Research-For-Hire Companies Proliferate

Sidebar: The People End: Fluidity and Flexibility Are Key Recent megamergers and acquisitions in the pharmaceutical and biotechnology industry have drastically altered the corporate landscape, and perhaps nowhere have the effects been felt more than in drug company research departments. However big pharmaceutical firms are, they are finding they can't -- or shouldn't -- do everything. And biotechnology firms, which are generally much smaller, are discovering the difficulties of conducting basic and applied research, as well as manufacturing, without help. This has created fertile ground for joint ventures and partnering, in which the participants have some kind of financial stake -- capital investment, agreements to share profits or expenses, licensing agreements, and the like. But this also has spawned a whole range of research that is completed under a pay-for-services formula. Contract research is a multifarious web of researchers and organizations. It may be as straightforward as a pharmaceutical company paying a university to do a particular project or part of a project, or a cosmetics company contracting with a third party to make an extract for its products. The fastest-growing segment of the web is the contract research organization (CRO). According to Walter Flamenbaum, former owner of a CRO, Health and Sciences Research in Englewood, N.J., who lectures on the topic, in 1983 there were fewer than 50 CROs. In 1993, there were more than 600 of all sizes worldwide. Flamenbaum, who now is president and CEO of Therics Inc., a biomedical company in New York City that is not involved in contract research, outlines the structure of the CRO industry: They range in size from "mom and pop" operations to companies with a few thousand employees, like Quintiles Transnational Corp., in Research Triangle Park, N.C., and ones with estimated 1995 revenues of $300 million, like the CRO businesses of Corning Pharmaceutical Services Inc. of Princeton, N.J., the world's largest CRO. In recent years, both Quintiles and Corning have purchased other CROs. The field, analysts say, is open. According to John R. Vogel, a drug-development consultant whose company, John R. Vogel Associates Inc., is located in Oldwick, N.J., pharmaceutical companies spend 13 percent of their gross sales on R&D. In 1993, when worldwide pharmaceutical sales grossed $207 billion, pharmaceutical companies spent $27 billion on R&D. Slightly less than $2 billion of research actually was contracted out to CROs. But based on an analysis done by Lehman Brothers in the United Kingdom, approximately $9 billion of the R&D expenditures could have been contracted out. Of the $9 billion, 51 percent would have gone to CROs for clinical studies, and the rest would have gone for toxicology testing, screening tests, and other non-clinical work, reports Vogel (F. Hoke, The Scientist, Sept. 19, 1994, page 1). The spectacular growth in the numbers and sizes of CROs, according to Flamenbaum, can be attributed to continuing major pharmaceutical company mergers (M.E. Watanabe, The Scientist, Oct. 2, 1995, page 1). Another contributing factor, he notes, is retrenchment within the pharmaceutical industry. This phenomenon began in the late 1980s with a spate of drug company mergers, including Beecham Group and Smith Kline Beckman, Bristol-Myers Co. and Squibb Corp., and Dow Chemical Co. and Marion Laboratories. "There are fewer people in-house [in pharmaceutical firms] to do the work and more people floating around out there willing to do the work," he says. There is some question about what constitutes or characterizes a CRO. Corning and Quintiles, for example, both have purchased toxicology laboratories, and, as Flamenbaum points out, toxicology testing may well be considered a CRO function. LESS BAGGAGE: John Noble notes the difference in size between large drug companies and CROs. One obvious characteristic is the size of the operation. John S. Noble, president and CEO of Innapharma Inc., a 100-employee CRO in Suffern, N.Y., points out that even the largest CROs do not come close to the size of a "large" pharmaceutical corporation, which may have revenues of $4 billion to $5 billion annually. "Under 500 employees, you're considered small," he says. "Most CROs are small." CROs mainly carry out the "D" in R&D, performing preclinical research and Phase I to Phase IV clinical research for pharmaceutical and biotech companies that are completing new drug applications (NDAs) to the United States Food and Drug Administration (FDA) or to international governmental agencies for regulatory drug approval. The preclinical work may include pharmacology, toxicology testing, and pharmacokinetics (measurement of concentration of drugs in body tissue and fluid levels over time). Clinical work includes implementing the sponsor's research design and monitoring clinical trials. (Phase I trials are small trials to test a drug's safety in health individuals; Phase II trials test a drug's efficacy and the dose response in individuals with the targeted disease; Phase III trials are large clinical trials to test efficacy and long-term safety; and Phase IV is referred to as "post-marketing surveillance," in which use of approved drugs is monitored.) CUTTING COSTS: Judith Dien says drug firms can save with clinical research. Monitoring at any clinical trial phase is done by a clinical research associate (CRA). "The CRA," says Judith Dien, Innapharma's corporate vice