Things have changed. In the U.S., we have seen the negative impact of a poor economy in the real estate market, the auto industry, and overall employment. It is said that things are slowly improving. I think everyone would acknowledge that the preclinical outsourcing industry was also impacted by the economy in 2009. Customer demand was low as pharma and biopharma companies shifted funding to later stage projects. The CRO industry was left with an abundance of unused capacity and pricing softened as these companies attempted to lure clients. Customer demand seems to be slowly improving in this area. Many CROs report increased bid volume and some smaller CROs have actually filled much of their capacity while others are still struggling to get study commitments. As sponsor companies resume or increase their volume of preclinical outsourcing, it is important to be aware that there are new, important considerations for successful outsourcing experiences. During the past year, economic pressures have resulted in some significant changes in the preclinical outsourcing industry that require renewed diligence by sponsors. Consider the following factors.

CRO Management Changes

Several preclinical CROs have experienced the departure of key individuals in their operational management structure. As a sponsor, you need to determine if this has happened at your preclinical CRO. The operational management keeps oversight of all business strategies: CRO processes, personnel, workload, and just about everything else. They keep all parts of the organization functioning in unison. The loss of experienced operational management may seem inconsequential initially but can lead to an unraveling of the processes and safeguards that help to ensure the quality of your outsourcing experience. What’s worse, if the CRO workers had allegiance to the departed operational management, you could begin to see the attrition of skilled personnel that conduct your study. Since employees usually keep decisions to change jobs quiet, it is unlikely that a CRO will know that it will have attrition until it occurs. Still, it is important to ask your CRO about recent personnel changes. Perhaps more importantly, sponsors should try to network with the informal industry grapevine discussions. Many times, key CRO personnel moves are discussed before they are known in the sponsor community. If a CRO has encountered significant management changes, sponsors need to determine if their acceptance criteria for using that CRO are still valid.

Departure of Key Scientific Personnel

Many scientists enjoy their roles in CROs because they are able to focus on science and not on administrative or managerial duties. Their management has allowed them to function in their niche. As mentioned above, when key management individuals leave a CRO, some scientists could view that their ideal work environments could be disrupted. If the opportunity exists, some scientists may be tempted to follow departed managers to new CROs. In other cases, the impact of a poor economy may drive other scientists to seek better pay, work conditions, and/or responsibilities at other CROs. As we discussed extensively in this space last year, the impact of layoffs at CROs could result in lesser experienced scientists in charge of conducting more studies than in the past. Regardless of the reason, as a sponsor, the last thing that you want is to award your studies to a CRO only to learn that the scientist that you entrusted this work to is no longer with the company. Be aware that CROs generally do not disclose the departure of key scientific staff until they are asked as it wouldn’t be good business for them. Sponsors should not assume that just because they have relationships with CROs that they will not be impacted by this concern. In the first few months of 2010, some key scientists have left the CROs that had benefitted from their expertise. There are numerous discussions in the industry grapevine about other potential departures or scientists actively looking for opportunities elsewhere.

Changing or Missing Capabilities

Some scientists at preclinical CROs may have such significant expertise that their departure may limit that CRO’s ability to effectively deliver a certain capability. Unfortunately, economic conditions have impacted some CROs so significantly that many are very anxious about acquiring your business.

In these cases, sponsors need to be sure that the CRO has appropriately experienced staff to successfully complete their study even if they have worked with the same CRO for several years. The last thing you want to happen is to commit your work to a CRO only to learn that they lack the expertise to conduct your study. You wouldn’t think that this could happen, but unplanned departures and/or misguided layoffs can change a CRO’s capabilities.

Unplanned Costs

If you have ever worked with a builder to construct a house, you are probably familiar with the “change order.” Once you sign a contract and construction begins on your house, any changes from your original building contract will require a change order. A change order generally means that you will pay additional money to implement that change. You should know that a similar practice exists in preclinical outsourcing. Once you sign the study protocol, significant changes to the study design will usually cost additional money. Sponsors can avoid unplanned charges by being as prepared as possible in the finalization of the study design before signing the study protocol. In the interest of time, some sponsors will sign a study protocol to expedite the initiation of the study knowing that they will amend in more study details at a future date. If your company follows this practice, just be aware that your last-minute additions to the study could come at an additional expense. If you are a sponsor seeking support from a CRO in the design of a study, take the time to make sure that the study design is consistent with your goal for that study. You don’t want to be paying for unnecessary analyses and testing. Remember, one sign of a credible CRO is when it has valid reasons to advise you to do less on your study, not more.

