Mr James M Mash Chief Executive Officer, Asia Global Research, Thailand
 Aug 2010: The Contract Research Organization (CRO) industry began in the late 1980s with researchers from pharmaceutical companies leaving those companies and creating trial management organizations. They saw that their former employers were burdened with major costs created by many layers of personnel and unwieldy bureaucracy. The CRO concept for service was simply the small specialized companies who could conduct a trial quicker and for less money than the giant multinational firm.
Prior to 1990, about seven CROs in the US existed. All founded by former pharmaceutical R&D personnel. Most of these founders had expertise in one therapeutic area or specific support skills. Therefore, the companies they build focused on a specific service in which their reputation was sourced. For example, there were firms that focused on statistical and data management services. Others do not have statistics and data management, but focused on monitoring with project managers and CRAs recruited from the industry. Others focused on regulatory and so forth. The territory of opportunity was the US as virtually all trials were conducted there.
Why CROs
At the time the CRO industry was birthing, the question on the mind of the medical director was why should I trust my compound and my job to a small unproven group? The answer to his question and the decision came from several sources. One, the reputation of the company’s founder for getting drugs approved at his or her previous company. Two, the experience of the team assembled to conduct the study both from a scientific and a logistics point. If those answers satisfied the medical director, the project was given out.
As I was once told by the director of dermatology at a major company "If you can assemble seven qualified professionals to run my project, I will consider you". The concept of contract administrator and outsourcing department did not exist. If multiple proposals were taken, it was only because the medical director had more than one friend in the business.
Once the project was given to a CRO, the members of the CRO and sponsor worked closely together to ensure the project was properly conducted. Everyone involved wanted the project to run smoothly and produce the results the sponsor desired. Disastrous results could occur if a project was given to a group whose expertise did not match that required by the study.
For example, a Chicago-based sponsor chose a group to conduct a full service clinical trial for a major compound, and the group selected had expertise only in statistics and data management. Although the sponsor retained its choice of CROs, both the CRO and the sponsor suffered a loss of time and money on the project. The CRO was almost destroyed and the sponsor had several personnel changes.
In the early days of the CRO industry pharmaceutical companies were fully integrated. They performed discovery, development, approvals, launch, sales and post marketing work, and only relied upon the CROs for clinical trial management. Consequently, the CROs found their financial projections consist of many peaks and valleys. Furthermore, the CROs found that they required invested funds to purchase the systems and programs needed to conduct the service according to the requirements of sponsors. Sponsors were becoming more demanding of the CROs for expanded service offerings.
Sponsors discovered that it made economic sense for them to off-load those components of the business which devoured large amounts of their capital, such as phase I units, clinical operations employees, statistical groups, clinical laboratory units. The pharma companies began to focus on discovery and marketing. They looked for the CROs to perform the rest.
The CROs now had to build facilities to perform the required services. To adequately fund the expansion, the industry turned to the financial market. What was once a few privately-held companies were now becoming publicly traded institutions? The industry itself grew and the small number of companies which grew from the quality of work economically performed now numbered in the hundreds, all competing for the work of a finite number of pharmaceutical companies.
A boost in potential business came in the 90s by the IPs from academic centers in the form of the biotech industry. Biotech companies were to hold the magic bullet for untreatable diseases, and billions of dollars were poured into it. These companies in their nascent stages did not require the same type of services like the well developed pharma companies; however, they did require regulatory and other assistance. These groups of companies soon after were requiring the same type of development programs as their brothers in the pharma group. Now, there was a potential client of the CROs who had one product and limited funds. The smaller CROs were able to service this market and made many one product companies into a multi-product global operation. The major CROs saw this market as one they could participate in the development of the product and reap rewards when the marketed product appeared.
The capital markets are a great avenue for the entrepreneur to become wealthy and to make substantial money for many members of his or her company. To be successful the founder must make sure their company meets the expectations and forecast of the analysts. That means the time that was once spent to ensure those qualities; speed, flexibility, quality and economy; was now focused on making the financial numbers required to keep the stock price up and growing.
One of the ways to maintain the market valuations is through acquisitions. The CROs saw this and begun acquiring other CROs, labs, informatics companies. This consolidation was also spurned by the requirements of the pharma/biotech to now conduct global trials. No longer was the territory only the US.
Birth of contract managment departments
About the same time as this expansion of the publicly traded CROs was taking place, the pharma/biotech companies realized the vast sum of money which was being spent on the CROs and controls should be put in place to manage these contracts. The contract management departments were born. No longer did the medical director or his staff make the decision as to who they would use for their study. A group of "professional contract managers" would evaluate the potential vendors as they would the supplier of toilet paper. These professionals soon discovered that the field of vendors was very large indeed. To simplify their jobs, they created the concept of the preferred provider. Since the major CROs were now global, the contract management group could select only one or two preferred providers and place a complete global study.
However, the small CRO founded in the 1990s had now become a multi-national publicly traded company employing thousands of employees. The original 100 person firm now has many buildings housing labs, systems people and of course corporate jets. The preferred providers now look just like the pharma/biotech companies they provide services to. No surprise, the same problems that plagued the sponsors when they originally decided to hire CROs now infest the major CROs. Bureaucracy has taken over, decisions are slow, flexibility gone and the cost for the service is now equal to or greater than the cost of conducting the trial internally by the sponsor.
Sponsors are now once again looking for quality work, performed with speed and flexibility for a reasonable price. Recently, a global pharmaceutical company made the decision to terminate its association with one global CRO for lack of quality and another for unacceptable pricing. It is time for the pharma/biotech companies to once more look for the small companies to provide those qualities in study management which created the CRO industry.
Case study
The use of a small CRO to meet the expectations of a sponsor can be shown in this example. AGR is a small CRO based in Thailand and covering the countries of Southeast Asia. A small French biotech company had several phase III trials to conduct and was looking for a location and company to partner with. The sponsor was looking for CRO, in the words of its CEO/founder, who can perform quickly, economically with high quality. AGR has been able to proceed through the submission process for EC approvals in a time of only 45 days. The company has a monitoring trip cost of $450 per day versus a major CRO charging up to $1,500 per day. Flexibility in conducting the project has been demonstrated many times by AGR as the sponsor has had several changes in the study approach. At this point the enrollment has been initiated for the first project and because of the successful cooperation between the sponsor and AGR. AGR has now been given three additional projects.
| Mr James M Mash has over twenty years of experience in clinical research management and related industries. He has founded three successful contract research organizations with global operations in the US. |
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