R&D
Is bigger always
better in clinical
outsourcing?
Opinions differ on whether size is an advantage
when it comes to working with a CRO
O
ne of the key features of the
clinical outsourcing market
in recent years has been its
concentration, with the biggest
players securing high-level contracts
with pharmaceutical companies.
There is no sign of this trend
letting up. In recent weeks Pfizer
revealed that it has added PPD as
its third preferred provider - joining
Parexel and ICON - while late last
year Parexel and GlaxoSmithKline
consolidated their relationship
dating back to 2010 with the
creation of a dedicated GSK
business unit within the contract
research organisation (CRO).
Meanwhile, with the tough
operating environment during the
financial crisis starting to recede,
clinical outsourcing is now growing
at around 10% a year with more
and more studies being outsourced
by a resurgent biopharma industry
that is trying to cut R&D expenses
in order to boost profitability.
Smaller biopharma companies
are benefiting from a surge in
financing from venture capital,
secondary offerings and public
listings, with 2014 well up on
2013 in terms of dollars raised,
which is helping to boost volumes
and pricing outsourced services.
The top seven CROs accounted
for more than half the $23bn-plus
industry spend on CRO services last
year, according to a recent blog post
from PharmSource president Jim
Miller. While the sector as a whole
grew 40% over that period, the big
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players grew almost 60%, showing
that “size has proven to be a major
competitive advantage”, he notes.
Strategic alliances are the main
driver for that growth, with most of
the top 25 biopharma companies
moving towards that model and
throwing their lot in with two
clinical CROs, with an emphasis
on late-stage clinical trials, data
management and central laboratory.
Overall biopharma R&D
spend has been flattening,
however, so latterly CROs
are having to work harder
to increase the share
of trials they service
and jostle for market
share with their rivals.
The latest deal
between Parexel and
GSK is centred on the CRO
taking over responsibility for
former GSK workers and
is “a prime example of
how partnerships with big
pharma are deepening,”
according to the CRO’s chief
executive Josef von Rickenbach, who
discussed the deal with investors
on a conference all recently.
The absorption of GSK staff is part
of an ongoing cost-efficiency drive at
the pharma major aimed at driving
annual costs down by around $1.6bn
within three years and of course
only the largest CROs have the
financial capacity and infrastructure
to absorb hundreds of staff.
So is this dominant position by
companies in a growing market a
Pharmaceutical Market Europe June 2015
Clinical outsourcing trends
good thing? Big pharma can clearly
see the benefit, but others believe
the value is still unproven, despite
the fact that most of the deals are
now between three to five years old.
“Speed and efficiency
improvements and cost savings
remain the exception,” according
to Ken Getz, associate professor
and director of sponsored research
at the Tufts Center for the Study
of Drug Development (CSDD),
citing results from a survey
carried out by the organisation
towards the end of last year.
“Old habits are slow to change
and most drug developers are
supporting practices that prevent
them from integrating their strategic
relationships and leveraging
the value of these important
collaborative models,” he said.
One of the ways in which strategic
alliances can be improved is through
the use of scorecards - based on
defined metrics - that can be used
by both parties to monitor and
adjust the way the relationship
is working, according to Tufts,
which says typically a minimum
of two to three years is needed to
bring partners into alignment.
There have been anecdotal reports
that some large preferred provider
deals have not worked as hoped forcing pharma companies to increase
in-house resources for oversight
and in some cases bring some
projects back in-house. Some market
observers also point to the risk of
complacency among CROs given the
difficulties associated with untangling
a high-level alliance while, for CROs,
dependence on just few high-profile
clients can be equally risky.
Smaller drugmakers also have
Pharmaceutical Market Europe June 2015
‘The increase
in M&A
activity among
biopharma
companies
also means
CROs have to
stay alert’
a slightly different perspective on
the issue of size. Speaking at the
recent Clinical Outsourcing World
conference in London, Dorte Arnbjerg,
vice president of global study
management at Lundbeck, said it is
worth questioning whether bigger is
always better and - as a medium-size
pharma sponsor - it is important to
gauge whether your study will get
the full attention of a large CRO.
Small is also beautiful
While much attention has been
spent attracting big pharma
clients, there are signs that even
the largest CROs are starting
to reap the benefits of courting
smaller biopharma companies.
Demand for services is strong
at the moment from both big and
small drug developers, according
to von Rickenbach, who believes
this reflects both health in pipeline
innovation as well as capital
flow into the smaller firms.
In pharma’s “post-blockbuster
world”, small biopharma companies
are increasingly developing new
drugs and are acquired by larger,
more established firms, which in
turn are looking for ways to become
leaner and more competitive, and
clinical outsourcing is an integral
part of this emerging order, he said.
Similarly, Thomas Pike, Quintiles’
chief executive, said recently the
company has been re-focusing
a proportion of its activities to
help small companies through the
clinical development process and
through to the commercial stage,
and is now seeing SMEs account
for a rising share of its revenues.
As might be expected, smaller
CROs insist there is room 
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R&D
Typically at least
2-3 years
are needed for partners to align
 for all, particularly where they
have a strong focus in a specific
therapeutic area, geography or
the type of service provided.
“While we are sure that the
trend of preferred partnerships
with large CROs is here to stay, we
believe that there is a distinct role
that niche vendors will continue
to play and be an important part
of the provider ecosystem,” says
Chitra Lele, chief scientific officer
at India-based CRO Sciformix.
Niche regional providers are
also more likely to work with the
local affiliates of large pharma
companies and with mid to small
size pharma companies, according
to Lele, who says there are also
increasingly opportunities for smaller
players to work with larger CROs.
“CROs have to continuously
invest in human and other resources
to ensure delivery as per client
expectations, and this can add to
their overheads and impact the cost
benefit of the deals,” she notes,
adding: “they sometimes partner
with niche providers who are able
to provide the right skills at the
right price and assume part of the
responsibility of ensuring quality
and timeliness of projects.”
Consolidation
Of course, larger CROs have
become large in no small part by
swallowing up smaller players,
mainly to extend geographic
reach and service breadth,
and consolidation remains a
perennial feature of the sector.
One significant departure
from the usual M&A activity was
Covance’s $5.7bn takeover of
LabCorp, which completed in
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February and was unusual in that it
married a diagnostic specialist with
a CRO. The rationale is to combine
LabCorp’s database of 70 million
patient records with Covance’s
clinical services and overcome the
longstanding issue of slow patient
recruitment in clinical research.
Critics have suggested that
LabCorp’s US focus makes the
combination less attractive to
companies seeking global clinical
programmes. However, the partners
claim to have already secured a
$45m new contract on the strength
of the database component on offer,
specifically access to around 1,000
patients with a rare genetic mutation
for enrolment into a non-small cell
lung cancer (NSCLC) programme.
Both LabCorp/Covance and
Quintiles have said they are now
looking for ‘tactical tuck-ins’
rather than large-scale M&A deals,
and analysts have suggested
this is typical of the larger CRO
players with few expecting big
changes in the coming months.
Meanwhile, an increase in M&A
activity among biopharma companies
also means that CROs have to stay
alert and make sure they prepare
for situation when a long-standing,
stable relationship comes under
scrutiny and may be downsized or in
a worst-case scenario terminated.
That means keeping lines
of communication secure and
being agile enough to adapt to
the new operating culture.
Phil Taylor is a freelance
journalist specialising in the
pharmaceutical industry
Pharmaceutical Market Europe June 2015