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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline

« Total Pharma Job Cuts | Main | Selenium In a Drug Structure: Why Not? »

April 14, 2011

Coming Up in the World With CROs

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Posted by Derek

Here's a topic that's not unrelated to that job-loss post below. Venture-capital guy Bruce Booth writes on contract research organizations (CROs):

Contract Research Organizations (CROs) have 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.

But this is clearly changing. . .Over the past decade, Big Pharma organizations have supported, willingly or not, a huge knowledge and talent transfer to CROs. Many of the project leaders in offshore CROs are Big Pharma trained medicinal chemists. Clinical trial management expertise has also flowed out of Pharma and into CROs. Furthermore, many CROs have recently been attracting some very seasoned executive talent. . .

He has a number of examples, for both companies and for people. His take on this is that the CRO world is (preforce) much more focused on cost containment than the Pharma one, since they've come up in a low-margin world, and that this (overall) could be a good thing for the pharma ecosystem:

An obvious ecosystem trend is that large pharma disgorges itself of more research sites and infrastructure, some of which will be shut down, others absorbed into existing CROs or spun-out into new ones. I also think smaller biotech will follow the same trend: more and more virtual or semi-virtual biotechs will be funded. . .

He could well be right about that - but working under these conditions will be a different experience, for sure, and a bumpy ride. But given the conditions in the industry, a bumpy ride is the absolute least that we can expect. . .

Comments (31) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. spencer on April 14, 2011 1:19 PM writes...

Where can I get a good Cuban sandwich in Cambridge, Mass?

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2. anon the II on April 14, 2011 1:25 PM writes...

This is all a short lived phenomena. CRO's are picking up good people because there are a lot of them looking for jobs. The pay is about 2/3's of big pharma pay and less than biotech with little chance of making it big with an IPO. There's constant penny pinching and making do with less. It's an OK job these days but it's not the type of job that inspires people to become chemists.

PS I hate the term "FTE". It ticks me off that we ever let anyone use that term. It was part of how we got in this mess. Is that why you went to graduate school? So you could be an FTE?

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3. barry on April 14, 2011 1:35 PM writes...

I don't see how this paradigm could ever work. Who has the decade-long vision to bring a drug to market? Not the CRO--they're hired by the month. Not the marketers running Pharma--they can't see past the next quarterly report. Maybe a family-owned drug company?

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4. R M on April 14, 2011 1:42 PM writes...

I enjoy my work as a CRO chemist in Germany. You need the best chemists in the CRO business, otherwise you will not survive long-term.
The projects are tough, time is always short and of course you have to overview the budget. In the last 2 years, my synthetic skills have increased tremendously.

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5. John Spevacek on April 14, 2011 1:54 PM writes...

A quick question that someone here should know the answer to: does the FDA define what a CRO is (and is not), or is it a generic term?

I know that if you are doing pharma work, there are all the GxP, QSR... regulations, so don't anybody come back with that.

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6. NoDrugsNoJobs on April 14, 2011 2:14 PM writes...

clinical CROs will rob you blind - thats what I've observed, not sure how there could be any savings there.

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7. David P on April 14, 2011 2:31 PM writes...

@barry: I worked at a drug discovery CRO for several years. The med chem projects were not month-to-month. We were either the chem dept for a biotech or clients/partners for a pharma company needing some outsourced work and the projects were usually 1 year renewable, soemtimes longer between renewals.

If we got good results, then we got an extended contract. It worked out pretty well.

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8. CMCguy on April 14, 2011 2:39 PM writes...

It is correct that both knowledge and experienced personnel have migrated to CRO and CMOs (Contract Manufacturing Organizations) in and increased amount if past couple of decades. Likewise agree CROs/CMOs indeed are more cost conscious and have been generally viewed disrespectfully. At the same time I don't see how this leads to greater innovations as is more rearrangement of deck chairs to a degree. CROs/CMOs can accept certain levels of risk but they have to get paid plus service multiple clients and are not main drivers or importantly idea sources. Although Vendors can be cheaper in some senses there are huge inherent cost, especially in clinical trials, so effect may impact on "overhead activities" and not major expenses. Many people apparently are enamored with virtual or semi-virtual model of drug development but there are many trade-offs with requirement of certain critical expertise to manage and different cost burdens that are typically part of integrated companies.

