This report was originally written for Clinical Research Focus magazine, but remained unpublished while it was fresh. I’ve published it here to add it to my personal archives…
For over a decade, the “Partnerships in Clinical Trials” brand has been at the forefront of commercial conferences for the clinical research sector, focusing on issues around selection and use of CROs to conduct clinical trials. The event takes place in the USA, Europe and Asia/Pacific each year, and the 2012 conference took place in Hamburg last November. The conference attracted around 700 delegates and nearly 100 exhibitors to discuss the challenges and opportunities in working with commercial partners throughout clinical development.
This report presents of some of my personal highlights from the plenary sessions of the conference. A second article will focus on topics discussed in the parallel sessions.
Collaboration to drive innovation
I arrived mid-way through the opening plenary session, to see Emiliano Rial Verde of McKinsey speak about “Collaboration as a lever to drive innovation and productivity of clinical operations”. He commented that R&D spending in the pharmaceutical industry is typically receiving an internal rate of return (IRR) of 5-7%. While this might be an acceptable figure at the moment, he suggested that when the wider economy recovers, investors would be looking for substantially better returns and may look to other industries. However, he projected that in order to reach an IRR of 11-15% the industry would need to achieve the same output while spending as much as 50% less!
However, he cautioned against focusing too heavily on cost reduction rather than the potential to create additional value by collaborating better. Drawing on examples from the oil and movie industries, he suggested that networks of companies working together in more open, trusting relationships would be a good way to achieve this, and the complexity and high, increasing cost of the clinical operations sector make this an ideal space in which to explore this new way of working. Emiliano described a “ladder” of types of working relationship, from fixed unit costs through to full risk-sharing, but criticised many companies for simply looking to innovate around a single “rung”.
For a real long-term partnership, Emiliano said that both parties really need to commit to making it work, with more flexibility around working practices and an openness to learn from each other. The oversight process, in particular, should be re-invented to reduce the large pharma management overhead still in place for many trials conducted by CROs. Pharma should learn to let go a little and “be a good co-pilot”. In return, CROs should be prepared to trade-off some of their short term profit to earn longer-term trust, by increasing transparency over their own costs and productivity.
Conductors as leaders
In the final segment of the first plenary session, Itay Talgam of the Tel-Aviv Symphony Orchestra use examples from great orchestral conductors to inform leadership styles in business. He contrasted the “micro-management” of Riccardo Mutti with the welcoming vagueness of Herbert von Karajan before highlighting on the style of Carlos Kleiber, who has been routinely described as one of the conductors most admired by other conductors. His style centred on instilling a sense of the “emotional purpose” of the music in his orchestra and providing space for individuals to add their personal contributions, without losing control or ignoring details. While some “inspirational speakers” simply provide an interesting diversion to energise the audience, Talgam gave us some genuine tips on how we can become more effective leading our teams, from a perspective that many found more engaging than a simple “soft skills” course.
State of the CRO market
Michael Martorelli (Fairmount Partners) and Tim Wilcock (Leader Partners Ltd) both gave perspectives on the pharma outsourcing market from the financial sector. Michael contrasted the contract manufacturing sector, where M&A activity is high, with much lower levels of activity in clinical, where companies like Clinipace, Quintiles and Wuxi have been some of the most active. Quintiles were highlighted as having made five acquisitions in 2012, and he alluded to rumours of an IPO. Other noteworthy transactions included Piramel Healthcare’s acquisition of Decision Resources Group, Aligent Technologies buying Dako and particularly inVentiv, who recently added Pharmanet/i3 and Campbell Alliance to their portfolio of pharma marketing, communications and sales service companies.
The number of less familiar names on this list confirms Michael’s point about new players entering the sector, with a blending of clinical research and healthcare provision mirroring some of the ideas around pharma’s own evolution. Companies are expanding to avoid price-constrained segments and making “tuck-in” deals to get more business from existing customers.
Suggesting the sorts of companies who might be next to be acquired, Michael mentioned well-regarded providers of specialised services or operating in specific geographies, along with informatics companies, who are seen as being able to “close the loop” from treatment, through research to improved treatment. He also advised us to watch for some of the private equity firms that have entered the sector over the past few years looking to make an exit.
Looking forward, Michael sees more of the same:
- More tuck-in deals
- More M&As to expand into new geographies and specialist sectors
- More non-traditional buyers
- More combinations of research companies with healthcare provision companies
Tim Wilcock highlighted the “macroeconomic noise” confounding any analysis of this sector, from the US “fiscal time-bomb” to “basket-case” EU economies and slowing growth in the BRIC countries, all of which are increasing irrationality and volatility among investors. As a result, caution abounds, with companies hoarding cash and private equity investors struggling to find enough opportunities to invest.
