Insights from Today's CRO Renaissance

The widely held view that contract research organizations (CROs) are simply commodity-based capacity service providers is mistaken and outdated. If this were the case, one would expect to see a far more mature outsourcing market characterized by more extensive consolidation, declining CRO headcounts, small operating margins, and slow revenue and earnings growth. This is hardly the case. If anything, the market for contract clinical research services has reached a renaissance, where the vast majority of sponsors anticipate increasing their dependence on outsourcing.

Kenneth A. Getz

Most small and mid-sized privately held CRO companies are reporting solid revenue and earnings growth. With few exceptions, the largest and oldest CRO companies—most of them publicly held—are reporting strong financial health and annual revenue growth rates that outpace overall sponsor spending on global drug development activity. Excluding pass through fees such as central lab costs and investigator grants, the Tufts Center for the Study of Drug Development (Tufts CSDD) estimates that global biopharmaceutical companies spent $5.5 billion on contract clinical research services in 2004, an annual increase of 15% since 2001. During this same period, overall biopharmaceutical company spending on all global development activities grew 11% each year. Moreover, the largest and oldest CRO companies report that their clinical research headcount has grown by nearly 6% annually since 2001.

Confluence of forces

The conditions are ripe for increasing usage of both full and niche contract clinical service providers. There are many forces that have contributed to strong growth in spending on CRO services: increasing pressure on pharmaceutical and biotechnology companies to contain rising drug development costs as revenue growth decelerates due to market competition; pricing pressures; and the loss of large patent-protected sales. At the same time, biopharmaceutical companies are managing larger numbers of active clinical programs and the scope of these programs are increasing due to rising protocol complexity and growing numbers of globally dispersed investigative sites.

Despite operating environment changes that require more capacity, major pharmaceutical and biotechnology companies are not increasing their own clinical research headcount. According to the Pharmaceutical Research and Manufacturers Association (PhRMA), member companies in 2004 employed 28,783 people who were engaged in global Phase I–III programs. This figure is down .72% from the 28,992 clinical research personnel employed in 2001.

The dramatic proliferation of small and mid-sized companies now engaged in conducting clinical research programs has also driven growth in outsourcing. An estimated 1600 companies are now actively conducting at least one clinical program. This represents a 65% increase over the number of companies doing so five years ago. Smaller companies—many of them biotechnology firms—typically outsource a much higher percentage of their total clinical research budgets as they look to contract expertise that falls outside of their core capabilities.

Acknowledging impact

CROs are nearly doubling the capacity of total clinical research personnel engaged in managing Phase I–III global drug development programs. According to the Association of Clinical Research Organizations (ACRO), major CROs contributed 29,849 clinical research personnel in 2004, a 5.5% annual increase since 2001. These employment trends suggest that CROs are a primary mechanism utilized by sponsor companies to augment rising global capacity needs and contain development costs.

Key outsourcing insights

Major CROs identified, selected, and monitored more than 150,000 clinical investigators in 2004. They enrolled more than 640,000 new study volunteers in Phase I–IV clinical trials in that same year. The level of clinical trial activity carried out by CROs, combined with a doubling of global drug development headcount, indicates something that few biopharmaceutical companies have come to recognize: The CRO segment is integral—not peripheral—to the drug development enterprise. As such, CRO management strategies and practices need to be reevaluated and modified to better leverage an asset that is now essential and vital to the long-term viability of the enterprise.

Clearly, changes in the operating environment for drug development are helping to facilitate an outsourcing renaissance. But this is only half of the story. The CRO is also delivering more than just capacity—they are delivering performance benefits, according to a new study conducted by Tufts CSDD.

CRO usage comparisons

The aim of our study was to quantify the impact of CRO usage on drug development speed and quality. During 2005, we gathered data on 79 new drug application (NDA) and four biologic license application (BLA) submissions made since the year 2000. The 83 submissions analyzed were representative of the overall development pipeline in terms of the variety and concentration of therapeutic areas of activity. Submissions data was selected to reflect typical development activity and to address biases introduced when only approved applications are studied.

Sixteen sponsor companies, representing a broad cross section of drug development organizations, provided detailed cycle time and quality data. We chose to include this broad mix of pharmaceutical and biotechnology companies in order to more accurately reflect the landscape of organizations conducting human trials today. Five of the sponsor companies spent in excess of $500 million each on R&D in 2004; seven midsized companies spent between $100 and $500 million each on R&D in 2004; and four small companies spent less than $100 million each on R&D in 2004.