#5: I know CRO/CMO acronyms are used in FDA lingo but not sure if originated there or was adopted because Industry initialed to capture certain vendors

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9. ReactiveMetabolite on April 14, 2011 3:19 PM writes...

The big advantage of going virtual to a CRO from a Pharma or Biotech perspective is flexibility; no longer do they have to carry costly plant, buildings and capital equipment on their books and the people can be increased and decreased much more easily, depending on the ebb and flow of the projects, if they are somebody elses employees.

However, having had experience of running many outsourced ventures, my view is that the whole virtual project thing is really not there yet. Bruce might be right that the talent transfer (Pharma to CRO) is happening but that does not mean that these organisations are yet fully enabled for innovative drug discovery. Chemical design tends still to remains in-house with the client, an extraordinary amount of client time is spent checking data from in vitro and in vivo assays and it's not even that cheap, with typical CRO margins being 40-50%, making it around Euro200k per FTE (sorry Anon the II!). I'm sure there are exceptions of excellent CROs of course, but these continue to be my general observations. I genuinely hope Bruce is right as the industry is banking on this strategy paying off, but while I think most CRO's do fee-for-service activities just fine the current signs for CRO innovation do not appear that promising.

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10. Anonymous Preclinical on April 14, 2011 3:21 PM writes...

@#2: The pay at CROs may be 2/3 that of pharma, but it depends on the job. I left big pharma 6 years ago to join a specialty preclinical CRO as I was fed up with the corporate management BS. I doubled my income for doing basically the same job. Is that true for chemistry jobs? I don't know.

I also don't see the CRO business as a short term situation. I saw only a brief slowdown in 2008, and I have more work than I can do at the moment. When companies such as Lilly outsource all of preclinical, it can't be immediately rebuilt if they decide they took a wrong turn. Other companies are staffing for the workload valleys, and any necessary work above the valley is sent to someone like me. All those companies don't hit workload peaks and valleys at the same time, so my workload has been incredibly stable.

CRO employment isn't for everyone, and there are some I wouldn't work for. But I've found it rewarding with intellectually interesting things to keep me occupied.

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11. johnnyboy on April 14, 2011 3:42 PM writes...

I'm also at a CRO, after working in MegaPharma (not in chemistry though). I agree that innovation is not CRO's forte, but that's only because it's generally not asked of us by the sponsors, who already have a very clear plan of what they want when they come to us. Personally, I would love to do more innovative work, but for that the sponsors would have to be open to suggestions or actively seeking input from us, and that is a rare thing indeed.

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12. sdave on April 14, 2011 4:11 PM writes...

In the past, I found that when you hire a clinical CRO, you hire hands, not brains. However, there are examples now of CROs that are highly focused on a specific therapy area. They frequently have people with deep knowledge that can be very helpful. Unfortunately, these are the exception rather than the rule. Generally, biotechs are at a disadvantage working with CROs since they do not typically have a database of comparable trial costs like you have in large pharma. So, negotiating leverage is limited.

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13. SP on April 14, 2011 4:41 PM writes...

1- Montrose Spa on Mass Ave between Harvard and Porter.

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14. Partial agonist on April 14, 2011 4:52 PM writes...

#1, Chez Henri, 1 Shepard St, near Mass Av and a few blocks from Porter Square

but why?

You're in Boston. Go for Italian, Chinese, Indian, etc. before Cuban

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15. Rick on April 14, 2011 5:45 PM writes...

Doesn't Bruce's conclusion assume that the market-based cost cutting in CROs occurs without a loss of quality vis a vis the quality that could be achieved by in-house testing? It seems to me that market forces in the CRO industry, which necessarily commoditizes the work, result in an emphasis on cost lowering above quality retention. If that's the case, then outsourcing might lower up-front costs but simultaneously lower quality as well, resulting in a potentially greater cost due to the cost of poor quality in project management parlance. I know that at least one business professor, Iain Cockburn at BU, has explicitly said this is happening, or will happen, as a result of too much outsourcing.

