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Friday, May 15, 2009
Inside Stimulus & Recovery
Recession, stimulus bill open new doors for CROs
MHT's Efrain Viscarolasaga: How social networking is changing business
MHT's Marc Songini: Mass. bio firms prep for lifting of stem cell ban
How is the economic crisis affecting tech companies?
A fundamental shift is under way in how life sciences therapies are created and evaluated, and companies are altering how they do business to take advantage of it. Some of the winners may surprise you.
Legislators, practitioners and scientists are asking how to contain the soaring costs of health care while providing the best care. The $787 billion economic stimulus package provides for two prongs of inquiry — nearly $10 billion for academic research into new drugs, devices and surgeries for cancer and other illnesses and $1.1 billion to compare existing therapies to assess their effectiveness to treat specific conditions. These areas are subject to reporting and transparency standards as well as an increased focus on using funds efficiently.
Drugs, devices and therapies come to market by an intricate mechanism of discovery and development. A promising discovery is identified then refined and developed in a process that can include academic institutions, venture capital firms, small biotechs and big pharmaceutical or device firms. The current economic meltdown has forced the drug and device players to reevaluate how they function and refocus on an endpoint that achieves an effective and safe product in the most cost-efficient manner. Companies are closing and the survivors are tackling difficult restructuring and layoffs.
But the work still has to get done and outsourcing to third parties is increasingly important. Contract (or clinical) research organizations (CROs) have long been used for their expertise and cost efficiencies at the clinical stage of development but their preclinical use is increasing. Not direct beneficiaries of the stimulus package, CROs stand to gain because they offer comprehensive services at costs competitive with or under in-house work. Once thought of as secondary in importance, CROs are emerging as critical business partners and recognized experts in their fields.
Innovation is an acknowledged essential element to long-term economic recovery, but that doesn’t mean reinventing the wheel each time in a process an answer is needed. Venture capital is still available, but more judiciously disbursed and credit is harder to come by. Outfitting or upgrading labs as discovery or development progresses is a costly enterprise. CROs are often in a better position to invest in the newest technology by spreading the cost of leading edge equipment and materials across their sponsor base and not letting that extra capacity lie fallow — a cost sink even the best-run device or drug companies are prone to. They have experience in meeting precise regulatory requirements for clinical or pre-clinical work and use that expertise to further streamline their processes. Increasingly their state-of-the-art labs are manned with the same talent that used to hire them, addressing customer concerns for quality in the process. The new directive to compare existing therapies falls easily into the business of clinical research organizations.
More small companies are surviving by running virtually — reducing staff to senior executives only and outsourcing all work from proof of concept through clinical development — thereby extending the runway a company needs to get its drug or device off the ground. By reducing R&D costs, companies prove they are using investor or taxpayer monies wisely and aid in meeting the needs for greater accountability and transparency while ultimately lowering the cost of the final product.
CROs can be used strategically as well. They can perform additional directed research on a promising secondary direction while the sponsor company remains focused on its primary objective. Venture capital firms are using them to validate data before investing initial or secondary rounds.
Cost had been a key reason companies outsourced, giving offshore CROs an advantage. But the pendulum seems to be swinging back to the benefit of local companies who offer greater ease of communication and an immediate presence. Boutique CROs compete against price by consulting with the sponsor, collaborating on the science, and customizing their services to the sponsor’s precise needs. This scientific partnership gained importance as sponsors decreased discovery staff. Increasingly, larger CROs are adopting these practices, further increasing the benefits of external discovery to the sponsors. Larger CROs are expanding and deepening their services to provide a more comprehensive and integrated spectrum of services. By reducing the number of outsourcing relationships a company may need again translates directly to the bottom line.
Big pharmaceutical and device firms and biotechs are having layoffs and CROs are holding steady or growing, positioning themselves for winning in this down economy.
Connie Johnson Hambley is a principal with Steele Executive Search in Danvers, which specializes in pharmaceutical, biotech consulting and recruiting.
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