Tim reported that the total pharma R&D spend was $135b in 2011 and projected to grow at 1.5% for the next few years. Of this, roughly $94b was spent on development, and $26b of that was outsourced. Nearly half of this development spending ($44b) is on Phase 2/3, and Tim estimated that roughly $11b of that is outsourced. Next he presented a chart of the leading CROs in the outsourced clinical research market, but with the caveat that many of these companies don’t publish financials, so outside the top five the figures may be less accurate. Overall, Tim predicted that the market would grow at 8.5% CAGR, reaching $41b by 2017.
Providing a counterpoint to what Michael had said earlier, Tim suggested that there would be some high profile transactions among the top-tier CROs in the coming year. He cited “informed sources” talking about a lot of background activity around a number of companies, and reiterated the rumour of a public flotation for Quintiles.
By contrast, the mid-segment of the CRO sector is ripe for consolidation, if only to maintain access to a client base that is also shifting. Small CROs could also attractive candidates for acquisition, particularly if they can provide specialist expertise to mid- or large-sized CROs looking to boost their own services.
Tim concluded his presentation by saying that unless you’re looking to buy into the top-tier, there are market opportunities around, and that there is plenty of scope for high quality organisations to outperform the (already relatively positive) growth predictions for the sector.
Profound changes in the outsourcing landscape
One of the highlights of any conference looking at the “big picture” of drug development is a plenary presentation from industry visionary and Centerwatch founder Ken Getz of the TuftsCenter for the Study of Drug Development. He started this presentation by highlighting the global economic downturn as a key point in driving strategic outsourcing, and pointed to a four-fold growth in the number of outsourcing companies between 2000 and 2010, and to the fact that since 2010 CROs have employed more R&D staff than the pharma companies they serve. The CRO sector is also growing faster than R&D in general, showing 13% growth compared with only 7% growth in pharma R&D spending.
By his analysis, the outsourcing landscape is 5x bigger than suggested by other analysts! This corresponds to 45-50% of total R&D spending, which is much higher than is commonly believed. This takes account of the full scope of outsourced activities, from applied research through non-clinical and clinical research to formulation and manufacturing, with consultancy, business development, distribution and related service areas along the way. His group calculated the 2011 global market size for all outsourced R&D to be $115b, with only 15% of this being clinical research.
There are distinct differences in the extent to which companies are outsourcing different types of activity, and what outsourcing models are used. Activities like study design and regulatory strategy are typically (80-85%) kept in-house with any outsourcing limited to specialist consultancies. Conversely, site selection, start-up and enrolment are mostly (70-80%) outsourced, with a mixture of alliances, functional service provider (FSP) and full outsourcing being used. However, the market is fragmented, with relatively few companies active in all of these sectors. Even when companies are outsourcing in all of these segments, it is rare to have the same preferred provider across functions.
There is scope for increased strategic partnerships or even consolidation between CROs, with a likely goal of offering a “soup to nuts” R&D service. He pointed to companies like Jubilant and Wuxi that are already well on the way to offering this in their local regions. According to a 2011 Centerwatch study, the 15 largest CROs do nearly 70% of their business using FSP or integrated alliance models, while smaller CROs do nearly 60% of their business as transactional service provision.
Ken proposed that only the large CROs can support integrated alliances, because of the investment required to support customised activities while also meeting pharma’s expectation of cost savings. These cost savings can be significant: in 2010 Pfizer consolidated 150 providers to just 17 and saved $20m, while in 2011 Lilly reduced costs by 20% and improved monthly patient enrolment volume by 93% by moving their monitoring and data management to a FSP model. Parexel also reported that FSP had enabled clients to reduce their management overhead by 60% compared with transactional services.
However, all is not rosy in the outsourced world. Ken presented data from the Avoca group, which showed that 22% of sponsors have terminated integrated alliances, with 16% reporting no cost savings and 17% seeing no reduction in cycle times.
Presenting an outlook for the next few years, Ken suggested that the major CROs will face higher fixed costs and declining margins. They will need to expand into higher margin service areas, or consider divesting divisions. They will need to increase control over their performance and efficiency, with significant investment required to provide innovative solutions. He highlighted eClinical, site performance and patient recruitment/retention as areas where several of the major CROs have already invested in platforms, such as ICON’s Iconik technology, Quintiles’ Prime Sites programme and PPD’s PatientView. Ken stated that more rapid adoption of technology is vital, as is the drive to reduce operating complexity, perhaps even by reducing the number of countries in which they operate.
Medium-sized CROs will be squeezed by a more competitive market for transactional services, and will need to make innovative partnerships with specialist providers or face consolidation as companies try to scale-up to reach the top tier.
Small CROs will tend to stay in the transactional mode but will be faced by a need to distinguish themselves as providers of specialist services. While they will work with smaller sponsors who may be unable to form integrated alliances with top-tier CROs, they will also rely increasingly on subcontracted relationships with larger CROs.