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16. JC on April 14, 2011 7:30 PM writes...

I reckon a lot of the outcome depends on the quality & nature of the plan being faxed over.

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17. See Arr Oh on April 14, 2011 7:57 PM writes...

I landed with my current job after unsuccessfully trying to get a MegaPharma last year. At first, I wondered about the low cost, sparse environment, but I'm coming around.

We back our products with multiple precise analyticals, just like you would in pharma. We do all sorts of projects, from formulation to multistep synthesis to catalysis. We write up final reports and send high purity material, just like you would in pharma. Most of my coworkers have PhDs, and most from Top-20 programs...just like Pharma!

Sorry, #3 Barry, #9 Reactive Metabolite, #15 Rick, we're not all hacks and rent-a-chemists just 'cause we work at CROs.

Permalink to Comment

18. Rick on April 14, 2011 8:48 PM writes...

See Arr Oh, #17, I think that the individual talent and skill of employees at CROs are as good as those of biotech and pharma, but that's not all that determines the overall quality of a company's output. That's why I took pains to specify my usage of the word "quality". It is not a comment on the quality of the people or their work per se, but in the very specific (project management) meaning that takes into account the overall match between the supplier's product and the recipient's expectations. Numerous studies have shown that dis-integration of formerly integrated activities, as happens with outsourcing, leads to loss in quality in this sense. The root causes are still under investigation - one contributor seems to be loss of information or low initial fidelity of communication - but there seems to be no doubt that quality suffers and that additional work/costs are necessary to bring quality up to spec whenever these new discontinuities are introduced. It is also my experience that management never understands this or neglects to take it into account, much to the dismay of all involved. As I mentioned, I am aware of at least one scholar who has devoted serious study to thie phenomenon; I hope his work gets broader a deeper appreciation.

In no way was my comment a criticism of the skills of you or your colleagues.

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19. barry on April 15, 2011 12:23 AM writes...

re #17

You seem to be shooting at a strawman. I said none of the things you object to.

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20. Anthony Bishop on April 15, 2011 12:40 AM writes...

To Anon II - "penny pinching" as you describe it in CROs is the normal state of affairs in any well run business. The fact is is abnormal in large pharma is a root cause of the symptomatic gutting of R&D we see now.

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21. ReactiveMetabolite on April 15, 2011 1:52 AM writes...

re #17

I don't think myself or anyone else implied anything about the quality of CRO staff. Everyone agrees there are some terrific people, same as Pharma & Biotech. The issue I raised was one of innovation, but maybe more correctly I should have talked of *organisational* innovation. There are a number of issues here but the first that comes to mind is one of organisational learning and culture - the CRO business does not have a history of innovation so will have to learn this collectively, and as we all know building knowledge and shifting culture takes time. Secondly though, the CRO business is still a margin business. A biotech living by the seat of its pants innovates or dies as it all the while burns cash, whereas a CRO has to return profit and often pay dividend. Given the choice of shareholder return or innovation I'm pretty sure what the CRO Board's priority will be. That is not to say that building innovation is not a longer-term play - this is a potential differentiator and a way of generating repeat business; my point was that, organisationally at least, it's not there yet.

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22. Chinabonding on April 15, 2011 2:32 AM writes...

As a big-pharma trained chemist currently working at a china based CRO, the cost savings are there, the potential talent is there, but not necessarily in the same place.

I've had projects in my group be very well sustained, continuity, developing a relationship is the right way to go. And I've watched the chemists in my group improve themselves and take pride in their work. Come to my group and we'll help you design cmpds.

Margins are much bigger issues at companies with smaller revenues as even small savings contribute to higher P/E ratios. The cost pinching is easy to feel. No business class international travel here, bare white walls, bad insulation etc.

Even with the salaries 2/3 of Western salaries, the cost of living is equally lower. As long as you dont have a mortage in the US to worry about, have your salary tied to a decling dollar, or have kids to put into pricey international schools the standard of living can be high.

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23. old man on April 15, 2011 10:16 AM writes...

fast cheap good....pick two. You can't have your cake and eat it too.

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24. Cellbio on April 15, 2011 10:32 AM writes...

