Sylvia Findlay is Pharmaceuticals and Biotechnology Industry Analyst at Frost & Sullivan.

Sylvia M Findlay

Mounting costs have forced pharmaceutical companies to move clinical trials away from the traditional playing fields of Europe and the US, in favour of conducting R&D activities offshore. The likely beneficiaries from this increased outsourcing are expected to be Asian countries such as India and China, with other countries such as South Africa, and those in Latin America and Central and Eastern Europe also expected to garner more interest. 

Clinical trial delays: nailing the issue 

Analysis has shown that most clinical trials currently do not meet their deadlines and approximately 85% experience delays; 95% of these must contend with delays of more than a month.

  The primary reason is difficulties in patient recruitment. Phases II and III trials require patient recruitment on a global scale, which complicates the situation and poses a serious challenge to clinical trial co-ordinators.  

Though rising costs are a crucial factor, pharmaceutical companies look for unique expertise and capabilities when choosing a CRO. Technical know-how, capacities, compliance and the ability to complete clinical trials within the stipulated time are also primary factors that companies examine before making a decision (Figure 1). 

Figure 1: Key attributes to a CRO (World), 2008.1			

CROs have started to take centre stage in the drug development process. In fact, the drug development business model has been modified considerably to include CRO services, spearheaded by increasing drug development costs and the expanding global scale of clinical trials. Reliance on CROs has also increased considerably, primarily because of their services rendered towards conducting large, global and highly complex clinical trials.  

Different factors are driving growth in different segments of the CRO market. Increasing R&D spending and toxicology services have fuelled the growth of preclinical services, while small pharmaceutical and biotech companies that lack the infrastructure to conduct Phase I trials have driven Phase I outsourcing. 

Post-marketing studies have seen an increase in recent years, owing to the importance given by the medical community to the long-term safety aspects of drugs. As such, there has been an increased demand for Phase III and Phase IV clinical trials outsourcing, which is now considered a prime growth factor sector in the CRO industry. The need for therapeutic expansion, global reach and market consolidation amongst CROs has also driven the Phase III and Phase IV clinical trials outsourcing market — postmarketing clinical research involving global expansion, life cycle management, reimbursement and indication expansion has fuelled the demand for these late stage development trials. In addition to CRO services, functional services such as data management, laboratory facilities, logistics and translation services are also gaining significant importance (Figure 2).

Figure 2: Revenue share percentage by phase  (world), 2008.2			

Pharmaceutical and biotech companies have increased R&D spending on CRO services significantly during the last 5 years. Expenditure on CRO services accounted for 12.9% of total global R&D expenditure in 2003 and reached 17.2% in 2008, indicating the rising demand for CRO services in drug development. The major spend in CRO services comes from pharmaceutical companies, with biotechs only accounting for 30%.

Another observation regarding the clinical trials outsourcing arena is that North America dominates the R&D spending share compared with other geographic regions; Frost & Sullivan estimates that North America holds up to 49% market share, followed by Western Europe with 37%. Asia Pacific is gaining significant interest because of the globalization activities in R&D and now holds approximately 13.5% market share. The share from the rest of the world is only 0.5% (Figure 3).

Figure 3: R&D spending share by geographic region (world), 2008.3			

In addition, North America leads the way in the volume of clinical trials conducted, but emerging markets such as India, China and Central and Eastern Europe are expected to witness considerable growth by 2012 because of their low cost advantages and the ease with which they can recruit a heterogeneous patient population for clinical trials.  

Overall, the number of clinical trials being conducted has grown significantly in the last 5–7 years. In 2000, 40000 trials were conducted while 62000 trials were conducted in 2007. Of these, more than 5000 were in oncology, more than 3000 in central nervous system and more than 2000 in infectious diseases.

Because of increased R&D spending from specialty pharma, and the lack of infrastructure from small pharma and biotech companies, Frost & Sullivan predicts that R&D expenditure for CRO services will continue to grow. CRO services are estimated to witness growth of 14–16% by 2010 and at least 60% of FDA-regulated clinical trials are estimated to be conducted offshore by 2012.

  Consolidation amongst CROs is also a major trend to look out for in the next couple of years and is an indicator of the rising demand for large, globalized clinical trials. 

is Pharmaceuticals & Biotechnology Industry Analyst at Frost & Sullivan (India). 

1. Contract Research Organization (CRO) Markets in Europe. 

2. US Contract Research Outsourcing Markets. 

3. Global CRO Spending Trends. Frost & Sullivan, June 2007. 

Articles

The CRO market is experiencing two-tiered growth: firstly from pharmaceutical companies seeking to lower fixed costs by outsourcing clinical research to CROs; and secondly, from biotechnology and specialty pharmaceutical companies that lack the infrastructure to conduct trials.

Outsourcing clinical trials: growth continues

The pharmaceutical industry has long been suffering from declining productivity. The urgent need to infuse change to counter the various challenges, competition and demand has been increasing over the years. It is no longer viable for pharmaceutical companies to depend on complete in-house utilization of the various processes in drug manufacture. 

The R&D costs are climbing at astounding rates. In addition, the pricing pressure, regulatory changes, very high attrition rates, augmenting complexity of clinical trials and the urgent need to minimize the developmental time are driving forces for the pharmaceutical industry to opt for outsourcing.  

