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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: Twitter: Dereklowe

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September 24, 2012

The One-Stop CRO

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Posted by Derek

C&E News has a good article out on the so-called "one-stop shop" contract research organizations in pharma - these are the Covances and WuXis of the world, who can take on all sorts of preclinical (and clinical) jobs for you under one umbrella.

The old debate over one-stop shopping has, however, become more nuanced in the current pharmaceutical industry environment. Service firms and their customers agree that much of the decision making comes down to where to outsource workhorse chemistry and where to outsource frontline science. Sources agree that a market still exists for boutique CROs that focus on one node along the discovery/development continuum. And some drug firms say they are working with more than one full-service vendor, negating the supposed advantage of one-stop shopping.

There's more of this sort of thing around than ever, of course, but the merits of the whole idea are still being debated. There's no questions that these companies can extend the reach of an organization that doesn't have all these specialities itself, but that doesn't mean that you can't mess things up, either.

Not every drug firm is scaling down internal research. Sonia Pawlak, manager of strategic outsourcing in chemical development at Gilead Sciences, says drug companies with fully developed R&D operations will likely not see much advantage in working with a one-stop-shop contractor. . .Geographical proximity to a supplier is important to Gilead, Pawlak adds, questioning whether linking research and manurfacturing assets across different continents saves the customer time.

I'm used to looking at these companies from the buying end. When you consider the whole CRO world from the other direction, though, you see a vision of de-risked pharma. These people are going to get paid, whether the preclinical program works out or not, whether the clinical trials work or not, whether the eventual drug is approved or not. It's a contract business.

But they're also never going to get paid more than what is in that contract - they will share in no windfalls, get pieces of no blockbusters. So eventually, you end up with two halves of the whole drug R&D business: a drug company that does little or no outsourcing (along with the small R&D discovery companies that outsource everything they can) are in the part that takes the big risks and goes for the big victories, while the CROs are the part that takes on (comparatively) no risk in exchange for a smaller guaranteed payout.

Comments (11) + TrackBacks (0) | Category: Drug Development


1. watcher on September 24, 2012 4:24 PM writes...

Yes, CRO's are said to be used to deleverage risk and longer term cost commitments. At the same time, you often get what you pay for....and sometimes not even that, as some well known CROs will try to charge extra for activities that the (inexperienced) buyer can assume would be part of the upfront quoted cost. And, since CROs have no longer term vested interest in the project, they often don't have the close-up detailed and intuitive undertsnading of the area, the biology, the disease state and population, the target, the chemisty etc. This can be a real loss. I've seen such situations up-close several times, as a consultant brought in to help the sponsoring company keep the activity done by CRO on-track and 'keep 'em honest' in making sure the sponsor gets what is needed and required, and that the sponsor does not have to do extra for extra fee of course as recommended by the CRO. And then there is the question of qualtiy from CROs across the globe.

Take care, do due-diligent home work, & chose CRO partner(s) carefully to avoid finding yourself dependent on a "contract rip-off organization".

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2. Anonymous on September 24, 2012 6:48 PM writes...

To CRO or not to CRO...? Sometimes it pays to just do it yourself... Ouch!

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3. Anonymous on September 24, 2012 7:07 PM writes...

In the old days, it was "Good, Cheap, Fast. Pick any two."

In today's world, it's "Good, Cheap, Fast. Pick one."

Guess which one is picked every last time.......

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4. been there on September 24, 2012 9:20 PM writes...

Sorry, Derek, but the views/conclusions by you and others on this one are simply narrow-minded and dead wrong. Any type of deal structure is possible, with some creative thinking and good negotiation.
"These people are going to get paid, whether the preclinical program works out or not" -- not necessarily so.
"They will share in no windfalls, get pieces of no blockbusters" -- not necessarily so.

Have you ever heard of "risk sharing" and "success milestones"? "Highly motivated for long-term success" is part of the equation. There are many different ways to successfully conduct pharma research, whether people want to accept it or not.

