Where the contract drug development dollars are going in 2003 and 2008: CROs will continue to increase their share in the next five years, but the mix of non-CRO players is a dynamic one, and their slice of the pie will be worth close to $6 billion in 2008.

Academic Medical Centers And Teaching Hospitals
Until the rise of the CRO, the academic medical center (AMC) was the hub of contract research, and many institutions developed complex infrastructures devoted to the design and conduct of clinical trials. However, in the pharmaceutical industry’s drive to control costs, less clinical trial contracts are being awarded to AMCs and more to CROs. During the past decade CROs have out-distanced academic medical centers in conducting clinical trials.

There are several reasons why contract research funding has been diverted away from AMCs and to CROs. One major factor is high indirect cost rate, typically 40% to 70%—with some institutions charging as much as 85%, of the total direct costs. Another reason relates to time delays in clinical trial starts. Despite the prestige associated with teaching hospitals, they have been perceived as slow and inefficient in carrying out clinical trials, which is attributed to the unwieldy nature of academic bureaucracy. CROs compete much more favorably on both cost point and speed at which trials are conducted.

As a result, the lion’s share of contract research has been diverted from AMCs to CROs. In 1991, 71% of industry-sponsored clinical trials were outsourced to AMCs. However, by 2001 this percentage had dropped to 36%. This trend may be changing, though.

Several AMCs have formed independent organizations in hopes of regaining a foothold in the market. One of these is a large clinical research consortium formed in the New York Metropolitan area, the Biomedical Research Alliance of New York (BRANY). BRANY is an example of a unique alliance forged in order for major academic medical centers and thousands of highly trained, dedicated researchers to collaborate in clinical trials under a single unified organization. BRANY includes Montefiore Medical Center in the Bronx, Mount Sinai School of Medicine, New York University School of Medicine and Saint Vincent’s in Manhattan, with New York Medical College, and the North Shore-Long Island Jewish Health System on Long Island.

One of the first AMCs to form a network was the University of Pittsburgh. In 1997 the University of Pittsburgh Medical Center Health System chartered the Pittsburgh Clinical Research Network (PCRN), a single point of contact between industry and clinical researchers in academic and community sites. PCRN provides the administrative procedures associated with clinical trials in such areas as contracting, institutional-review-board approval and project management.

Another example is Columbia University, Cornell University and New York Presbyterian Hospital, which created a Clinical Trials Network as a joint venture. With funding from both industry and NIH sources, the network brings together academic researchers and community-based physicians in cardiology, hepatology, neurology and oncology. The network has instituted required training for all participants and has centralized contracting, budgeting and reimbursement systems. The network plans to be financially self-sufficient in a few years.

The AMCs’ success in gaining a foothold in this market is still unsure in the long term. There is hope that these examples of better organization and collective action will bring some market muscle, and there is a feeling among some in the pharmaceutical industry that regulators may look more kindly on research conducted “outside” the industry. Although this sector will make gains between 2004 and 2006, the increasing use of the broad services offered by the CROs will technically continue to erode their share of the total contract research market through 2007, but AMCs will still realize more than $4.5 billion by then.

Site Management Organizations
Site management organizations (SMOs) are management service companies that organize and manage multi-site clinical trials. SMOs provide drug companies and even CROs with physicians and coordinators to enable clinical research coordination and monitoring of Phase II, III, and IV clinical trials. SMOs primarily operate in North America, and are not as prevalent in Europe, Asia, or other parts of the world. Estimates are there are approximately 80 SMOs operating in the U.S. today. Characteristics of an SMO generally include:

SMOs usually employ full-time, certified clinical research personnel for trial documentation and case report form completion. SMOs compete well on their ability to enroll patients in studies and start and complete a clinical drug trial in a timely manner.

Many of the first SMOs consisted of fragmented, loosely organized operations established by physicians experienced with clinical trial operations. More recently, however, the sector has begun to coalesce. Four SMOs held nearly 60% of the SMO market in 2002. The top two companies are Radiant Research and AmericasDoctors. Radiant Research, the largest in the SMO sector, employs almost 1,000 research professionals throughout its more than 50 wholly-owned clinical research facilities. A strategy employed by Radiant to attract business is to concentrate on scale, thus pursuing aggressive expansion strategies. Acquiring new sites also provides the company the benefit of spreading their costs across a wider base.

Another strategy used by SMOs to make them more attractive to sponsors is to focus on their network, improving internal operations, to make certain they are operating at optimal efficiency and are as productive as possible. Speed and accuracy are two benchmarks by which SMOs are awarded outsourcing contracts. AmericasDoctors is pursuing this strategy. The company is tightly focused on more profitable growth through expanded project services, expanded patient recruitment and a more tightly focused approach to site management.

The demand for SMOs is on the increase. Despite a period of consolidation and maturation, the SMO market has continued to grow and expand at a rate sufficient to allow new competitors to step in. Thirty-three SMOs have entered the market during the past several years, 67 testing sites have been acquired, and more than $50 million in capital has been raised to drive future growth and infrastructure.

Laboratory Analytical Services
Laboratories are essential in the drug development process, thus a major competitor in the contract research market. It is estimated 90% of all data that comprise an NDA are based on laboratory results. Clinical laboratories provide a number of analytical services that support the drug development process, including preclinical testing and laboratory testing for clinical trials. Clinical trial laboratories manage the spectrum of laboratory services from collection of specimens and conducting routine lab tests in basic chemistry, hematology and urinalysis to conducting sophisticated tests in order to detect infectious diseases and genetic predisposition. Clinical laboratories that provide clinical trial services typically provide investigative testing sites with testing and specimen collection kits.