president for marketing and new business development, "is the individual who actually travels to the investigative sites and oversees the conduct of the trial, ensuring that the study is being performed in accordance with the study protocol, and also retrieving all the appropriate documentation." Many pharmaceutical companies have CRAs on staff, as do some of the larger CROs. But CRAs also may work as freelancers, contracting with pharmaceutical companies or CROs. A full-service CRO will be able to provide all of these benefits to a client. However, most CROs are not full-service. Many are "niche providers," explains Vogel, who assists pharmaceutical companies in selecting appropriate CROs for their projects. "Niche providers may specialize in a particular service -- for example, monitoring clinical trials or providing data management and biostatistical services. Some individual full-service providers are establishing 'centers of excellence,' focusing on several particular fields, such as neurology, cardiovascular studies, infectious diseases, and so on." Using a CRO offers certain advantages to a drug company. "Every major organization has to decide: Do we man ourselves at peak levels, do we man ourselves at trough levels, or something intermediate?" says Firoz Nilam, director of international negotiation and CRO management at Hoffmann La Roche Inc. in Nutley, N.J. Nilam is responsible for all the company's worldwide CRO contracts. "If we man ourselves at peak levels," he explains, "that is inefficient." Companies that are staffed at a high level, he notes, will need to prune back their staffs after a merger or acquisition. Thus, Nilam says, contracting out makes strategic sense: "If you work at the highest end of contracting out, you can deal with an acquisition or a merger, because you have less people to get rid of." Employing a CRO may also save a company money by allowing use of specific types of workers for shorter-term projects, saving as much as 25 percent to 30 percent on staff costs, Flamenbaum writes in a list of "good news" about CROs. He adds that they can complete the job more quickly than a company can in-house. "Pharmaceutical companies turn to CROs because they want to develop drugs rapidly," states Pat Grebe, director of corporate communications for Quintiles. "A lot of these trials are very complex and not every pharmaceutical company is prepared to carry these out around the world." Even when CROs must subcontract independent CRAs, Dien maintains, drug companies save money: "By contracting independent CRAs in the same geographic locations as the study sites, the CRO saves money in overhead and travel costs, and these savings are passed on to the drug company sponsor of the study." But some see a downside to the CRO phenomenon. Lawrence T. Friedhoff, senior vice president of research and development for pharmaceutical firm Eisai America Inc. in Teaneck, N.J., contends that "the cost savings, to some extent, are illusory. CROs are very expensive in two ways. They are expensive because they have to be paid a lot; secondly, if you don't have the employees to monitor the CRO's activities, you can lose control." He adds, "In many ways you can lose flexibility because it's difficult for you to prioritize their work. They prioritize it." He also complains that sometimes, because of staff changes at the CRO, a new person may be put in charge of a company's project. In fact, even small CROs may work with numerous clients. Flamenbaum recalls that his modestly sized CRO was involved, at times, in active studies for 20 different clients. Nilam, who is limiting the number of CROs Roche will work with to three or four full-service CROs and five to seven niche providers, sees a difference in turnover rate. "The bigger CROs do not have as much turnover as the small CROs," he states. He points out that the bigger ones pay good salaries and have excellent benefits packages. To make sure, Nilam is stipulating in Roche's contracts with CROs the names of the people who will be doing the work, a CRO version of hand- picking a staff. "You cannot stop them [CRO staff] from leaving," he concedes, but you "can identify the best people." GOOD TIMES, BAD TIMES: Lynn Spitler has had varying experience using CROs. Relationships with CROs do not always work out. Lynn Spitler, chairwoman, president, and chief scientific officer of biotech firm Jenner Technologies, a cancer vaccine company in Danville, Calif., explains that her company's protein purification work was contracted out "with one organization, and they utterly failed." Contracts with a second firm proved successful. "For every one [CRO] that we get that's good, there are two that disappoint us," acknowledges Friedhoff. And disappointment may be a mild reaction to the behavior of a few firms. An individual who has worked in management in a CRO, speaking on condition of anonymity, tells of one rogue CRO that used a pharmaceutical firm's contract as a cover to do its own development work; another in which the CRO claimed expertise in an area in which it had none; and a third in which a CRO took on two large studies that required use of the same staff members simultaneously. Such infractions should be caught with close monitoring of the CRO by the sponsor, CRO observers agree. STRATEGY: Firoz Nilam says that contracting out allows a firm to stay lean. Roche's Nilam is hopeful that his CROs will be honest with him when he asks if they have experience in a given area or