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

ne of the key features of the players grew almost 60%, showing clinical outsourcing market that “size has proven to be a major Oin recent years has been its competitive advantage”, he notes. concentration, with the biggest Strategic alliances are the main players securing high-level contracts driver for that growth, with most of with pharmaceutical companies. the top 25 biopharma companies There is no sign of this trend moving towards that model and letting up. In recent weeks Pfizer throwing their lot in with two revealed that it has added PPD as clinical CROs, with an emphasis its third preferred provider - joining on late-stage clinical trials, data Parexel and ICON - while late last management and central laboratory. year Parexel and GlaxoSmithKline Overall biopharma R&D consolidated their relationship spend has been flattening, dating back to 2010 with the however, so latterly CROs creation of a dedicated GSK are having to work harder business unit within the contract to increase the share research organisation (CRO). of trials they service Meanwhile, with the tough and jostle for market operating environment during the share with their rivals. financial crisis starting to recede, The latest deal clinical outsourcing is now growing between Parexel and at around 10% a year with more GSK is centred on the CRO and more studies being outsourced taking over responsibility for by a resurgent biopharma industry former GSK workers and that is trying to cut R&D expenses is “a prime example of in order to boost profitability. how partnerships with big Smaller biopharma companies pharma are deepening,” are benefiting from a surge in according to the CRO’s chief financing from venture capital, executive Josef von Rickenbach, who secondary offerings and public discussed the deal with investors listings, with 2014 well up on on a conference all recently. 2013 in terms of dollars raised, The absorption of GSK staff is part which is helping to boost volumes of an ongoing cost-efficiency drive at and pricing outsourced services. the pharma major aimed at driving The top seven CROs accounted annual costs down by around $1.6bn for more than half the $23bn-plus within three years and of course industry spend on CRO services last only the largest CROs have the year, according to a recent blog post financial capacity and infrastructure from PharmSource president Jim to absorb hundreds of staff. Miller. While the sector as a whole So is this dominant position by grew 40% over that period, the big companies in a growing market a

36 www.pmlive.com Pharmaceutical Market Europe June 2015 Clinical outsourcing trends

good thing? Big pharma can clearly a slightly different perspective on see the benefit, but others believe ‘The increase the issue of size. Speaking at the the value is still unproven, despite recent Clinical Outsourcing World the fact that most of the deals are conference in London, Dorte Arnbjerg, now between three to five years old. in M&A vice president of global study “Speed and efficiency management at Lundbeck, said it is improvements and cost savings activity among worth questioning whether bigger is remain the exception,” according always better and - as a medium-size to Ken Getz, associate professor pharma sponsor - it is important to and director of sponsored research biopharma gauge whether your study will get at the Tufts Center for the Study the full attention of a large CRO. of Drug Development (CSDD), companies citing results from a survey Small is also beautiful carried out by the organisation While much attention has been towards the end of last year. also means spent attracting big pharma “Old habits are slow to change clients, there are signs that even and most drug developers are CROs have to the largest CROs are starting supporting practices that prevent to reap the benefits of courting them from integrating their strategic smaller biopharma companies. relationships and leveraging stay alert’ Demand for services is strong the value of these important at the moment from both big and collaborative models,” he said. small drug developers, according One of the ways in which strategic to von Rickenbach, who believes alliances can be improved is through this reflects both health in pipeline the use of scorecards - based on innovation as well as capital defined metrics - that can be used flow into the smaller firms. by both parties to monitor and In pharma’s “post-blockbuster adjust the way the relationship world”, small biopharma companies is working, according to Tufts, are increasingly developing new which says typically a minimum drugs and are acquired by larger, of two to three years is needed to more established firms, which in bring partners into alignment. turn are looking for ways to become There have been anecdotal reports leaner and more competitive, and that some large preferred provider clinical outsourcing is an integral deals have not worked as hoped - part of this emerging order, he said. forcing pharma companies to increase Similarly, Thomas Pike, Quintiles’ in-house resources for oversight chief executive, said recently the and in some cases bring some company has been re-focusing projects back in-house. Some market a proportion of its activities to observers also point to the risk of help small companies through the complacency among CROs given the clinical development process and difficulties associated with untangling through to the commercial stage, a high-level alliance while, for CROs, and is now seeing SMEs account dependence on just few high-profile for a rising share of its revenues. clients can be equally risky. As might be expected, smaller Smaller drugmakers also have CROs insist there is room 

Pharmaceutical Market Europe June 2015 www.pmlive.com 37 R&D

Typically at least 2-3 years are needed for partners to align

 for all, particularly where they February and was unusual in that it have a strong focus in a specific married a diagnostic specialist with therapeutic area, geography or a CRO. The rationale is to combine the type of service provided. LabCorp’s database of 70 million “While we are sure that the patient records with Covance’s trend of preferred partnerships clinical services and overcome the with large CROs is here to stay, we longstanding issue of slow patient believe that there is a distinct role recruitment in clinical research. that niche vendors will continue Critics have suggested that to play and be an important part LabCorp’s US focus makes the of the provider ecosystem,” says combination less attractive to Chitra Lele, chief scientific officer companies seeking global clinical at India-based CRO Sciformix. programmes. However, the partners Niche regional providers are claim to have already secured a also more likely to work with the $45m new contract on the strength local affiliates of large pharma of the database component on offer, companies and with mid to small specifically access to around 1,000 size pharma companies, according patients with a rare genetic mutation to Lele, who says there are also for enrolment into a non-small cell increasingly opportunities for smaller lung cancer (NSCLC) programme. players to work with larger CROs. Both LabCorp/Covance and “CROs have to continuously Quintiles have said they are now invest in human and other resources looking for ‘tactical tuck-ins’ to ensure delivery as per client rather than large-scale M&A deals, expectations, and this can add to and analysts have suggested their overheads and impact the cost this is typical of the larger CRO benefit of the deals,” she notes, players with few expecting big adding: “they sometimes partner changes in the coming months. with niche providers who are able Meanwhile, an increase in M&A to provide the right skills at the activity among biopharma companies right price and assume part of the also means that CROs have to stay responsibility of ensuring quality alert and make sure they prepare and timeliness of projects.” for situation when a long-standing, stable relationship comes under Consolidation scrutiny and may be downsized or in Of course, larger CROs have a worst-case scenario terminated. become large in no small part by That means keeping lines swallowing up smaller players, of communication secure and mainly to extend geographic being agile enough to adapt to reach and service breadth, the new operating culture. and consolidation remains a perennial feature of the sector. One significant departure from the usual M&A activity was Phil Taylor is a freelance Covance’s $5.7bn takeover of journalist specialising in the LabCorp, which completed in pharmaceutical industry

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