What is a CRO?
Contract research organizations, or CROs, provide contracted research services to the pharmaceutical, biotechnology, medical device, and government research industries. CROs provide cost savings, accelerated development timelines, and reduced risk.
They offer a wide variety of services, including, but not limited to, clinical trial research, data management, biopharmaceutical development, service-type commercialization, assay development, regulation adherence, and general assistance with the pursuit of drug discovery. They can also perform critical services that companies may not do in-house, including chemistry expertise, formulation help, clinical studies, regulatory help, and marketing.
CROs have been around for decades, first emerging in the 1940s and 1950s with Huntingdon Life Sciences (now under the umbrella of Envigo International, Inc.) and Charles River Laboratories.
Venture capitalist Bruce Booth wrote in Life Sci VC in 2011 that things were changing with CROs, which had historically been “sleepy fee-for-service partners for the drug industry, widely disregarded as not innovative, and their scientists certainly not treated with the same professional respect as their counterparts in Pharma R&D.” CROs were stepping up as “important change-makers in the life science ecosystem.”
Booth listed what he called “an impressive number and scale of the strategic deals with Pharma” that were being made at the time, including Pfizer, which had already broken up its chemistry teams into “designer chemists” vs. “synthetic chemists,” with the latter team being split between existing sites and offshore CROs like WuXi.
CROs are a valuable resource as they are “quick to adopt the latest technologies, enabling them to provide unique insights and advice, spotting novel and distinctive ways of using these advanced tools and adapting them to each sponsor's needs.” Some CROs even have unique technology offerings, such as the global CRO, ICON, which developed technologies like PDx-Pop to accelerate the process of population pharmacokinetic modeling and analysis.
What is driving the CRO market today, and how might it evolve in the coming years?
Which companies are at the top of the list of players in the CRO market depends on the type of science they represent (e.g., life science, chemistry, material science). CROs are also typically segmented into discovery, preclinical, clinical, and laboratory services.
By 2021, there were over a thousand CROs worldwide, contributing to an estimated $53.2 billion market. Some 4,250 of those businesses are in the US today—the bulk of which are in California (3,855), Massachusetts (1,202), and Texas (950)—IBISWorld reports. The prominent players are IQVIA, LabCorp, Charles River Laboratories, WuXi AppTec, Syneos Health, Parexel International, PPD, and ICON Plc. Markets and Markets writes that globally, CROs are expected to expand by a compound annual growth rate (CAGR) of 6.5% to reach $64.4 billion by 2027.
Major factors that are expected to drive the market in coming years include growing R&D expenditures, an increasing number of clinical trials, the rising demand for biopharmaceuticals, and opportunities from emerging markets. According to BioPharm International, the growth in the CRO market can be attributed to industry players’ willingness to outsource more of their “value chain.” Additionally, the “advent of personalized medicine and the development of complex gene therapies have led to greater specialization by smaller CROs.”
The COVID-19 pandemic has only served to grow the CRO market. The latest advances in the pharmaceutical industry and the clinical successes during the pandemic would not have been possible without the help of CROs. Vast resources were shared, like those between IQVIA and Janssen Research & Development on their investigational COVID-19 vaccine trials. Here, Johnson & Johnson leveraged IQVIA’s virtual trial solutions for COVID-19 vaccine trials.
Determining if a CRO is best
CRO, Quanticate, says converting normal fixed costs to variable costs saves money. “Instead of using capital to employ underutilized resources (and the facilities needed to support them as a fixed asset), you can employ a variable cost for the functional service when you need it.”
They suggest considering the following items when determining the difference between the true cost of the outsourced service versus a company’s internal costs:
- Hourly wage
- Federal income taxes
- State or provincial income taxes
- Local or city income taxes
The following are some overhead, general and administrative (G&A) costs that impact total internal costs:
- Legal services
- Accounting services
- Marketing services
- Sales services
- Executive management
- Facility costs
- IT costs
- R&D costs
- Human Resources (HR)
- Quality Assurance
Other costs Quanticate recommends considering include:
- The amount of time needed to complete the needed task.
- The management scale (i.e., project or alliance manager) and time required to manage resources when issues arise. (It is not unusual for a CRO to have one project manager for multiple projects, whereas the sponsor company may have one for each project.)