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5. pharma2cro on September 24, 2012 9:42 PM writes...

there are things called "integrative service", "milestone payment", "royalty sharing", etc. Like it or not, CRO's are just part of the ecosystem now. Venture capitalist Bruce Booth had a nice article on this in his blog.

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6. bad_deal on September 24, 2012 9:43 PM writes...

Oil industry has been operating according to this model for a long time now. The oil companies take the risk with the prospective land, but reap the rewards when something is found. In contrast, service companies (Baker Hughes, Schlumburger, CGGVeritas) get money each time they do something (drill, run well logs, shoot seismic, etc), but don't get much upside except when the oil prices are high and so the demand for their services is also high and they can quote premium prices.

A lot of time in the oil company is spent checking the results of a service contractor and making flashy powerpoints with the results. Of course, with an offshore deep water drilling rig burning about $1mil per day (on said contractors), the oil company staff salaries is kind of a rounding error.

What is interesting is that service company people are usually very good technically (they have to be or they'll be out of business), while the oil company people are lazier, fatter, but a lot better at BSing.

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7. processchemist on September 25, 2012 3:25 AM writes...

Since I sterted to work, I worked in the pharma outsourcing field and I can tell you that once upon a time skills were a must to remain on the market, but in the new millennium the trend is the one depicted by Anonymous #3. And about people in the pharma companies, yes, they have always been slower, but mostly because of the organizational burden.

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8. insilicoconsulting on September 25, 2012 5:25 AM writes...

With increasing competition and ever dropping margins in chemistry, DMPK/Tox and savvy BARGAINING customers, the going is extremely tough for CRO's anyway.

One way to try and scale and keep investors in CRO's happy is to offer more services and then integrated drug disc. capability.

There are increasing number of small pharma biotech companies in Europe/US that are happy to outsource as well as to let CRO's contribute in areas other then chemistry.

As some commentors have noted, such small pharma/biotechs and startups are not averse to sharing revenues/risk/rewards based on milestones.

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9. johnnyboy on September 25, 2012 10:10 PM writes...

I don't see how "shared revenues based on milestones" can't easily devolve into a bad conflict of interest for a CRO. In preclinical, contrary to what #1 said, a big part of the CRO's job is to give honest, unbiased and complete results, to clients that are often overenthusiastic and unrealistic about their drug's prospects. The big reason preclinical CROs can be trusted with this is that they get paid no matter what the results are. Giving the CRO a profit motive by sharing into a drug's success is a pretty surefire way to bias the results it provides.

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10. been there on September 27, 2012 9:28 PM writes...

@ #9 johnnyboy: If the big milestones are for progress through the clinical trials and commercial success, then it will be counterproductive for a CRO to bias results during the preclinical stage. And if a CRO produces preclinical results that appear to be biased or suspect, they're unlikely to be selected as a research partner in the long run.

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11. johnnyboy on September 29, 2012 9:35 AM writes...

@ #10: what you say is all true in theory, but not really in practice. It's been my experience that Sponsors never look at CRO results critically when the results are what they want to see - they only delve down into the nitty gritty when the initial results are negative. And since preclinical outcomes are in general only moderately predictive of clinical ones, if a clinical issue arises down the road, the CRO could easily just explain it away by the lack of predictivity of preclinical assays - anyway, it's unlikely that the Sponsor would ask to go back to review the preclinical data by that point, they'd have other things to worry about. So no one would really find out if the preclinical results were 'suspect'.
From the CRO's standpoint, it would be quite feasible to brush aside or minimize a potential preclinical issue and cross its fingers for the clinical phases. The drug or device is likely to go through at least a couple of milestones (if not all), and the CRO would pocket at each. It would be rather stupid for a CRO to only have a financial reward for the final milestone of commercial success, since this would be at the very least 5 years down the road, much too far for most companies' outlook.
I still believe that CROs should only be fee for service, and should be excluded from having any vested interest in a drug's future success. It's the only way to keep them honest (and that's coming from someone who works at a CRO).

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