Read Bruce's piece a few days ago, and the phrase that stuck out to me was 'CROs can take capacity off-line' to meet need. True, but this capacity has families, bills to pay etc. Is this really a sustainable solution for US based innovation? I think not, and I am quite sure the leadership "talent" that has migrated to CROs will not have their salaries float with capacity.

Old man, I think the argument used to be pick fast and cheap or good. Maybe this CRO growth will change that, but I am guessing it will have the greatest impact in costs savings prior to setting new equilibria with salaries and expectations for continued employment with benefits. And, everyone I know that outsources lists time as a negative compared to in-house work due to contract negotiations and scheduling new slots for follow-up work. The more popular this gets, the more that timely execution will be a challenge, especially if the new CROs try to keep a stable work force by staying at capacity.

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25. NJBiologist on April 15, 2011 11:24 AM writes...

Don't forget that some of these things are self-fulfilling prophecies.

If enough of the industry chases low CRO prices, then the CROs that will thrive will be the aggressive cost-cutters--not the CROs focusing on quality.

Likewise, if you insist on not telling your CRO what you're working on but just say "here's the powder, just dose the rats", you're not going to get any useful input beyond your data.

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26. You're Pfizered on April 15, 2011 12:25 PM writes...

The costs will continue to increase with CROs in developing countries. I'm already hearing how many Chinese firms are struggling with attrition rates because they are all poaching talent from each other. Some are having to give fairly sizable raises to average performers and impressive raises to top ones just to keep them from bolting. Long term, this has to cut into the bottom line of a industry with some razor thin margins to begin with.

Cost effectiveness is only one part of it, though. Using CROs gives pharma companies much more flexibility. If they opt to scale back a clinical or discovery effort by 25%, all you have to do is not renew a contract, versus having to pay out severance packages and unemployment insurance benefits to the people you're letting go, not to mention having less overhead costs.

Even with the increased cost of using CROs, they won't be going away. I don't see US Pharma getting rid of all in-house R&D, but the growth will not be coming from hiring here.

At some point foreign CROs will have enough talent with deep pharma experience, and learn enough from their collaborations that they'll stop becoming collaborators and start becoming competition.

Flip side, a booming biotech industry abroad would give pharma companies here more compounds/companies to acquire. Maybe that's the big picture plan anyway...

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27. mjay on April 15, 2011 2:54 PM writes...

Flip side, a booming biotech industry abroad would give pharma companies here more compounds/companies to acquire [more cheaply]. Maybe that's the big picture plan anyway...

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28. Canuck Chemist on April 15, 2011 4:34 PM writes...

Any thoughts from anyone on the possibilities of chemistry CROs cutting deals with Big Pharma to get a cut of profits derived from any IP they are able to develop for successful projects? I am inspired somewhat by the recent story on Naeja Pharmaceutical in C&EN News.

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29. You're Pfizered on April 18, 2011 11:54 AM writes...

@28--I'm pretty sure that's already happening with 'risk sharing' ventures throughout pharma right now.

CROs get milestones for certain levels of progress, ultimately gaining a piece of the final pie if it becomes a drug. It would be a somewhat small piece, but a piece nonetheless.

The tradeoff is that the much of the early work is being funded at a reduced rate. It's supposed to give CROs incentive to work like slaves to get things accomplished. What can happen is that once a project starts to look like a dog, some of the better scientists are siphoned off to other projects, possibly with other companies, which look like they have more potential...

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30. Anonymous on April 19, 2011 5:55 AM writes...

Short term gains with long term losses.

All I have to say.

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31. Hormuzd on August 22, 2012 12:05 AM writes...

CRO work has its challenges and no amount of looking down on it or frowning upon the terminology will change the fact that the CRO does more for less. The work that goes to the CRO is usually stuff that big pharma can't or won't do in-house for a number of reasons.
Having worked in a pharma company before moving to a CRO, I've found limitless challenges in and out of the lab and the knowledge to be had is amazing. The goal may not be altruistic but partnering with someone to help realize their goals is no less noble. I think it is just a paradigm shift in how chemistry and drug discovery is being done these days and it's not good or bad; It's just different.

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