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The Clinical Outsourcing Evolution and Future Direction of Technology-Based Partnerships

By Dr. MaryAnne Rizk, VP Global CRO Partner Business, Oracle

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Dr. MaryAnne Rizk, VP Global CRO Partner Business, Oracle

The Industry

The Pharmaceutical Industry ranks as the fifth-most-profitable industry with approximately 6-7percent percent annual sales growth (Saftlas & Diller, 2006). However, out of 5,000 compounds discovered, only one ever reaches the customer and less than a third of marketed drugs earn back their own production costs. Within the predicted economic and drug development environment, large Pharma companies will need to launch two products per year to deliver 5 percentpercent annual growth, five products per year to deliver 10 percentpercent growth, or nine products per year to achieve 15percentpercent annual growth (Winter, Baguley & Pharmaceutical Contract Management Group, 2006). To meet these expectations, Pharma companies will have to radically reevaluate their business model, discern their core versus non-core functions, and facilitate optimized approaches in managing their clinical trial drug discovery process.

Clinical trials play a key role in Pharma, and also account for much of its R&D expenditures (PhRMA, 2007). Specifically, clinical trials account for approximately 42percentpercent of total R&D expenditures and are important to the overall cost structure of drug development (DiMasi et al., 2003).  

The Challenges

The Business Complexity. Due to the increasing complexities of developing and bringing a drug to the market, the average cost has reached over $1.3 billion and often takes up to 15 years. Over one third of clinical trials globally are now being outsourced to contract/clinical research organizations (CROs). 

Industry M&A.  The many M&A expansions that have occurred within both the Pharma and CRO organizations result in more complex processes and structures. Drivers of the need for flexibility to quickly react to the growing market demand include the emerging market expansions, biologics market expansion, and new R&D models. Speed and time to market.  Time to market is the major driver for strategic sourcing decisions. Any delays in the drug development process are directly correlated to lost revenue; any reduction in the time to market can result in significant savings of revenue and potential market share gains. Legal and patent protection. A typical drug patent lasts for approximately 20 years. However, it often takes an average of 12-15 years to approve a drug for patient use (Gallini, 2002). Patent protection allows the owner of the patent to charge high margins for a branded drug. In the U.S., the Patient Protection and Affordable Care Act (PPACA), which President Obama signed into law on March 23, 2010, authorized the Food and Drug Administration (FDA) to approve generic versions of biologic drugs and grant biologics manufacturers 12 years of exclusive use before generics can be developed. For large pharmaceutical firms, this law had created an even larger challenge as their window of exclusivity for patented drug sales has been shortened by 60percent (Gallini, 2002). Product Competition - An estimated $89 billion in brand-name drugs will face generic competition in the next five years (IMS Health, 2010). The competition from generic drugs has increased from 42percent of total prescriptions filled in 2000 to 58percent in 2008. Within five years after patent expiration, brand-name drug prices drop an average of 61percent while the number of prescriptions remains the same. This results in lower revenue and leaves clinical research executives scrambling to cultivate new revenue streams.   Outsourcing as a Strategic Enabler

One major approach that has become standard in the U.S. has been to extract more value from Pharma R&D costs by outsourcing clinical research operations to Clinical/CROs. Managing these outsourcing relationships with CROs has thus become critical capability for large pharmaceutical companies as it provides options to migrate their CRO relationships from tactical, contract-by-contract outsourcing to more strategic partnerships. As of 2009, 88percent of large pharma were using less than 10 CROs each year (J.Vogel 2009). Within transactional partnerships, CROs are used as auxiliary firms to manage drug development and conduct clinical trials on behalf of pharmaceutical companies. Equally, sponsors are adopting strategic outsourcing as a central component of competitive drug development strategy.  

The Evolution of the CRO Industry

Drug sponsors typically contract CROs to assist in taking products from early stage development through clinical trials (preclinical through phase IV), Food & Drug Administration (FDA) approval, and, in some cases, post-market surveillance, with the primary value drivers for Pharma companies being a shift from fixed to variable costs and added depth of expertise across select therapeutic areas.         

In recent years, CROs have developed the capacity and expertise to take on an even larger portion of drug development and commercialization processes. This enables Pharma sponsor companies to reduce or better manage costs, improve productivity, and maintain their focus on core capabilities.  

CROs & Technology-based Service Capabilities

E-Clinical technologies have introduced new capabilities for managing clinical data within both Pharma and CRO organizations. It has also opened a large opportunity for CROs to expand their core competencies within Clinical Data Management (CDM) services.

With the introduction of Electronic Data Capture (EDC) systems in the early 1990s, electronic publication increased the value of results, and Pharma quickly adopted EDC for clinical trial management. EDC allowed CROs to significantly increase data accuracy and decrease the time needed to collect data for studies of drugs and medical devices (Bodenheimer, 2002). 

Pharma companies that outsource to a CRO that has adopted this type of eClinical technology can reap the benefits of increased efficiencies and standardization that these technologies offer without having to make their own investments in EDC technologies. CROs that invest in and successfully implement EDC technologies for their Pharma sponsors could also be viewed as having more potential to be a strategic partner. The infrastructure provided to CROs includes solutions such as Clinical Trial Management System (CTMS), web portals, and eClinical platforms.  

The Emerging BioPharma Sector

Demand for “bio-outsourcing” is no longer expected to be generated specifically from the United States, United Kingdom, Germany, France, Italy, and Spain, but new inroads are exploding in India and China. The investments for emerging biological drug production markets such as Brazil, Russia, India, China, South Korea, and Singapore will continue to be centers of innovation as well.

As biopharmaceutical companies continue to struggle with the rising cost of drug development, they are challenged to achieve far more for less cost. As part of their strategy, they are looking to emerging market CROs to help them meet these challenges. 

What once was a cottage industry of small operational organizations vying for limited outsourcing resources and opportunities has become a growing force in the industry’s hope for containing costs and speeding time to market. New paradigms of partnerships, new work models and new technologies are enabling cross-collaboration, new discoveries and the very realization of the promise of personalized medicine.