This month marks the 10-year anniversary of Contract Pharma. Congratulations to the staff and contributors for a job well done! Since Contract Pharma does such a good job of identifying what the drug development industry is doing and where it is going, I thought this milestone presented an opportunity to look back (and forward) at preclinical drug development. Before we go further, I need to state a couple disclaimers. Much of what I discuss below will be based on my own experiences, opinions and memories (at least those that I still recall). Because my entire career has been involved in preclinical drug development, I won’t even try to comment about clinical drug development. To do so would be a tremendous injustice to those who have devoted their careers to this vital research.

To our international readers, I really do try to think globally and to be respectful of our international audience when I write these articles. I try not to come across as an American who thinks that the U.S. is the center of the universe, but since some of what I will discuss below is based on my own experiences, I hope you will bear with me. As you will see later in the article, the globalization of drug development has emerged as a significant factor in the industry.

I have now worked in the preclinical drug development industry for more than 30 years. I started my career working in the toxicology facility at Wyeth Laboratories in suburban Philadelphia. Unemployment in the U.S. then seemed as bad as it is now. I remember feeling like the luckiest guy in the world because I landed a job at a pharmaceutical company and I had locked in a 12.5% interest rate on the mortgage on my first home! For a guy that grew up in a working class neighborhood, it seemed like I was set for life. Where I grew up, that was the mindset at the time. Grow up, go to college (or not), and try to land a job at a large company. If you did that, worked hard and were loyal to the company, you were virtually set for life . . . or so it seemed. That’s what our parents did. For me, I was – and still am – wired a bit differently. I like challenges. It is said that at one time, there were 10 pharmaceutical companies within a 50-mile radius of Philadelphia. I haven’t done the research to know the current situation but the region has always been popular with pharmaceutical and biotechnology companies.

As you can imagine, with so many pharmaceutical companies in close proximity, finding experienced scientists became a significant issue. After a few years, one of my Wyeth co-workers accepted a job with McNeil Pharmaceutical, a subsidiary of J&J, at its brand new facility in Philadelphia’s northern suburbs. Soon stories of higher salaries, on-site workout facilities and career advancement opportunities began to filter from McNeil to Wyeth. Shortly thereafter, I accepted a job offer from McNeil. In the interest of brevity, eight years after I joined McNeil, I departed to join Eli Lilly in central Indiana, where I worked for 13 years. Along this career journey, I learned a lot.

At Wyeth, I learned the technical aspects of preclinical toxicology. At McNeil, I learned about the fundamentals and the science of preclinical drug development as well as the aspects of regulatory compliance. At Lilly, there was even more learning: science, preclinical operations, the business of drug development, organizational management, and preclinical outsourcing. At each step, I had learning and career experiences that I would not have encountered elsewhere. Perhaps most importantly, I had the opportunity to learn from industry veterans at every company. The fact that I am able to work as an independent consultant in preclinical drug development today is directly attributable to the learning and mentoring that I received over the years from these colleagues. Everything that I learned from them is not taught in any school; there’s no book in the library; you can’t even Google what I learned. I was fortunate enough to learn from their experiences and, over the years, I added some of my own. So why am I sharing all of this with you? Because somewhere along the way, things changed.

The U.S. economy certainly changed. If I look back to those early days in my career, the economy eventually got better, then worse, then better, then worse, then unbelievably better, and then unbelievably worse . Hopefully, we are now starting another upswing. The drug development industry also changed along the way. Pricing pressures, Wall Street expectations, late stage failures of promising new drugs, and the endless search for new blockbusters contributed to these changes. That Wyeth toxicology facility in suburban Philadelphia no longer exists. Once the Pfizer acquisition is completed, it is possible that the Wyeth name and many of its remaining facilities will vanish. That beautiful McNeil facility that I mentioned earlier still exists but now portions of the complex are occupied by at least one other company. Just about this time last year, Lilly sold its preclinical facilities in Greenfield, IN to Covance. Many of the Lilly employees at that site are now Covance employees. As I write this article, Lilly just announced that it is cutting 5,500 jobs worldwide. Over the years, companies like Searle, Upjohn, Parke-Davis, and others all disappeared. In many cases, they were cobbled up by larger competitors. Many of my mentors, as well as other industry veterans, have either retired or moved on to other companies.