As a sponsor, it is your responsibility to keep your study costs under control. I keep hearing stories of clients angry that the actual cost of their studies increased significantly due to changes in the study design. Understand that no matter how friendly your relationship is with the CRO staff, changes to the study design cost money and you will be charged, more often than not. Unexpected study findings can often lead to the need to perform additional assays. These will cost money. That’s the way the CRO business works. If you are a repeat client and not considered by the CRO to be “high maintenance,” the CRO may be willing to work with you. In the end, it is important to understand that there are limits to the relationship that you have with the CRO. They need to make money, so your preparation is the key to limiting your angst about additional costs.

Recent Regulatory Activity

Sponsors should always ask for updates regarding recent regulatory activity at their CRO partners. Some CROs don’t readily share this information so it is incumbent on the sponsor to ask. Especially as CROs begin to emerge from difficult economic times, you want to make sure that cost-cutting initiatives have not adversely impacted your CRO’s abilities to maintain regulatory compliance.

Mergers & Acquisitions

We recently learned that Ricerca had acquired some of the assets of MDS that will ultimately expand and complement its existing preclinical capabilities. It is rumored that other preclinical CROs may be considering mergers or acquisitions. These business deals exist in all industries. As a sponsor, it is important that you remain aware of the latest talk of potential M&A. These transactions can increase anxiety among CRO workers, thereby creating the potential for less oversight on study activities. Although potential deals are never discussed until an agreement is reached, it is important to understand who will manage the new business entity. Over the years, there are several examples of CROs that were acquired where the new management teams were not effective in guiding the operations. In these situations some sponsors later realized the impact of this inexperience. Even though there is nothing to stop these business deals, sponsors should consider increasing their oversight of CRO activities when these transactions occur.

Emerging Markets

The emergence of CROs in Asian markets were intended to offer preclinical research to pharma and biopharma companies at a fraction of the cost when compared to the North American and European CROs. From multiple accounts, the establishment of CRO operations in the Asian market is still a work in progress. Several CROs in China have elected to either hire and/or relocate North American scientists and managers to assist in operational oversight. Sponsors with an interest in placing work at these CROs need to determine not only if the quality of the work is equivalent to what can be found in other markets but if potential language and cultural issues have been addressed to their satisfaction. It has also been said that the savings that can be realized by placing work at preclinical CROs in Asia is shrinking as these companies incur the increased cost of developing and maintaining these operations. As with any preclinical CRO, sponsors need to do their due diligence before awarding their work and not let the allure of saving money cloud their business decisions.

Investor Oversight

This information is hard to determine but it is important to figure out who is behind financial decisions at CROs. Obviously, publicly held CROs are accountable to their investors and are impacted by the opinions of market analysts. It is in the best interest of management at these companies that they keep these groups happy as long as their strategic decisions don’t adversely impact your study. Perhaps what is more intriguing is the degree of involvement of investors in privately-held companies. Are investors in these companies actively involved in strategic decisions or not? Over the past few years, I can think of examples where investor decisions have either helped or harmed operations at preclinical CROs. As I mentioned above regarding the importance of understanding the status of the management at preclinical CROs, it is also important to understand who makes the strategic financial decisions.

In this issue, we discussed some of the steps that sponsors can take to increase the likelihood of successful preclinical outsourcing experiences. If you are a sponsor and you feel that you already addressed these points in the past, you need to stop and think again. I wrote this column especially for those who believe that they have well-established preclinical outsourcing processes and relationships. From my perspective, the preclinical CRO business changed during the past 18 months. Outsourcing decisions that were formed in the past may not be valid today, based on what I described above. A little more due diligence now may prevent some headaches later.

Steve Snyder is a consultant with more than 25 years of experience in preclinical toxicology as an outsourcing customer and provider. He can be contacted at [email protected].