The considerable growth of the contract research organization (CRO) industry over the past decade has been accompanied by a significant increase in the amount of outsourcing by pharmaceutical and biotechnology companies during the same period. While the pharmaceutical industry originally sought out CROs to handle such short-term requirements as additional capacity, the real growth in outsourcing among CROs is being driven by those organizations that focus on providing innovative solutions. These CROs understand the value of being a research partner to the pharmaceutical and biotechnology industries and have succeeded by recognizing that it is their knowledge, not just their data or technology, that make them indispensable allies throughout all phases of the drug development continuum. Additionally, sponsors are learning to take advantage of CROs’ experience and service-oriented culture.

Undoubtedly, in the face of ever-increasing pressure to keep pipelines full, control R&D costs, deliver more drugs to the market and build shareholder value, there will be a greater reliance on CROs to provide these critical, knowledge-based outsourcing services.

Why Outsource?
The decision to outsource should be based on a long-term, strategic view that addresses and overcomes any deficiencies in internal capabilities. Outsourcing can reduce financial risk by limiting a pharmaceutical company’s capital investments, such as lab equipment and real estate, while converting fixed costs to variable costs (as researchers are CRO employees, not the pharmaceutical company’s). For biotech companies, outsourcing allows them to hold off on partnering with a major pharmaceutical company and keep a larger portion of the ownership of the original drug.

Significant time and money will be saved in the drug approval process. Each day that a drug is delayed in getting to market can result in a $1 million-plus estimated revenue loss. Quality and speed are issues here, with sponsors willing to outsource to have a study completed sooner and, because of the increasing complexity of studies, paying to ensure accuracy and attention to detail.

Also, in the effort to accelerate the drug development process, companies are beginning to employ a “fail fast” approach that recognizes the value of discarding compounds earlier, during preclinical or Phase I, once it has been determined that they will ultimately fail. With the cost of failed compounds responsible for nearly 75% of the cost to develop a new drug, this leaves more resources available to fund viable candidates, resulting in a greater return on investment. This is another opportunity for outsourcing, as CROs may be able to complete studies more quickly than sponsor companies.

Complicating this process, however, is the advent of genomics and proteomics, which is expected to increase the number of drug targets from the current 500 to as many as 5,000-10,000. This explosive increase in the number of new targets, many of which will be poorly validated, will heighten the risk of compound failure. The correct choice of a CRO with strong preclinical and early clinical capabilities will be important in ensuring the right compounds are advanced.

The tighter regulatory environment makes another convincing case for outsourcing. Approval time for New Molecular Entities (NMEs) increased from 11.6 months in 1999 to 15.6 months during 2000 and the FDA has been approving fewer new drugs each year, with only 27 NME approvals in 2000, compared to a high of 56 in 1996. Given the growing complexity and amount of data required by the FDA, it makes sense for companies to consider CROs with considerable experience in putting together NDAs that will survive regulatory oversight.

There is no question that the amount of time that new compounds enjoy market exclusivity has been dramatically shortened. Outsourcing with an international CRO will allow companies to pursue approval in a number of countries at the same time and maximize their potential profit. Engaging an international CRO for patient recruitment will also help sponsors obtain enough participants to satisfy FDA requirements for clinical trials. (Pharmaceutical Outsourcing: Contract Research Organizations. UBS Warburg LLC, 2001)

Key Considerations
Consider a small but well-funded biotechnology company that is about to embark on a plan to spend $30 million dollars to develop a key compound. How can this be done responsibly, in a way that will be viewed favorably by shareholders? How can the resources needed to develop this important compound be qualified?

Or, imagine a major pharmaceutical firm that must reduce its roster of existing outsourcing vendors. Currently, it has eight service providers and needs to get the list down to three. How can the company most effectively evaluate each one and choose the vendors it wants to keep?

Typical outsourcing issues that sponsors must consider include:

• When to outsource
• Vendor selection
• Retaining in-house expertise
• Cost-effectiveness
• Patient recruitment
• Regulatory and ethical issues

While cost is also a determinant for selecting a service provider, it typically ranks at or near the bottom of survey responses for outsourcing selection criteria, particularly unaided responses. When aided, it often ranks higher. Key selection criteria usually include such elements as expertise in a specific therapeutic area, ability to deliver study participants, speed and a strong reputation.

