputations only to end up experiencing quality issues on their studies which often require significant time and money to resolve. Changes in organizational quality can often be traced to the departure of key scientific personnel, management changes, and/or ownership changes.
Observation: Scientists who were once passionate about their work now yearn for retirement and feel trapped in their jobs.
Concern: While I acknowledge that this observation is not exclusive to careers in drug development, sponsors are often attracted to certain CROs due to the relationships that they have established with the scientists. Working with a familiar face at a CRO appeals to the sponsor's need for predictability and comfort. Those that I talk to in the industry don't necessarily need to retire but many advise that they have grown weary of the ever increasing demands of the business. The industry will soon see an exodus of these experienced scientists so it follows that those scientists that backfill these positions will likely be less experienced and less familiar to sponsors. It is also important to note that this observation is not exclusive to CROs as it also applies to scientists in sponsor companies who seem to share the same root cause of their discontent.
Observation: There are multiple examples of CROs undercutting study prices to fill capacity or to win the business from certain sponsor companies.
Concern: It is well known that preclinical CRO customers are very cost conscious. A CRO that undercuts its competitors to win business will likely be successful if it enjoys a reasonable reputation in the industry. This tactic is an excellent way of establishing new relationships with clients. My concern with this practice lies in the reasons for implementing this strategy. Were the CRO's services previously not attracting clients? Was the CRO losing market share to other CROs? Are the financial expectations so great that "some business" is better than "no business," even if the revenue is lower? Sponsors need to be careful; if a CRO cuts its prices, will it provide the expected level of service and accept a lower margin for those studies, or will the staffing be reduced on a study to cover the lower study price?
Observation: Corporate senior managers suddenly walk away from significant organizational responsibilities to pursue other opportunities.
Concern: This is an observation where sometimes it is difficult to determine if there is a reason to be concerned or not. It is clear that there are several CROs where the departure of key management staff has resulted in less effective operations and, sometimes, diminished organizational quality. Just as investors are advised to be aware if a long-time mutual fund manager departs, sponsors should watch the operations at their CRO partners carefully if key management representatives depart.
Observation: Management representatives at CROs openly complain about the workload and wonder how they will complete study reports. They debate if they should tell their senior management that the operations are overwhelmed.
Concern: The fact that this situation is so rare is what makes it so troublesome. CRO representatives rarely discuss internal business concerns. When these issues are being voiced by management individuals, it is especially concerning to me as this suggests that employees and work processes are overburdened. I am not so nave to think that employees don't complain about their work but I am concerned when the alarm is sounded in the management ranks. Having managed research operations during my career, I am keenly aware that a consistently heavy workload will overwhelm the people and processes that maintain the quality. I am seeing this same concern in sponsor companies. Even though sponsors may be outsourcing more and more preclinical work, they now have to manage and monitor multiple outsourcing relationships from afar while still meeting all of their internal project development deadlines. Unfortunately, the American business culture does not embrace those who speak up when a research operation is truly out of control due to its workload. Complaining about being too busy is career suicide, so employees often use their evening and weekend hours to try to keep up with their workload.
Observation: Research facilities that once had the reputation for being immaculately maintained are now dirty and are poorly supplied.
Concern: I have never been accused of being a clean freak, but when a research facility is routinely dirty either there are not enough employees to keep it clean or the facility management is not paying attention to this important factor. From a sponsor's perspective, if a CRO can't keep the facility clean and orderly then one needs to consider if there is anything else that is being neglected. When a research operation begins to falter, adverse changes in facility cleanliness is often a leading indicator.
Observation: The most experienced technician that was assigned to a particularly complicated sponsor's study had been with the CRO for less than two years.
Concern: There is certainly nothing wrong with having young employees at a CRO, but if you are a sponsor, you want the most experienced technician working on your study, particularly if it is a complex design. Experience allows CRO staff to anticipate potential problems before they occur. If this experienced technician has only been with the company for less than two years, does that mean that the company has difficulty retaining technical staff? This is a significant challenge for some CROs and sponsors need to assess if they are willing to entrust their preclinical work to an inexperienced staff.
Observation: Some preclinical CROs have been sold or are up for sale.
Concern: Again, the question comes down to whether the CRO staff is appropriately focused to conduct your studies. If the CRO is now under new management, do they understand the preclinical CRO business? If the CRO is for sale, is the management focused on operations or on its anticipated proceeds from the sale? Are the scientific and technical staffs focused on your studies or are they worrying about their job security?
