Sponsors: efficiency more important than CRO margins

CRO margins have increased pretty dramatically in the past three years, and are now at an all-time high as an industry. However, many have been questioning if this growth level is sustainable.

As part of a recent industry survey conducted by Jefferies, involving around 30 biopharma sponsor representatives, David H. Windley, CFA, CPA, Managing Director, Healthcare Equity Research Jefferies, told us that sponsors aren’t concerned.

According to the report, 65% of respondents said that while they expect pricing to be competitive, beyond that, they don’t look at margin.

However, it’s already a fairly competitive market, which keeps CRO pricing in relative check.

“The focus is more about productivity, efficiency in finding ways to execute trials more efficiency, and taking total cost of trials down​,” said Windley.

Other important factors are data quality, knowledge of the therapeutic area, and the adequacy of resources at CROs.

“Price is usually about fourth in factors in consideration​,” added Windley, which he found surprising.

Data and analytics​

Another, more modest, surprise from the survey was that pharma clients rely on CROs for big data and analytics.

“We hear a lot about using data and analytics​,” said Windley. Specifically, collecting and using data from a variety of coursing, including historical trials that have already been executed or investigator databases.

“A lot of companies are trying to source data from multiple different independent sources and look for ways to combine and integrate data in a way that they can derive insights on the fastest way to run a clinical trial​,” he added.

The access to better data could also help find the right patients and investigators, and in turn, enabling faster patient enrollment and startup.

According to the survey, 76% of respondents agreed that CROs need to invest in technology platforms and data sources as sponsors rely on the organizations for big data/analysis.

However, when asked if the industry is currently effectively using data, Windley said “I think it’s almost assured that we have not optimized that yet​.”

Mainly, because of the number of studies that still run behind schedule.

“There’s still a frustration with the inability to keep studies on track​,” he added.

Engagement and strategy​

When asked how they engage their vendors, or how they look to use their capacity, the majority of respondents said that they use a “hybrid approach​.”

“They may have a strategic deal, then a functional service provider (FSP) relationship stapled to that​,” explained Windley. “There are several respondents that said we deliberately use both​.” And this was true for both large pharma and biotech, as well as for smaller companies.

According to Windley, the next question is: what’s going to cause the paradigm to shift to even more outsourcing? His answer is orphan drug activity – specifically, the focus on oncology and hard to treat specialty diseases.

“It’s become a lot more popular for biopharma sponsors to pursue orphan development strategy,” ​added Windley.

In fact, the number of orphan drug designations has been growing 15% year over year the past five years, and the number of approvals has risen by even more.

To put it in context, Windley compares the Phase IV and Post Approval market to what Phase I to III marked was 2003. Mainly, there is big opportunity in a relatively fragmented market.

According to Windley, this will be an interesting growth and revenue opportunity that will influence companies’ strategies moving forward.