Clinical Outsourcing Blog

An Overview of Outsourcing Clinical Research
as presented by Dr. Jayashree

The cost of drug development has soared during the past ten years compelling pharmaceutical and biotechnology companies to look for new, smarter ways of conducting clinical research. Driven by mounting market pressures, companies are increasingly implementing outsourcing strategies to increase revenues through faster drug development. By decreasing their in-house facilities and staff, and outsourcing more of their R&D functions, pharmaceutical and biotechnology companies are reshaping the drug development services industry (1).

Contract research has evolved from providing limited preclinical and clinical trial services in the 1970s to a full-service industry today that encompasses broader relationships with clients, covering the entire drug development process, including preclinical safety evaluation, pharmacology, study design, clinical trial management, data collection, statistical analysis, product support, and regulatory services. Pharmaceutical companies are now using drug development services companies not only to cover gaps in capacity, but also to increase their skills base, help to control costs, and reduce drug development timelines. CROs were first organized as outsourcing service companies that provided only clinical trial management. Today, many CROs have expanded their scope of services to provide comprehensive management of the complex drug trial processes for their client companies, as well as providing access to vast areas of expertise, which may not exist in the client’ s internal organization.

Outsourcing is not a new concept to pharmaceutical companies; however, its use increased dramatically in the mid-1990s, and it is expected to continue to increase going forward. It is estimated by 2004 nearly 42% of all pharmaceutical drug development expenditures will be committed to outsourcing, as compared to the 4% that was outsourced in the early-1990s. Some estimate that there are currently over 1,200 organizations involved in the clinical research, including pharmaceutical and biotechnology in-house clinical research, site management organizations (SMOs), academic medical centers, private research sites, and contract research organizations (CROs).

SCOPE forecasts the Indian clinical research outsourcing market to grow at a phenomenal rate of 80% in the coming year, while the relatively matured US$ 9 billion (2003-04) global industry is growing at 15-18%. According to industry sources, around US$ 40 billion is annually spent on drug development R&D. The extent of activity in the R&D investments by major drug manufacturers is one of the critical drivers of the market, as increase in number of new drugs and devices will directly determine the number of trials conducted per new drug. The increasing number of new approvals (drugs & devices) every year, and the trend towards more trials per drug invented, etc. are making the global market players resort to several strategic moves, one of the major ones being outsourcing.

Typically, large CROs compete on the basis of medical and scientific expertise in specific therapeutic areas; the ability to manage large-scale trials on a global basis with strategically located facilities; by providing medical database management capabilities; providing statistical and regulatory services; the proven ability to recruit principal investigators, and patients into studies; and the ability to integrate information technology with systems to improve the efficiency of contract research. It is imperative that pharmaceutical and biotechnology companies pass their product through the testing and regulatory process in a rapid, cost-effective manner. To accomplish this goal, pharmaceutical companies are relying on outsourcing strategies to provide the services that can bring their therapeutics to market faster3.

There is no doubt that the big multi-national contract research companies such as Covance, Quintiles, PPD, MDS and Parexel have been the driving force in drug development’s move to outsourcing and will remain so. CROs hold nearly three-quarters of the growing market for outsourced development services. Further, the 10 largest publicly traded CROs hold slightly more than 50% of that market, with the top company holding about 12% market share.

CROs will continue to dominate this sector. However, there is a world of opportunity in contract research that extends beyond these traditional entities, and even if the large CROs maintain their hold on 70+% of the pie, the pie itself is so large and growing rapidly enough that the other 25% to 30% is nothing to sneeze at. We grouped the major competitive segments in the drug development outsourcing market into five categories: contract research organizations (CROs), academic medical centers and teaching hospitals (AMCs), laboratory (analytical) service companies, site management organizations (SMOs), and niche players (and this is a diverse bunch!).

Though relatively young at just over 20 years, the contract research industry has proven to be indispensable in developing new pharmaceutical products. One of the most critical factors in determining the growth of the CRO market is the percentage of R&D spending that pharmaceutical companies elect to outsource. CROs now account for about 20% of the pharmaceutical and biotechnology R&D budget, and the market for contract research services is growing (see Figure). In recent years, a volatile period brought about by
the mergers of large pharmaceutical companies has challenged CROs to sharpen their business focus, strengthen their balance-sheets, refine internal practices and become more efficient in the drug development process. Due to the downturn that lasted from the late 1990s to the early 2000s, many companies endured project delays and cancellations by customers who were discouraged by mergers and acquisitions that temporarily shifted their focus from bringing new drugs to market. Now that the merger and acquisition activity has slowed, pharmaceutical companies are moving into a steadier stream of
business, whereas biotechnology companies are spending more money on R&D. According to a 2001 study conducted on the CRO market by UBS Warburg, “a growing percentage of outsourced pharmaceutical R&D and higher biotech demand is expected to drive the CRO sector growth ahead of the 10% or 12% norm.
Overall, CROs seem poised to take advantage of two significant trends: the anticipated biotech growth and efficiency gains, and margin improvement given a return to
normalized late-stage trial volume.

CROs have had to revise their business strategies and costs and restructure and cut certain costs. For instance, in order to make their R&D efforts more efficient, pharmaceutical and biotech companies have followed the heavy merger period by refocusing their R&D
strategy. Most of them have resumed outsourcing a substantial portion of their development component, focusing their resources on research efforts.

Given time, cost and pipeline pressures in pharmaceutical manufacturers and a lengthening and complicated US Food and Drug Administration (FDA) approval process, this outsourced portion is predicted to expand by 1% (of pharmaceutical R&D spend) per year throughout 2005. This increased use of outsourcing is also shown by the nature of the projects that CROs are undertaking. For example, outsourcing the total development programme to bring a new drug to market is now a service offered by a number of these CROs.Smaller pharmaceutical and biotech companies have outsourced their development work to CROs in this way in order to retain overall control of their products following successful drug development (2).

There is now a greater use of outsourcing in the pharmaceutical industry than ever before. It can be argued that some of the improvements in clinical development have come about through a more strategic and proactive approach in using the services of CROs, rather than simply using them as a tactical measure on projects.