The current competitive landscape in central laboratories that provide services to clinical research can be divided into two broad categories: Laboratories associated with the big CROs, such as Covance, Quintiles, MDS Pharma, and large reference laboratories that include Quest, Laboratory Corporation of America (LabCorp), and AmeriPath. The remainder of the market is highly fragmented, comprising hospital-based laboratories, independent facilities, and small laboratory-based physicians offices.

CRO-based laboratories are facing competition from large, general reference laboratories seeking to gain a foothold in the clinical studies sector. At this point in time, CRO-based laboratories hold the competitive edge in the clinical studies laboratory business. However, with an eye to the next decade, when the demand for gene-based and diagnostic testing becomes a reality, large central labs expect to be in a position to gain market share in the clinical trial business. In future clinical trials, for example, large numbers of volunteers may need laboratory prescreening in order to determine their genetic eligibility for a trial. Thus, a key strategy of the large labs is to acquire the expertise and the facilities to offer these tests on a global basis. To this end, large labs are actively acquiring smaller laboratories (e.g., hospital-based and independent facilities) with clinical study testing expertise.

Non-CRO laboratories still represent a small portion of the contract drug development market, currently amounting to approximately $100 million. However, Kalorama forecasts that revenues will grow at more than 15% for this segment in the coming years. More importantly, the opportunity exists for some creative partnering and positioning in the analytical services sector. In addition to large reference libraries’ move to take market share from CROs, there may also be room for site-specific laboratory services, perhaps in conjunction with AMCs or SMOs.

Niche Service Providers
Finally, there are a wide variety of niche companies competing in the clinical trials marketplace. These companies are often sub- or even sub-subcontractors for the CROs. There are too many types and models to discuss in all, but some of the more interesting and promising niche companies include firms in the areas below. This portion of the industry is too fragmented to provide hard market data, but Kalorama estimates that these types of services are currently generating $50 million annually for small companies, and that growth of nearly 20% is expected for the next few years.

e-Technology Solutions: It is generally believed that by expanding their use of e-technologies in drug development, companies can reduce the length and cost of clinical development by improving the investigator site selection process, reducing delays in recruiting patients for clinical trials, lowering trial monitoring costs, and permitting quicker, cheaper collection of clinical trial data.

In increasing numbers, companies are seeking IT systems to streamline processes and enhance operational effectiveness. IT systems, such as EDC, data management and biostatistical systems, are needed to reduce the extensive paperwork associated with clinical trials. As the clinical trial process becomes more complex, mostly as a result of the staggering amount of information required to make informed decisions, and increased regulatory requirements, companies need to implement systems that enable seamless exchange of data from varied sources. As a result, IT is playing a predominant role in the evolution of clinical development to yield more streamlined, secure, and integrated clinical trial processes. It is estimated that more than 75 companies are competing to assist drug development companies and CROs in meeting their IT goals.

Internet Patient Recruiting: Over the past several years, a number of Internet-based patient recruitment companies have surfaced. Typically, companies that offer Internet-based clinical trial recruiting match perspective patients with clinical trials through customized data mining of proprietary databases. In this manner, patients are identified, contacted, prescreened and referred to the sponsor or CRO conducting the trials.

Internet-based patient-recruitment companies maintain websites designed to help patients and physicians access information about clinical trials and therapies in development. All of the information and services provided on the websites are free to users, including clinical trials search features, which allow users to locate trials for which they may be eligible.

Patient recruitment will continue to be, without a doubt, a major issue in clinical trials—one that will only increase in complexity as new biologics and genome-based therapeutics require more and more specific patient populations. In this area and in the area of EDC above, the most successful companies will integrate the services they offer with some value-add for the customer, be it clinico-informatics for drug discovery or some other useful data that can plug into the pharma development chain elsewhere.

Clinical Trials Packaging: Quality clinical supplies are one of the cornerstones for a successful clinical trial. It is imperative to assure that clinical studies results are reflective of new drug efficacy and not an error in clinical supply production. For some drug developers and outsourcing contractors, clinical supply production is a core competency. However, for many others, manufacturing, packaging, clinical supply production—particularly for blinded, randomized supplies—is not. In addition, there are a number of patented new dosage forms, biotechnology products and specialized products, such as continuous valve aerosols, that require some experience and/or training to use properly. Typically, the contractor providing the clinical supplies provides training prior to the initiation of trials, as well as on-site monitoring for quality assurance.

There are several obvious conclusions from our study of the contract drug development market—ones that should be of little surprise to the readers of this publication. The market for outsourced services will continue to grow. From early
drug discovery through post-launch services, there is virtually no end in sight to the trend of big pharma moving functions out of house. The major CROs will continue to expand their scope of operations in an effort to leverage their existing relationships into greater revenue and “lock-up” the development of individual products, product lines, and even entire therapeutic classes.

However, this drive toward CRO service expansion will inevitably leave cracks in competencies to be filled by sub-contractors. Further, the consolidation and maturation of the CRO sector will lead to the kinds of big-organization inefficiencies that made big pharma look to CROs in the first place. Innovators in the market, such as the niche IT companies and companies with highly specialized regulatory know-how, will offer outsourcing solutions and improved cost structures to the CROs themselves. And although the next five years will belong to the Covances and Quintiles of the world, the subsequent five years may belong to the start-ups of today. Then we may need another publication called Contract Contract Pharma.