Tufts CSDD compared submissions data for those projects involving minimal or low CRO usage with those involving extensive or high CRO usage. In an effort to capture realistic levels of CRO use, Tufts CSDD defined "Low CRO Usage" submissions as those for which sponsor spending on CRO services was less than 40% of the entire clinical program budget. In all, 52 NDAs/BLAs were included in the low usage group. "High CRO Usage" submissions were defined as those for which sponsor spending on contract clinical services exceeded 60% of the total program budget. In total, 31 submissions were included in the high- usage group. NDAs/BLAs in both high- and low-usage groups are diverse and representative of therapeutic areas in the overall development pipeline.

Study results

Our study found that higher CRO usage submissions tend to be larger in scope, yet they are more likely to be completed closer to projected time frames. Submissions involving high CRO usage, for example, tend to involve larger numbers of investigative sites and study volunteers. However, high CRO usage projects were typically submitted more than 30 days closer to the projected submission date than were low CRO usage projects. The median time from projected to actual submission date for low CRO usage projects was 130.5 days, compared with 98.3 median days for high CRO usage projects.

Data on projected and actual submission dates was provided directly by the sponsor companies. These metrics reflect sponsors' intimate knowledge of each submission, including cycle time expectations when a CRO is involved. Sponsors tend to set more aggressive timelines for their CRO partners, yet these projects still tend to be finished closer to their originally expected completion dates.

High CRO usage is also associated with faster development times. Across a variety of pivotal trial measures—including time from protocol readiness to first patient first visit and last patient last visit to data lock—high CRO usage projects tend to be completed on average two to four weeks faster despite involving larger numbers of sites and volunteers.

Additional findings

While CRO usage is associated with faster development speed, performance quality between low and high CRO users was comparable. In this study, no statistically significant differences were found when comparing case report form queries per page screen and time from submission to receipt of an approvable letter. Additionally, following an extensive evaluation of 483 forms linked to sites participating in each of the submissions evaluated, no evidence was found to suggest differences in investigative site compliance with good clinical practice guidelines for high versus low CRO usage projects.

Sponsors report that studies involving high CRO usage tended to require unlocking the clinical database more frequently at the end of the pivotal trial than did low usage projects. Sponsors note, however, that they typically consider a database from a high CRO usage project to be "provisionally" locked until it has been reviewed internally.

Sponsor companies are quick to point out those high CRO usage projects that did not go well. In follow-up interviews with sponsors that participated in the Tufts CSDD study, most concede that the results are not particularly surprising. A representative from one sponsor company noted that "the nimbleness and depth of product development experience among our CRO partners has certainly helped to move projects along quickly."

"The study is an encouraging validation of the intuitive sense that many companies have about the value of outsourcing," said another sponsor representative interviewed. "We push our CROs to hit the timelines much harder than we push ourselves. And it usually works."

One area the Tufts CSDD study did not measure was the impact of CRO usage on development economics. This was primarily due to the inability and difficulty that sponsor companies encountered in providing budget figures, as well as the challenge of comparing true internal costs with those of contract service providers. Clearly this is an important area for future study. And one that sponsor companies are eager to understand.

"CROs have not proven that they can do the job cheaper and quicker than sponsor companies themselves," said a representative who participated in the Tufts study. "My intuition says that CROs can offer cost savings, but only if we get out of their way."

Necessity and choice

The integral role now played by contract service providers and their apparent contribution to development performance suggests that we reevaluate the conventional notion that CROs are simply vendors providing capacity on a specific project. Given the current climate for managing and conducting global clinical research, the importance and potential impact of establishing more effective alliances with CROs is paramount. CROs must be viewed less as a necessary evil to be micromanaged and beaten down for better cost savings, and more as an essential partner, capable of assisting sponsor companies in maximizing the performance of well-coordinated internal and external resources.

Already a small but growing number of sponsor companies recognize the opportunity to rethink their CRO partnerships and to apply their implications. Companies have implemented, or plan to implement, new approaches designed to streamline contracts and initiate projects; to better match and optimize internal and external functional capabilities; and to avoid setting unrealistic and limiting budgets under which their CROs must still deliver speed and high quality.

"What's needed is a more trusting, performance-based relationship, where the CRO gets more autonomy to deliver," reasoned an interviewee. "Sponsors need to make sure they have the right vendor partners, provide the appropriate resources and oversight, and then allow CROs to do what they're qualified to do. I believe that we often hold back the CRO's potential."

The growing use of CROs during the past decade to support the development enterprise has enabled pharmaceutical and biotechnology companies to build a larger drug pipeline and to complete projects faster without compromising data quality. The current outsourcing renaissance offers insights into the direction that CRO partnerships must take if sponsors are to address the keys to their survival: improving development performance while achieving higher levels of development efficiency. Ultimately, through more effective CRO collaborations, growing pipelines of new medical treatments hold greater promise for patients worldwide.

Kenneth A. Getz MS, MBA, is a Senior Research Fellow at the Tufts CSDD and Chairman of CISCRP, both in Boston, MA, email: kengetz@ciscrp.org