- The support services needed to bring additional resources on board, such as IT and the facilities they require.
- The time and cost involved in recruiting and hiring personnel.
- Utilization costs or costs of carrying essential employees who are not needed all of the time. For example, it can be expensive to employ a full-time statistician that is only needed at the beginning of a study to create tables to be used and then at the end to analyze the data collected.
Selecting a CRO
Selecting the right CRO is critical, as each company’s expertise varies. Consider the following when selecting a CRO:
- Determine which CROs provide the services or range of services you require. This can be done with a Request for Information (RFI). When you’ve narrowed your list down to 3-5 candidates, you can send those a Request for Proposal (RFP). A draft protocol offering insight into your expectations should be included.
- Assess the company’s experience and track record in your area of study. Assess the level of accountability and ownership of the CRO. How has the CRO addressed challenges with other companies? Is the CRO invested in your work? Will they treat it with the same care that you would?
- Consider the CRO’s financial stability.
- Evaluate the quality and service expertise for the proposed scope of work. This can include simply being wary of extremely high or low bids. A high bid does not always mean more experience or higher quality. Conversely, a low bid could indicate that the CRO has underestimated the resources required for the project or the true scope of the mission.
- Evaluate the company’s staff in terms of quantity and quality and how it will support the scope of your project.
- Assess the CRO’s facilities, processes, and systems in light of project requirements. This can include software and organization, document management, and compliance standards.
- Establish an effective governance structure between parties, including allocating roles and proper escalation procedures.
- Determine how to monitor success and set performance indicators.
- Consider expectations of transparency. Do you require full visibility of all steps and progress from the CRO or access into their systems? Knowing what is happening in real-time can add value when a sponsor must keep track of multiple CROs or when they are asked for additional resources.
Paying for a CRO
When hiring a CRO, Darlene Panzitta, president of DSP Clinical Research, is an outspoken advocate of the fixed-pricing model.
“I don’t support hourly-rate billing or variable billing,” she said in Clinical Leader. “In my company, I charge clients a flat rate every month for the duration of the project. Clients know they will never be charged a different rate. They can change their protocol or add or delete sites or patients. Regardless of the changes, that monthly rate is never going to change.”
Not knowing the hourly rate can put a sponsor in the position of having staff double-check everything they’re paying for and can often result in the lowest bid becoming the highest actual payment, in the end.
An activity pricing model involves paying the CRO a fixed amount to complete a task, regardless of how long it takes. In Clinical Leader, David Kim, executive consultant at Celeritas Solutions, said that this is the most transparent pricing method and gives the CRO the incentive to be as efficient as possible. It also “gives the CRO an incentive to improve their performance if they want future business since sponsors can easily compare the time on a project with the time it takes other CROs to perform the same work.”
Kim says using the RFP process allows sponsors the best opportunity to determine what a project will cost. During this process, the sponsor can ask the CRO what the additional cost would be if any changes in the duration or requirements of the project happened during the partnership. The best way to determine the true cost is by providing as many specifics as possible.
Patricio Ledesma, Head of Clinical Operations at Sofpromed, said: “As far as [our] CRO goes…pricing is calculated considering the amount of work time to be dedicated (hours) by each member.”
“In general, efforts are calculated by an FTE index (Full Time Equivalent), meaning 1 FTE is a 100% dedication of one person to a certain task. For example, one data manager working half the time for one month would be 0.5 FTE,” says Ledesma.
CROs have played an important role in the scientific industry over the past few decades and have grown to be more than a simple outsourcing resource. They are experts in the space and active partners in research. They are contributing massively to the industry’s success. In an industry where time is of the essence, CROs are a fantastic resource.
As with every other field, specialists are taking over where comprehensive, big umbrella organizations once trod, and CROs are no exception. For example, as the drug discovery process has become more complex and clinical development more crucial than ever before, companies are discovering that outsourcing some of their work to experts might be just the boost they need.
In choosing and working with a CRO, sponsors should, above all:
- Clearly define their objectives.
- Determine whether a CRO would provide more benefits at a better cost than their in-house team.
- Research and choose the CRO that best fits their specific needs.
- Determine what type of pricing they prefer to use.
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