Ken closed his presentation with a glimpse of a new model for research, and a new opportunity for the CRO sector. Patient groups, particularly in the USA, are becoming more empowered and active to drive the research agenda, sponsoring research, designing studies, collecting medical information and using social media to raise awareness. For example, the Cystic Fibrosis Foundation Therapeutics has put $400m into research, while the National Multiple Sclerosis Society has provided $760m in funding.
10 years of transition
Taking a much broader look at the future of healthcare, Robert Lasser of PharmaNet/i3 spoke about how the current R&D model needs to change over the next 10 years. He highlighted that chronic disease is soaring, particularly in the developing world, and that the imbalance of treatment over prevention is not sustainable. However, in contrast, economic factors mean that policy-makers are setting more rules and looking to link payment more closely with performance, which continues to prioritise treatment over prevention. In addition, the boundaries within healthcare are blurring, with delivery of care becoming less separable from the treatment itself.
Global demographics plays a huge part of this. By 2022, there will be an additional 1b people needing healthcare, and 10% of the global population will be 65 or older. Polypharmacy is already a huge issue in the older population, with 40% routinely taking four or more medicines. More people living longer and continuing to be treated for chronic illness will place a huge burden on healthcare systems. In addition, people in developing countries are increasingly developing “western” conditions such as hypertension and diabetes. This represents a huge threat for healthcare payers, but also a huge opportunity for prevention to make huge savings: preventing 10% of diabetes cases could save India $3b (or even more if the cost of treatment gets closer to US levels).
Robert spoke about the changing face of healthcare delivery, with more complex diagnostics and even minor surgical procedures being conducted in primary care, and greater emphasis on web-based self-diagnosis and over-the-counter drugs for chronic conditions. This will make adherence to treatment more of a challenge, with healthcare providers needing to understand the behavioural disconnect that reduces the value of interventions.
He presented the current situation as a set of value chains, with pharma companies, healthcare providers and payers currently having relatively few shared motivations and metrics. Robert proposed a model where these value chains are much better aligned, linking risk-based steps for regulatory approval with electronic patient health records to track and report on disease management, and to inform payment policies. Outcomes data could be used to highlight patient risk factors and underpin the role of prevention, while the communication and brand management skills of pharma companies could also be used to better inform patients and increase adherence. This would result in a disease management package that be able to combine branded and generic medicines along with health analytics and involvement with research.
Robert went on to discuss the “live licensing” model proposed by PriceWaterhouseCoopers, in which an automated dataflow permits rapid access to the market with a limited license around Phase 2a, with data from all clinical use being collected and centralised to support extension to the license as better evidence is developed. This alters the traditional cost/revenue curve for a medicine, reducing time to market and initial costs, bringing forward the break-even point, and giving greater flexibility to capture value throughout the lifetime of a product.
In the final segment of his presentation, Robert discussed the different models for pharma/CRO collaboration, from preferred vendor status through alliances to full joint ventures. These more strategic, collaborative ways of working provide greater scope for value creation, but are more difficult relationships to create and maintain. To make them work, sponsors and service providers need to recognise the trade-offs they each need to make, adjusting their risk profile around staffing, pricing and the success of the product. He suggested that one way to make this work could be the creation of joint executive committee between sponsors and providers, to build and document the relationship beyond individual studies or products, to provide a pathway to resolve any issues that might arise, and to enable perceptions on both sides to equilibrate.
Putting patients at the heart of the trial
The final plenary presentation of the conference came from a man who has become known as “ePatient Dave”. Diagnosed in 2007 with renal cell carcinoma and given a median survival time of just 24 weeks, high-tech marketeer Dave deBronkart responded by seeking online resources to inform his treatment. Following surgery and participation in a HDIL-2 clinical trial, he has made a full recovery, and began blogging about the experience shortly afterwards. This prolific and engaging blog made him a leading light of the “e-Patient movement”, which highlights the power of patient engagement and enablement.
His powerful presentation (based on his very popular TED talk, available at http://on.ted.com/Dave) could be summed up as a call for industry to “let patients help heal healthcare”. Along with describing his own journey and some of the incredible people who contributed to his success, Dave called for greater emphasis on patient-centred outcomes, which are more closely related to the issues that patients themselves consider important. When viewed in these terms, specific side effects might be more tolerable, for example, if a treatment also preserves a key aspect of a patient’s independence. Similarly, to a patient with a progressive disease, Dave reminded us, time is everything, outweighing even certainty of a treatment effect if there is nothing else available. However, issues from study design to publication timelines increase delays until a treatment might be available. He also made a call for greater use of patient information to be used to underpin
Both educational and inspiring, Dave’s presentation gave a very different perspective to the day, and reminded everyone in the room that patients are the most underused resource in the whole of healthcare.