have the staff still available with that knowledge base. He points out that a CRO may truthfully say it has expertise in a particular area, only to reveal, later on, that the experienced staff has left. For all of these reasons, those involved with CROs say, it is incumbent on companies contracting these organizations, and even the CROs themselves, to stay vigilant. "To be successful in this business, attention to detail and thorough follow-up are mandatory -- by the CRA in the field and by the CRO organizing and supervising the entire clinical trial," Dien stresses. "If data isn't verified, if documentation isn't collected, if phone calls are not made -- then you haven't done your homework." A pharmaceutical or biotech company may hire someone like Vogel to thoroughly investigate the CRO to make sure the firm has the capabilities it is claiming. Vogel also matches pharmaceutical company projects with the appropriate CRO. Nilam requires that any CRO Roche uses be fiscally sound and, for overseas projects, have its own worldwide organization, rather than having a loose affiliation with a cooperating overseas CRO. "If something goes wrong," he states, "then I can find somebody to sue. I cannot take a chance that they will go out of business. Some of my projects [last] three to four years." The best way to avoid disputes is to look carefully at three factors, says Vogel. "One is to determine accurate study specifications -- a list of activities the CRO is expected to provide. Secondly is to find the right CRO, the one that can do what you want; and third is to manage the CRO and maintain active involvement by the sponsor." Vogel has been authoring or coauthoring a series of articles with the general title "Achieving results with contract research organizations" in the journal Applied Clinical Trials; the latest one is K.A. Geta, J.R. Vogel, 4[4]:32-8, April 1995. He continues, "Many of the horror stories center around sponsors not being adequately involved in the project." Nilam recounts that "non-optimized management from our side," when CRO contracts were managed by the clinical teams, led to centralization of all of Roche's world wide CRO contracts to his office a year and a half ago. CROs are not the only way pharmaceutical and biotech firms can obtain out-sourced research. Universities and research institutions may do some preclinical work or even the research end of R&D, and independent testing laboratories sometimes may test a compound. The nonprofit Public Health Research Institute (PHRI) in New York City is a leading research center studying infectious diseases. Formerly sponsored by the city of New York, the institute has been funding its own studies through grants and, more recently, research contracts with biotechnology or pharmaceutical firms. "We probably have eight or nine pharmaceutical companies that have contributed in various ways to the PHRI TB [tuberculosis] Center," says PHRI president Lewis M. Weinstein. Roche contracted PHRI "to assist in the late-stage -- but not clinical- testing of the [polymerase chain reaction] kit for tuberculosis [in 1993 to 1994]." Because of PHRI's position as one of the few laboratories equipped to work with antibiotic-resistant strains of bacteria, Weinstein expects that the institute will be able to secure additional pharmaceutical or biotech research contracts. He sees this incoming money as a means to "help us carry out the public-health aspects of our mission that need to be funded from non-traditional sources." Even manufacturing may be contracted out. Bristol-Myers Squibb Co.'s Technical Operations Division, in its Biotechnology Development Department in Syracuse, N.Y., is capable of manufacturing its products in its own plant, according to Tedd J. Collins IV, who is in charge of administration for the division. However, he says, "The only problem that we foresee is that with a lot of things in the early development pipeline, we can only develop a few in our own pilot plant." Collins is a molecular immunologist who also holds a doctorate in business administration and attends law school. His job at Bristol-Myers Squibb is to help decide what to do in-house and what to contract out to the 10 or 11 contract manufacturing organizations (CMOs) or biotechnology firms that have the expertise and production capacity. No matter how one looks at CROs, they are necessary for pharmaceutical development, and when they're good, they're excellent, observers say. "If you take the top CROs," explains Nilam, "they have just as good people as they have in the pharmaceutical industry." Friedhoff gives much of the credit to CROs for Eisai America's two successful Phase III clinical trials of its Alzheimer's disease drug, E2020. "To run two [trials] and to get them to work was, in large measure, due to the good support of our CRO for our internal team," he maintains. "We can have some of the best people in the world do some of our development," Spitler states. "In this way we can have the best gene cloners in the world clone a gene, for a limited time, accomplish that project, and move on." Weinstein recalls that at a recent biotech meeting, a pharmaceutical company executive said, "We understand that no matter how much research we do, most of the things that are important to us and our future are going to be done someplace else." Myrna E. Watanabe is a science writer based in Yonkers, N.Y.

Research-For-Hire Companies Proliferate

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