Observation: The urgency for CROs to fill open job positions is reflected in aggressive campaigns that pay current CRO employees for referring applicants.
Concern: While this is a clever recruiting tactic, you (as a sponsor) need to determine if this means that the CRO is currently understaffed. Did the management not plan appropriately to increase headcount to staff new capacity? Is the CRO experiencing attrition issues? Are its standard recruiting efforts not effective? Has the workload of the CRO staff increased to bring new capacity on-line?
Observation: CROs that were once the recognized leaders in marketing activities now decline to participate in industry events.
Concern: When I worked in research organizations that cut expenses, it was primarily due to financial pressures on that organization. If you are a sponsor and your CRO is engaged in an aggressive cost-cutting campaign, you need to assess the financial health of that organization and determine if those initiatives could impact the quality of your ongoing work.
Observation: Key members of the management team at an existing CRO were all with the company for less than a year.
Concern: If supported appropriately, new management hires can breathe new life into a research organization. As a sponsor, you need to understand why a new management team was hired and why the previous management team is no longer in place. Additionally, new management individuals often have different operational philosophies, so sponsors also need to assess if this change will impact the work environment and their studies. A recent management change at one CRO has resulted in significant attrition because employees wanted a better work environment. Unfortunately, sponsors often don't realize that significant CRO attrition can be ongoing until quality issues arise on their study or when they realize that they no longer see familiar faces at the CRO.
If you consider any of observations above on an individual basis, even I would suggest that the respective concern alone may not be that significant. However, considering that these observations were compiled just within the past few months, the existence of so many concurrent concerns suggests that the preclinical drug development pipeline is experiencing considerable pressure. A quick analysis of these observations indicates that many of the concerns pertain either to the research employee's workload or management initiatives. If this is where the problems are then these are the roots of the potential solutions. I think every company in America claims to value its employees; I would suggest that the degree to which management teams actually demonstrate this value is directly proportional to the long-term success of the organization. In my opinion, it seems like there is a growing imbalance between individual career advancement and doing what is best for the organization. Have you noticed those individuals that enjoy tremendous career growth in dysfunctional research operations and then question why the organization isn't more productive?
So what do you think? Are the observations and concerns depicted above simply paranoid perceptions or do you share the same concerns? If you are in a management position in a research organization and you have determined that there is no validity to the concerns expressed here, then I have good news and bad news. The good news is that you must be feeling pretty good if you determined that these concerns don't apply to your organization. The bad news is that it doesn't matter what you think. I feel confident in telling you that it is likely that others in the industry have already arrived at the same conclusions. Still not convinced? The problem with perceptions is that they don't need to be valid to be believable. Sponsors will take their work elsewhere even if they only perceive that a CRO has operational issues.
Pharma and Biopharma companies are "graded" by investment analysts based largely on the "strength" of their drug development pipeline (i.e., the number and quality of the compounds that are in development). Many of these companies subscribe to an ice hockey analogy: the greater the number of shots on goal, the greater the likelihood that a team will score a goal. Therefore, these companies believe that the more compounds that they have in development, the greater the likelihood that one or more will eventually become a revenue-generating drug. It follows then that these companies are trying to move more and more compounds through their drug development pipeline.
I believe there is another consideration that has been forgotten along the way. If you think of the oil industry, there is only so much oil that can go through a pipeline at any one time. It is my contention that in the drug development industry, the pipeline is the people. Every employee in a research organization contributes to drug development in one way or another whether they work in Pharma, Biopharma, or at a CRO. I believe that the availability of experienced people is the true limiting factor in drug development. New facility space or capacity is useless if there is not enough experienced staff to advance compounds through the development pipe-line. In my opinion, if people are the strength of the pipeline then they can also be the areas of potential weaknesses as well.
The observations and concerns that I shared above are all about people. Ever wonder how the senior management in Pharma and Biopharma companies or at CROs know when they are packing too much into the drug development pipeline? They are surrounded by very career-minded, upwardly mobile individuals that generate very impressive metrics and spreadsheets so management can make "informed" decisions. Gee: then why have I seen what I described above? Even the oil industry periodically checks its pipelines for structural integrity. Perhaps it is time for some preventative maintenance on the preclinical drug development pipeline. After all, have you noticed that whenever there is a break in a water main or a pipe in your home, there is never a warning sign and there is always a big mess to clean up?