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Biotechs Question if CROs Are Better, Faster, Cheaper

By Trista Morrison

Biotech has become increasingly virtual over the last few years, and several recent studies and surveys indicate the trend is likely to continue, particularly when it comes to outsourcing of research and development.

Yet some biotechs are grumbling about the high fixed costs inherent in the current contract research organization (CRO) model, while others complain about the quality of outsourced work. When Spectrum Pharmaceuticals Inc. acquired Allos Therapeutics Inc. last month, the former emphasized that it saves money with a do-it-yourself approach to clinical research rather than using CROs, and it expects to realize some synergies by cutting Allos's CROs. (See BioWorld Today, April 6, 2012.)

Chip Gillooly, global vice president of corporate development at CRO Quintiles Transnational Corp., confirmed that "these sorts of discussions are taking place, particularly with smaller cap companies." Fundraising difficulties have led some public and private biotechs to become "maniacally focused on clinical development costs," Gillooly said. And their analyses are showing that outsourcing isn't always the cheapest route.

Better, Faster . . . Cheaper?

When it comes to global Phase III programs, outsourcing is a given. Even huge multinational pharma firms recognize that a CRO can more efficiently deliver a Phase III program than they can internally, Gillooly said.

But when it comes to smaller trials, "I would not be surprised to find that outsourcing is marginally more expensive," said Glen Giovannetti, global biotechnology leader at Ernst & Young.

While it might be less expensive for a small biotech to hire a clinical director and a few other key positions than to pay for a CRO, the trick is flexibility, Giovannetti explained. It's difficult to maximize use of all clinical personnel while the company is waiting for the trial to start, and if something goes wrong, it's easier to cancel a CRO contract than fire employees.

Gillooly agreed. He acknowledged that companies can often save on direct labor costs by bringing smaller clinical trials in house, but he warned that total costs are often higher. "We caution [biotechs] not to be penny-wise and pound-foolish," he said.

Solomon Babani, vice president of alliance management at Celtic Therapeutics Development, said the value a company gets from outsourcing often depends on how tightly managed the firm's internal resources are. Some pharma companies overstaff internally so they can micromanage their CROs, he said, for example, hiring their own data manager to oversee the CRO's data manager or their own statistician to oversee the CRO's statistician, and so on. Eventually they "get frustrated" that they're spending money internally and externally on the same functions and decide to bring everything in-house, Babani said.

The approach that has worked well for Celtic, Babani explained, is to use a single in-house global project leader to work with the project manager at the CRO, who in turn manages all the CRO line functions supporting a given project. He noted that CRO project managers are increasingly capable of functioning with less oversight, particularly as CROs hire the R&D experts big pharma is laying off.

Faster, Cheaper . . . Better?

The flip side of less oversight, however, is less control over quality.

"That's a big challenge for the industry right now," Babani said. The FDA has recognized that drug makers are heavily outsourcing their trials and wants to see more oversight, he said, "but if you are virtual, how do you demonstrate oversight?"

Several recent CRO-related scandals have catapulted clinical trial quality into the spotlight, including a Dateline NBC special on the clinical trial industry in India and the FDA's investigation into Cetero Research faking clinical data.

Gillooly said most biotech boards recognize there are good eggs and bad eggs in the CRO business, as in any other. "When you engage with a company that's been around for 30 years, part of what you're paying for is competency," he said. "Most folks are willing to pay the price to make sure their asset is properly cared for." But. he added that clinical directors at small biotechs who are desperately trying to manage a small budget face some "conflicting pressures" on that front.

Babani said there is an "acute focus right now on how to measure and maintain quality within clinical trials." He expects technology will lead to creative solutions, but said the industry is just at the beginning of that trend.

Brave New World

Recognition of the need to improve the cost structure and quality of clinical trials has led to what Gillooly calls "a brave new world" in clinical research – one that is "dramatically different today than it was five years ago, or even 24 months ago."

Big pharma is re-evaluating the way it handles early stage clinical trials on several levels. Eli Lilly and Co.'s Chorus, which was formed in 2002 to more efficiently move early stage compounds to proof of concept, was successful with a model that created an internal, virtual firm to manage outsourced projects. Several newer biotechs have since adopted the model, including Chorus spin-off Flexion Therapeutics. (See BioWorld Today, February 1, 2010.)

Other big pharmas have shifted large portions of their research and development business to a CRO, seeking to reduce headcount and lower fixed costs ahead of the patent cliff.

Giovannetti said many big pharmas are also looking for efficiencies through standardization in the clinical trial process, and they're trying to figure out how to work together in a precompetitive way so that every clinical trial doesn't have to be created from scratch every time.

"The reality is that this is not an efficient process," Gillooly said. It's heavily regulated, immensely complicated, and built around business models that were not focused on efficiency. CRO clients are now "forcing us to find ways to be more efficient," something Gillooly said is a good evolutionary process. "Like a lot of industries, we are in midst of rebuilding our business models," he said, "but I do believe CROs have role to play in new environment."