Earlier this year, Kishin J. Kripalani, Ph.D., a director in the Department of Metabolism and Pharmacokinetics at the Bristol-Myers Squibb Pharmaceutical Research Institute, published a simple “decision tree” for companies considering whether to outsource drug development at the project level. Using cost-effectiveness as the guiding principal for outsourcing, Dr. Kripalani said companies should ask the following questions:

• Do we have in-house resources?
• Are the resources available?
• Would these resources be optimally employed on this project?
• Is it cost-effective to do the project in-house?
• Can we do it fast enough?

Answering “yes” to all of these questions would mean the work stays in house, while a “no” answer to any of the questions would advise outsourcing.

According to Jan Malek, of Ernst &Young, the best outsourcing relationships:

• Establish measurable goals and objectives;
• Ensure that both parties benefit from the relationship;
• Maintain mutual respect and willingness to learn from one another;
• Involve senior management support;
• Use a joint, multilevel relationship management approach;
• Continually track and measure performance and provide feedback;
• Establish a periodic, formal and fact-based relationship;
• Have a progress review process in place;
• And define a communications and conflict resolution/escalation process.

Given the number and variety of drug discovery and development providers available to sponsors, companies should develop a checklist of key considerations to review before choosing a CRO to outsource their drug development initiatives. The overall goal should be to develop a relationship that is mutually productive and predictive. The benefits of such a relationship include shortened drug development timelines, improved compound quality and increased cost-effectiveness. Among the fundamental considerations are:

Financials: Is the business financially viable and sustainable? Reviewing basic business fundamentals allows companies to ascertain whether the CRO will be a going concern for the duration of their study. Beyond that, sponsors will want to know that the CRO will be there five or six years from now, when the FDA or another regulatory body comes to inspect. If the CRO is publicly traded, it’s fairly easy to get the financial information needed, but privately held companies require a little more digging.

Compliance: Does the CRO demonstrate an understanding of and compliance with the appropriate regulations wherever in the world they operate? Key questions include: Do they have a good archiving system? Is suitable quality assurance in place to ensure FDA regulations will be met?

Capacity: Do they have the capacity to expand and contract with changing needs? Determine whether the CRO being considered has the resources available to deal with each project and its uncertainties. For example, if a study would suddenly require a complete re-examination of the data, is there evidence that they can respond appropriately and quickly?

Capability: Are they capable of taking on the specific project? Examine the CRO’s existing workload and personnel to determine if they have the right resources and people to effectively handle the project.

Experience: Does the CRO have experience and expertise in the critical area of need? Whether it’s in a specific therapeutic area, assay development or clinical trials, the sponsor needs to know that the CRO in question has a proven track record, both in its people and in its facilities.

Quality: How does the CRO measure quality and does it have processes in place to continually monitor quality? Essentially, quality revolves around how the CRO catches its mistakes, reports them and implements procedures for preventing them in the future. It will be important to verify that the CRO’s definition of quality is up to date and appropriate for today’s drug development environment.

Other Questions To Ask
What training and development programs exist for CRO staff? Are programs in place to ensure staff are following the most current rules for good clinical practice or are up-to-date on the latest FDA regulations? Also, an active employee training program and incentives such as profit sharing demonstrates that the company is working to actively retain staff and reduce turnover.

Is this a company that has enough diversity of experience to be able to handle assignments outside its existing scope? If a company has experience with the CRO and is satisfied with the work being done in a given area of need, can the CRO be relied upon to take on additional work in a related area in order to avoid having to transfer projects to additional providers?

What are the opportunities with this CRO for overcoming the high transaction costs and high overhead costs of a traditional fee-for-service model? The standard CRO business model—based on addressing capacity—is still a large part of the industry, but there is growing recognition that a new model, focused on providing innovative solutions, must emerge between the CRO and the client in order to unlock the strategic value that today’s market realities demand.

In Pharmaceutical Innovation: Leading Companies and Strategies, published this year by Datamonitor, Steven Seget wrote: “Effective knowledge management processes, the integration of functional and therapeutic research expertise, and effective motivation in drug discovery impact a company’s ability to compete in the emerging paradigm. In addition to driving productivity gains, companies must structure their organization to effectively leverage internal capabilities with external partnerships. Long-term competitive advantages, established through the generation of innovation assets, will be found only in the most integrated and motivated organizations.”

What is this company’s legitimate experience in building long-term, mutually rewarding relationships with sponsors? A roster of long-term clients, particularly clients that are well respected in the industry, is a good measure of the CRO’s focus on customer service and providing solid science and expertise.

It should be noted that, throughout every phase of drug discovery and development—but especially in the early phases—the CRO’s technological and scientific leadership should be exemplary. Look for a CRO that is advancing the industry’s science by utilizing the latest technology and has scientists who rank among the leaders in their relative fields of expertise.

