Once upon a time, there was a Pharmaceutical Industry Empire that was comprised of huge companies that did everything from discovery research to clinical trials. Life back then was good for these companies because price controls on the drugs they sold were virtually non-existent. At that time, the Pharmaceutical Empire was closely allied with another empire known as Wall Street. The Nobles of Wall Street (a.k.a. investors) would invest huge sums of money in the Pharmaceutical Empire. In return, new drugs were sold for billions of dollars and the Nobles rejoiced. One day, a large army appeared on the horizon of the empire. This army was from the neighboring empire known as Generic Drugs and it brandished the lethal weapon of “Patent Expiration.” The Generic Drug Empire was determined to steal the riches from the Pharmaceutical Empire.

Pharmaceutical companies had been threatened by the Generic Empire before but they had always survived the attacks by raising prices. This time it was different. It was increasingly difficult to raise prices, and the empire’s thirst for lavish spending was increasingly difficult to support. Troubles were compounded when the Nobles of Wall Street informed the pharmaceutical companies that they would invest their wealth elsewhere if they did not neutralize the impact of the dreaded Patent Expiration. The industry realized that survival now meant that they needed to have a continuous stream of blockbuster drugs in their pipeline to offset the billions of dollars of revenue that would be lost due to expiring patents. Lo and behold, when the Kings of the Pharmaceuticals (a.k.a. senior management) looked into their vast pipelines, there were no replacement blockbuster drugs to be found. The empire was in jeopardy! One day, several brave employees suggested what had previously been unthinkable: pharmaceutical companies would need to cut expenses! The seeds of outsourcing were planted in the pharmaceutical industry, although it would be years before their fruit of their labor was harvested.

And so it came to pass that pharmaceutical employees embraced outsourcing . . . as long as it didn’t impact their own jobs. Soon, mail delivery, security, and cafeteria services were performed by third-party vendors. Still, Patent Expiration crept closer to their walls. Within the depths of the Pharmaceutical Empire, wizards (a.k.a. financial experts) knew that further expense cuts would be necessary. At this same time, brave emissaries from companies known as preclinical contract research organizations (CROs) approached the walls of the pharma kingdoms and proposed providing drug development services at a lower cost. Many in the pharmaceutical industry laughed and said, “No one can do this research better than we can.” It was preposterous to think that another company could provide preclinical research with an acceptable level of quality at a lower price. For years, few CROs could overcome the “quality” argument, but the emissaries had listened at the walls of the pharmaceutical kingdom. Slowly, the CROs hired talented scientists and developed standardized work processes.

As the awful Patent Expiration crept even closer, the Nobles of Wall Street became increasing vocal about investing their wealth elsewhere. Fearing their demise, some pharmaceutical companies proposed to repel the Generic Drug Empire by combining their companies, and thus was the Age of Mergers & Acquisitions born. Based on the premise that a larger, combined kingdom could better survive an attack by Patent Expiration than a two smaller kingdoms, a number of Pharma-Kings chose this alternative. Still when they looked into their newly combined pipelines, they still didn’t see enough compounds with blockbuster potential. Furthermore, Kings across the empire began to understand the high cost of overhead expenses. Soon lavish building projects were curtailed, travel budgets were cut, and company perks were eliminated. As the Patent Expiration moved closer and the Nobles grew increasingly concerned, the Kings reluctantly took definitive action. And so it was that the Age of the Great Purge (a.k.a. layoffs) came into being. This was concurrent with the Age of the Buzzword. Pharmaceutical companies became “leaner and meaner” as they “downsized,””right-sized,” and “did more with less” to achieve “throughput” with the optimal “footprint.” As the Patent Expiration came ever closer, few in the pharmaceutical empire realized that preclinical research was about to change forever.

One day, several of the pharmaceutical Kings realized that, while they had been preoccupied with fighting off the attack by the Army of Generic Drugs, the preclinical CRO industry had slowly and surely developed capabilities that were at least equal to those within the pharmaceutical industry. “Blasphemy!” shouted the legions of pharmaceutical workers.
“Quality will suffer!” they warned. But the legions hadn’t realized that the preclinical CROs had listened and observed at the walls of the pharmaceutical kingdom. Initially, the Kings saw the opportunity to increase the “throughput” of their drug development pipelines by using CROs as overflow capacity. Pharmaceutical companies were able to increase the productivity of their preclinical research activities, thereby improving the chance of finding another blockbuster drug sooner, because more compounds were in development concurrently. (Hence the origin of the saying, “increasing shots on goal,” although many historians still debate whether its derivation came from the sport of ice hockey or the Pharmaceu-tical Empire). And so began the Age of Yo-Yo Outsourcing. Pharma-ceutical companies would outsource preclinical research to CROs but would significantly curtail these activities when they needed to cut expenses. The internal research capabilities of pharmaceutical companies emerged as the most significant competition for preclinical CROs. Slowly, pharmaceutical productivity began to increase and new blockbuster drugs began to emerge from pipelines. Patent Expiration had threatened several companies but the army of Generic Drugs was ultimately repelled by the growing financial strength of the industry. The Nobles cheered and continued their investments. Life was good again.

By this time, it was hard to ignore the performance of the preclinical CRO industry. Some Kings noted that, if CROs could handle overflow work, then perhaps the pharmaceutical industry could reduce overhead costs even further if they increased their outsourcing activities. And so it was that the Age of the Glory Days began and the preclinical CRO industry became an empire. Soon, pharmaceutical clients had to wait as long as six months before they could start a preclinical study at a CRO. Many of the Kings didn’t like having to wait, so their kingdoms began dumping millions of dollars into some preclinical CROs in order to get preferential treatment; thus was the Age of the Preferred Provider Agreement born.

