Contract research on the rise

The global economic crisis has got most businesses pinching pennies just to stay afloat, and the drug development industry is no exception. But at least one area of the biotechnology sector -- contract research organizations (CROs) -- is on the rise.

CROs first showed up in the biotech industry in the late 1970s and quickly took on a significant role in research and development (R&D), eventually expanding from drug discovery and preclinical work to clinical trials, drug manufacturing, and even marketing.

According to a 2005 Thomson CenterWatch survey, the $15 billion CRO industry was growing at a rate of 12% each year, but data from the past two years show a substantially higher annual growth rate of nearly 17%. In 2007, of the approximately $60 billion biotech and pharmaceutical companies spent on drug
development, $15 billion (25%) was outsourced. Last year, despite the economic recession, the CRO market grew to nearly $20 billion -- 29% of the $74 billion drug development budget.

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The number and depth of the connections between CROs and drug developers has grown so much, they now have their own match-making website. Last October, serial biotech entrepreneur Jae Chung started what he expected to be a simple drug development directory. Now, just three months after its late April launch, goBalto boasts more than 7000 companies and consultants, including 2,200 CROs, all of which can be searched and rated by one another. With a couple of hundred companies and consultants adding themselves each week,
"we're one of the fastest growing professional networking sites," Chung said. Finding partnerships, which used to take four to six weeks, can now take as little as two days, he claimed.

The types of partnerships that CROs make are also changing. While pharmaceutical companies used to  contract work on single projects, explained Quintiles Transnational Corp. Executive Vice President Ronald Wooten, they're now outsourcing entire programs. "The CRO really becomes a permanent supplier of certain functions." Indeed, concurred John Watson, the President of Strategic Partnering and Integrated Drug Development Group at Covance, "with all the [recent budgetary] pressure that the larger pharmaceutical companies are under, there's been a shift to more strategic outsourcing" where CROs are no longer mere service providers, but full service collaborators.

"In turbulent economic times, clients have a greater need particularly for advisory services," Josef von Rickenbach, Chairman and CEO of PAREXEL International, agreed in an email. Some CROs are even stepping in to help make starting new biotech and pharma projects a safer endeavor -- Quintiles, for example, now co-invests in some projects with their clients so as to reduce the financial risk of any single program.

More integrated partnerships can shorten the time it takes to develop new drugs, and at an average of $2 million in lost revenue per day, significantly lower costs as well. Covance, for example, claims that their services can cut the time for preclinical testing by more than half.

In addition, such dynamic partnerships serve to keep fixed costs low and "relieve [biotech and pharmaceutical companies] of the burdens and overheads of process management so they can focus on the medical, scientific, and regulatory aspects of drug development," Wooten explained. "It's all about the pharma companies wanting to be more virtual and more variable," Wooten said. For smaller biotech companies, virtuality is nothing new, but the virtual business is certainly becoming more popular during these times of economic budget crunching. Zafgen Inc., for example, an early phase biotech company focused
on developing new therapies for obesity, recently switched to outsourcing 100% of their work, including not just the drug development projects, but human resources, legal, and communication functions as well. This shift involved a staff cut of more than 50%, as well as a move to cheaper office space with no laboratories and the selling of their lab equipment. "We should all be careful about every dime we spend in biotech," said Tom Hughes, the company's president and CEO.

Despite the economic motivation for this recent restructuring, Hughes believes in enlisting the help of CROs where possible even in more lucrative times. "It's a great way to get some extra brains on the problem," he said. "There's a wealth of expertise out there that you can tap into that you would never be able to develop yourself."

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The current CRO boom is not limited to United States. In China, in particular, the market seems to be accelerating even more rapidly. "From the end of 2007 to now, [during] the recession period globally, we do see the growth in China is stronger," said Jenny Zhang, a North America-based business development director for the Chinese company Tigermed Consulting Ltd. In addition to the big, international pharmaceutical companies setting up R&D centers in Asia, China's domestic drug companies are growing as well.

In both cases, Zhang said, this growth stems primarily from a cost advantage to doing business in China, both in physician salaries and healthcare costs, as well as what she calls the "patient advantage." In the US, patients -- especially those with health insurance -- are reluctant to participate in clinical trials. "In China," she said, "we have 1.3 billion people, [most of whom] don't have good access to the health care system." Participating in a study is often their best chance for treatment.

Both domestically and internationally, the CRO market is rapidly expanding, and while the recent economic depression may have instigated this change, outsourcing in biopharma is increasingly becoming the new way of doing business. Even when the economy bounces back, Wooten doesn't predict a reversal of this trend. If anything, he said, "I see an acceleration of it."

Source: The Scientist - Posted by Jef Akst