Considerations Within Specific Areas Of the Development Continuum
Taking this discussion to a more finite level, it is important to also review key considerations within the individual areas of expertise along the drug development continuum: discovery and preclinical, early clinical research and bioanalysis, clinical research and central laboratory.

Discovery and Preclinical
Make sure that the CRO can effectively screen compounds for their “selectivity of action.” Whether the sponsor is a large or medium pharmaceutical company or a biotechnology company, screening for a drug’s potential side effects is critical. Plus, with major R&D dollars needed for clinical trials, taking risks on new compounds or developing novel discovery platforms, it is much more cost-effective to outsource this work to a company with real scale and efficiency, such as a large, integrated CRO, rather than keep it in-house.

Look for a CRO that can screen for a drug’s biopharmaceutical properties. The number one reason drugs fail in the clinical stage is because of poor biopharmaceutical properties. Screening for a compound’s absorption, distribution and metabolism is typically done during the preclinical phase, but on should seek CROs that are able to conduct highly informative and cost-effective studies earlier, during late discovery. Most large pharmaceutical companies often do their own biopharmaceutical screening in-house due to their need for rapid turnaround. However, a number of CROs are now able to meet or exceed in-house turnaround times in a cost-effective manner. Biotechnology companies, which may not be as familiar with the development process, often disregard these studies and could benefit in time and money saved by involving a CRO in biopharmaceutical screening.

Early Clinical Research and Bioanalysis
In this area of drug development, it is more cost-effective to outsource these functions to a large CRO that has an established record, plus the expertise and capacity to conduct these studies, than to do it in-house. Sponsors require a provider that can deliver huge capacity and quick turnaround and that is strategically located in areas with established access to people. For biotech companies, the cost of purchasing the equipment needed to conduct these studies is prohibitive, so they must outsource this work. Increasingly, pharmaceutical companies should be careful about spending large amounts of capital in early clinical research and bioanalysis, since this is not core to what they do best, which is drug discovery, sales and marketing.

In addition, working with an integrated service provider will not only mean your development process will flow much more smoothly, it will also provide you with leverage. For example, suppose your clinical trial is delayed by recruitment problems. If the integrated provider who is handling your clinical trials is also providing bioanalytical services, you can expect that CRO to do what is necessary to speed up bioanalysis and get your project back on track. Separate providers would have no incentive for cooperating in this way.

Clinical Research and Central Laboratory
Look for a dynamic, flexible team with global reach that is able to recruit quickly. For medium and large pharmaceutical companies, and increasingly biotechnology companies, reach—along with specific therapeutic expertise—is more important than capacity and scale when outsourcing clinical research and central lab work. Flexibility is a critical asset in these areas of study and companies should resist any “cookie cutter”-type approach when outsourcing this work. Seek independent assessments of quality, such as CenterWatch surveys, to help guide the choice of CRO.

How successful are they at managing compounds across the development continuum?

Most outsourcing is handled on a project-by-project basis and, as mentioned earlier, there is a need for a new business model that better addresses the realities of today’s market. Transferring projects from “shop to shop” often results in modified methods, inconsistent lab results and an increasingly discerning eye from the FDA.

Biotechnology and pharmaceutical companies alike have assets that they want to develop and, due to ever-increasing market pressures, there is a trend toward these companies focusing on their core skills. For biotechnology companies, it is innovation; for the pharmaceutical industry—sales and marketing.

Between innovation and sales and marketing, there is a big area of development that must be dealt with. But if companies plan to outsource their entire program of work, they will need more than integration of services across the continuum. They should look for a CRO that has invested the money and time to develop a dedicated team, with significant pharmaceutical industry experience and a high science background, focused on managing client projects all the way through the drug development continuum. Integration must be teamed with individuals who are technically and scientifically proficient and who have a highly developed business sense in order for outsourcing ventures to succeed. Contract research organizations that possess the capability and expertise to customize and execute research and development programs provide a bona fide “value add” in the acceleration of drug development.

CROs are unique among outsourcing providers in that they have seen and solved an immense variety of challenges. What distinguishes a preferred provider from an average one is its ability to learn from these challenges. A knowledge-based CRO that can apply its valuable intellectual resources to a wide range of issues is a significant ally. Ultimately, it is a CRO’s consultative strengths—its scientific knowledge, its skill at identifying specific customer needs, and its ability to offer an outside perspective—that make it an invaluable outsourcing partner.