Over the years, the business of drug development also changed. Although it may have been unthinkable in the Pharma industry during the 1980’s, preclinical outsourcing has emerged as a key business strategy. Many, but not all, preclinical CROs have been able to maintain a level of quality and technical expertise that is equal to or better than what can be found in comparable operations in the Pharma industry. More importantly, some CROs have optimized their work processes so that final reports can be issued with the certainty of meeting a set deadline. The emergence of the preclinical CRO industry allowed Pharma companies to assess their R&D spending and consider the value of maintaining internal preclinical research operations. Many Pharma companies have opted not to expand internal capabilities and overflow work is directed to CROs. Other Pharma companies have made outsourcing a part of their preclinical drug development business strategy.

Consider what Lilly has done. Now all of its in vivo preclinical drug development is outsourced. Other Pharma companies have shut down preclinical research operations in favor of outsourcing. Some of these companies have even entered into reserved space or preferred provider agreements with CROs so that they will have sufficient capacity to manage their preclinical drug development portfolio. It seems that we are in the midst of a fundamental change, where preclinical drug development will increasingly be conducted by CROs and less so in Pharma’s own research facilities. The economics of drug development seem to be driving the industry in that direction. We are now seeing the emergence of preclinical CROs in India and China that are seeking to leverage their lower cost structures to lure business away from North American and European CROs.

Yes, we have seen lots of changes over the years. Change is good, or so we are told. I am a big advocate of change (especially if it isn’t happening to me). I embrace the changes that I initiate but I am not crazy about the unexpected changes that life sometimes sends in one’s direction. This happens whether you like it or not. There are thousands of people who lost their jobs in Pharma, Biopharma, and CROs who know how that feels. We are told that these layoffs were necessary for these companies to survive. So where does that leave us? When I look at where the industry was, where it is, and where I think it is going, I am left with the following observations:

1

I have a significant concern about the quality of future preclinical research which should come as no surprise because it seems like I raise this issue in almost every Contract Pharma column. Yes, I did acknowledge earlier that quality has significantly improved in some CROs over the years, but the pursuit of quality is a never-ending process. When Wall Street looks at Pharma companies, it assesses the quality of development pipelines and the revenue-generating projections of each potential new drug. Ask anyone in a Pharma company and they will tell you that quality comes first.

However, as more and more preclinical drug development is outsourced, Pharma and Biopharma companies are becoming increasingly dependent on CROs to provide quality research. When Wall Street or private investors assess the financial performance of CROs, what is most important to them is capacity utilization. Sure, everyone will give lip service that a CRO can’t stay in business if it doesn’t have adequate operational quality, but do you think that’s true? Recently we learned of horrible situations in the U.S. where passengers had to sit in airplanes on the tarmac at airports for hours in deplorable conditions due to weather delays and operational miscommunications. Do you really think that all of these passengers will never fly again? My point is that there is only a handful of high quality CROs in the industry. If a sponsor encounters a poor experience at one CRO, it can shift its business to another if sufficient capacity exists. But changing CRO partners is no small task and there is no guarantee that a sponsor will find better quality elsewhere. For those sponsors that entered into long-term agreements with CROs, they are pretty much stuck. During 2007 and the early part of 2008, the demand for preclinical outsourcing capacity was so great that even CROs with the worst reputations for quality were busy. The only leverage that a sponsor has on a CRO is its willingness to take work elsewhere.