Although the industry has long-realized the need for outsourcing, the pharmaceutical outsourcing market has not seen vigorous growth. It was valued at $5.4 billion in 1997, $9.3 billion in 2001 and $24 billion in 2006, and is expected to reach approximately $45 billion by 2010. 

The pharmaceutical industry is moving towards outsourcing to enhance operational efficiency and augment its revenues in a bid to seek a cost-sensitive and competitive future. R&D and sales, which were considered as the in-house core competencies, are proving to be ineffectual. Outsourcing, traditionally thought of as a short-term strategy for demand realization, is now being considered to lever the core competencies to maximize productivity. Today, pharmaceutical companies are outsourcing various intricate processes such as lead development and business processes, and it has been noted that almost the entire drug development process can be outsourced.  

For pharmaceutical companies looking to overcome the hurdles in drug development, outsourcing is being seriously considered to effectively manage multiple projects at a given time and most importantly, to reduce the timeline for drug development, with a long-term view of cost and resource management. Reducing timelines is crucial in drug development as it is the major factor for cost savings.  

The outsourcing partners (contract research organizations [CROs] and contract manufacturing organizations [CMOs]) have provided services in various areas and are expanding their portfolios to lure more pharmaceutical clients. Pharmaceutical companies are beginning to consider these partners as a one-stop shop for all their R&D and manufacturing requirements. These vendors are currently engaging as global service providers, including: 			

 R&D outsourcing, which includes preclinical testing, clinical trial management, laboratory services, biostatistical analysis, drug discovery services, clinical packaging, regulatory affairs and biomanufacturing. Recently, the services have included high through-put screening, genomics and combinatorial chemistry. 

 Manufacturing outsourcing — primary development, formulation development, physical processing, dose manufacturing, packaging services and custom primary production. 

The vendors are merging with each other and with other pharmaceutical industry participants, thereby changing the pharmaceutical industry landscape.

Using outsourcing as a tool to increase productivity, it becomes vital to diligently choose an outsourcing partner. With various potential clients lined up to provide various services, it is a Herculean and time-consuming task to evaluate the right vendor for the project. There are certain considerations to analyse before choosing the right supplying partner: 			

As there are no FDA directives outlining vendor requirements, the onus is on the pharmaceutical companies to evaluate the vendor. Stringent inspection of the supplier's facility, quality, best practices, trained staff and certified processes is crucial in the selection process. 

Assessment of the vendor's financial stability is imperative during the selection process. Financial stability is required for the smooth turnaround of the projects within the proposed timeline. As these suppliers work with various projects from pharmaceutical companies, it becomes crucial to ensure there is no backlog of projects because of financial constraints. 

Selecting an outsourcing partner may be done in haste without proper analysis of cost and project objectives. However, to overcome this hurdle pharmaceutical companies have a separate team to manage these outsourcing activities: it maintains a database of potential vendors, prepares requests for proposals (RFP), and reviews bids, service contracts and the timescales of the project with the supplying partner. Certain smaller pharmaceutical companies may have limited capabilities to identify the potential supply partners; in such cases, consulting firms help to identify the right outsourcing partner. It is at this point, the importance of trade shows and conferences is realized. Most pharmaceutical contract research alliances materialize during these gatherings.  

Once the vendors meet the desired requirements, they feature among the preferred vendor list in the pharmaceutical company database. Most of the outsourced projects are awarded to these partners as they develop trust and extend mutually profitable relationships. These relationships are strengthened when the outsourcing partners extend immense enthusiasm in improving the processes. 

Strict adherence to timelines and budget is critical to prevent loss of revenue. However, it is challenging to complete important projects within a given time frame and cost in addition to legal and personnel risks issues. 

The initial costs incurred while utilizing outsourcing partners are considerable. Staff turnover in these outsourcing firms is high also. This hinders effective project management, and clinical trials data confidentiality may be at stake with outsourcing partners. 

The last decade has witnessed a myriad of mergers, acquisitions and alliances aimed at improving drug development, and reducing its related costs and time. The advent of outsourcing partners has proven to aid pharmaceutical companies in meeting the high therapeutic demand and reduce costs. However, the importance of reducing the costs further has driven the pharmaceutical industry towards offshore outsourcing. India, China and Eastern Europe have been popular considerations because of relatively low developmental costs, abundant workforce and large patient pools. However, these countries present some challenges, particularly in terms of patent laws, cultural differences and business complexity. 

A flurry of alliances among the pharmaceutical companies and the outsourcing partners is likely to be witnessed in the future. The confluence of computers and biology is expected to immensely improve data capture and management, and patient recruitment for clinical trials. 

 methods are being used for drug discovery processes especially in lead generation and optimization.  

As the drug discovery landscape is continuously changing, pharmaceutical companies are turning towards outsourcing partners to deal with cost pressures and declining productivity. In spite of certain disadvantages, the net advantage of cost savings, lead times and expertise are realized through outsourcing. Offshore outsourcing is  gaining popularity and the near future is likely to witness scientific hubs in India, China and Eastern Europe.  

is an industry analyst and team leader, life sciences and medical devices, healthcare (EMEA) at Frost & Sullivan (India).  

The pharmaceutical industry has long been suffering from declining productivity. The urgent need to infuse change to counter the various challenges, competition and demand has been increasing over the years. It is no longer viable for pharmaceutical companies to depend on complete in-house utilization of the various processes in drug manufacture.