Seeing this flurry of activity, the Nobles of Wall Street now invested their wealth in preclinical CROs. News of the success of the preclinical CRO industry spread around the globe. One day, Explorers (a.k.a. private equity investors) approached some of these CRO companies and offered to shower them with riches. Pharmaceutical clients still encountered delays in starting studies. The demand for preclinical research capacity had exceeded the available resources in the CRO industry. When CROs experienced delays in receiving shipments of laboratory animals, they developed preferred provider agreements of their own with these suppliers. CROs then began to aggressively hire research staff until their ability to start studies grew limited by the lack of available study rooms. Faced with a seeming endless demand for preclinical research, many CROs embarked on aggressive building campaigns; thus was the Age of Capacity Expansion born. The preclinical outsourcing business was booming. Life in the drug development industry was even better . . . or so it seemed.

The Age of the Glory Days in the CRO empire saw lavish “customer appreciation” events at industry trade shows, primarily because these companies could demand any amount of money for their services. Scientists even left the Pharmaceutical Empire to join the preclinical CROs, where there was the promise of competitive salaries and better job security. Everyone rejoiced! The Nobles of Wall Street and the Private Equity Explorers were especially happy because they realized huge returns on their investments. However, a keen-eyed sentry on the walls of one of the pharmaceutical kingdoms noticed a new threat on the horizon one day. The Army of Generic Drugs had returned to steal the riches of the Pharmaceutical Empire but this time it had deployed multiple Patent Expiration weapons. Some of the Kings laughed because they knew that it would take years for the invaders to threaten their kingdoms, while other Kings began to worry about the prospect of losing more revenue than they had experienced in previous threats from the Army of Generic Drugs. Oblivious to this warning, the Nobles and Explorers continued to celebrate and exclaimed, “We want more returns on our investments!” The preclinical CRO Empire saw no threat from the Army of Generic Drugs and began rapidly expanding capacity through the construction of state-of-the-art facilities. Within the Preclinical Empire, the CRO Capacity War had begun.

Soon CROs began hiring staff at a record pace. More scientists were lured from the Pharmaceutical Empire. The race to become the biggest and the best was on! The Nobles and the Explorers rejoiced and said, “Not only do we want more, but we expect more!” Although some in the Pharmaceutical Empire began to worry about the new threat on the horizon, the preclinical CRO Empire continued to rejoice. The demand for preclinical capacity was so great that business would surely grow forever!

As the sentries in the pharmaceutical kingdoms watched the multiple Patent Expirations on the horizon, a cold wind began to blow from the North, and elders across the land began to worry. They had experienced this global event before; the winds of economic recession swept across the land and the sky darkened. Some didn’t listen to the elders and continued to spend because they didn’t believe that the Age of the Glory Days would ever end. The Nobles and the Explorers continued to chant, “Not only do we want more, but we expect more!” What they didn’t see is that the Recession had already begun to impact the Pharmaceutical Empire. Now this industry faced the threat of multiple Patent Expirations and a slow economy. Pharmaceutical revenues declined and once again the Nobles of Wall Street threatened to invest their riches elsewhere. The Kings of the Pharmaceutical Empire responded by significantly cutting spending. Some Nobles were appeased while others followed through on their threat, moving their riches to other kingdoms. At the same time in the Preclinical CRO Empire, leaders celebrated the end of the Capacity War as multiple companies completed new buildings. Nobles and Private Equity Explorers started counting the return on their investments before these buildings were even occupied.

And then it happened. The Recession engulfed the CRO industry. Customer demand dwindled and revenues declined. New research capacity sat empty and the Pharma Kings said, “We have no work for you!” The Kings decided to cut their preclinical spending and invested their monies into clinical trials because they knew that getting drugs on the market sooner was the only way to survive the attack of multiple Patent Expirations. Preclinical CRO leaders were stunned. Now the Nobles and the Explorers reminded the preclinical CRO leaders that they expected more or they would invest their riches elsewhere. The preclinical CRO industry was in jeopardy and this resulted in the second coming of the Age of the Not-So-Great Purge. Both pharmaceutical and preclinical CRO kingdoms across the land began to lay off employees. CROs stopped hiring, curtailed expenses, and closed facilities. Every time the Nobles and Explorers were disappointed with the return on their investments, more and more preclinical employees were purged to satisfy their expectations. On and on it went.
These were the darkest days of the industry.

After several years, the skies brightened and the winds of the Recession began to dissipate. Smaller preclinical CROs saw business improve first. Although the Army of Generic Drugs with their multiple Patent Expirations still loomed on the horizon, pharmaceutical kingdoms slowly began to show signs of increasing business with preclinical CROs. CRO leaders were cautiously optimistic and life slowly began to improve. Although many victims of the Great Purges in the Pharmaceu-tical and CRO kingdoms were still looking for job opportunities so that they could support their families, at least the Nobles of Wall Street and the Private Equity Explorers had been appeased.

At this same time in a remote land beyond these empires, an industry elder surveyed the sequence of events and began to worry. He had seen recessions come and go, he was familiar with life in the pharmaceutical and preclinical CRO empires, and he had seen the damage inflicted by Patent Expiration. He also had heard the talk of the industry resurgence, but he was troubled by what he saw. He knew another threat loomed and he also knew that no one in the empires would listen to his warning because they were all so focused on money. So while all of the sentries in all of the kingdoms in all of the empires looked outward for signs of new threats, the elder worried because he knew they were looking in the wrong direction.

To be continued . . .

Steve Snyder is a consultant with more than 25 years of experience in preclinical toxicology as an outsourcing customer and provider. He can be contacted at info@outsource-support.com.