2

Everything happens faster today. The emergence of the Internet and cell phones allows us to communicate more effectively and provides access to more information than in the past. The concept of loyalty to or from a company, if it did exist years ago, today seems to be a rapidly fading fixture in the industry. That actually may be a very positive change. We are now a more mobile and informed society. Just like it is now the exception when a baseball player spends his entire career with one team, the “job for life” concept is a thing of the past. With the planned or unplanned departure of industry veterans from the workforce, who will fill this experience void? If a Pharma company discovers a drug and a CRO conducts the preclinical research, where and when does the learning occur? I am increasingly concerned that we are seeing some CROs evolving more toward production facilities rather than valued scientific research partners. Even in the best sponsor-CRO relationship, things are not equal. If they have time, the sponsor may inform the CRO staff about the nature of the compound that is under development but this is not a uniform industry practice. On the other side of the relationship, the CRO staff work on multiple studies for multiple clients. It is hard and maybe even impossible for the CRO staff to develop any sense of ownership for a sponsor’s compound.

Is it possible that outsourcing will result in preclinical studies with less scientific integrity? I don’t know the answer to that but I do know a lot of consultants that spend a lot of time working with CROs on data interpretation and reviewing final reports. Can the same institutional learning that was so prevalent in the Pharma industry occur in CROs when the primary goal – revenue generation – is based on capacity utilization and not scientific integrity? Outsourcing is a wonderful business strategy, but if both parties are not actively engaged in the outsourcing relationship the outcome could suffer.

3

One bit of evidence that supports the concerns that I stated above is how the executive management at some CROs talk about their companies. Claims to being the best and/or largest CRO in the industry are just ridiculous and they demonstrate how little these individuals understand the industry. There is a difference between vision and reality. Every company strives or should strive to be the best, but industry veterans understand that preclinical CROs must earn that reputation, not declare it. A preclinical operation is only as good as its accomplishments on any one day. Once a new day begins, all of the preclinical CROs are equal again. Regarding claims regarding the comparable sizes of CROs, let me just say that facility square footage and revenue don’t automatically equate to a reputable operation. Listen more and talk less.

4

One of the biggest sponsor concerns in the industry is complacency. Sponsors that were made to feel so special when they were being wooed by a CRO business development team are disappointed to learn that the CRO operations don’t share the same passion for their projects. For sponsors that aren’t tied into long-term agreements, this is one of the primary reasons why they take their work elsewhere. Preclinical CROs are in business to make money. They make money by conducting contract research for Pharma and Biopharma companies. Quality research includes scientific integrity, technical competence, regulatory compliance, data interpretation, and so much more. My concern now and for the future is whether preclinical CROs are able to manage their revenue generation and contract research activities. Sponsors need to feel confident that these activities are in balance and not in conflict. Some CROs do this exceptionally well and some don’t.

5

We are now seeing preclinical CROs in the emerging markets of India or China. These CROs will face the same challenges and will be subject to the same concerns that I expressed above. For sponsors based outside of these markets, there will likely be cultural, language, and business practice hurdles that will need to be addressed. I really don’t think that these will be insurmountable issues, as long as sponsor and CRO management teams remember that there is more to preclinical research than the allure of low prices.

The industry has changed over the years and it appears that preclinical outsourcing will only continue to grow. It is highly unlikely that we will ever see a trend away from preclinical outsourcing. The size of Pharma drug development pipelines and the economics of maintaining internal preclinical operations are key reasons why outsourcing is here to stay.

Despite all of the concerns that I expressed above, I am actually an advocate of preclinical outsourcing. In most cases, the technical proficiency at preclinical CROs far exceeds that in Pharma and Biopharma companies due to the sheer volume and repetitive nature of the work. Most CROs have well defined work processes that, if followed, significantly increase the likelihood of a successful outsourcing experience. Many CROs can deliver final reports within a designated timeframe, which is unthinkable in some Pharma companies. For small sponsor companies, CROs can help to guide the continued development of potential new drugs.

As I look back over my years in drug development, the industry has changed, company names have changed, business strategies have changed, and even I have changed. Things will continue to change. That is life and I think most people would acknowledge that. While everything else is changing in the world around us, let’s just make sure that the high standards for quality and scientific integrity in drug development never change.

Steve Snyder is a consultant with more than 25 years of experience in preclinical toxicology as an outsourcing customer and provider.