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Study grants market breaks $13 billion

Sunday, February 1, 2015

A new CenterWatch analysis of the global clinical trial grants market, a critical measure of the overall health of the enterprise, reveals a mixed message: Industry-sponsored clinical trial activity has increased compared to a decade ago, yet growth in grant spending to investigative sites from both the government and industry has continued to slow significantly.

Total spending on global clinical trial grants to sites reached $13.5 billion in 2014, growing about 2% a year since 2008. This rate of growth is well below the nearly 9% annual growth rate in the previous six-year period. Growth in government grant spending, in particular, declined -1.8% each year since 2008, while growth in industry spending during the past six years slowed to one-third of its previous level.

Meanwhile, commercial Investigational New Drug (IND) activity has soared 43% since 2003, and the median number of industry-sponsored submissions has increased at a faster rate each decade since 1984.

Significantly, the new analysis finds 76% of global clinical trial grant spend now is funded by pharmaceutical, biotechnology and medical device companies; in 2014, industry spent more than $10 billion on investigator grants. And these grants to sites have grown at a faster annual rate (3.7%) than total industry R&D spending (0.8%) during the past six years. In addition, phase I and phase II grant spending by industry has grown at faster annual rates during the past five years than spending for later stage clinical trials.

The analysis suggests sponsors are continuing to invest in clinical trials. Yet, while the volume of trial activity grows, R&D budgets have remained flat and sponsors have less discretionary money to spend on new grants to investigators. Financial pressures also have resulted in sponsors focusing efforts on controlling trial costs.

At the same time, sponsors say clinical trial grant spend—defined as payments made to investigators for procedures performed on patients enrolled in clinical trials and associated investigator fees—is limited by fair market value, which constrains the amount they can spend in this area. Sponsors are spending more for data volume, because of increased trial complexity, but that is offset by the movement of trials into emerging geographies that may have lower trial conduct costs. As the CenterWatch analysis shows, this has resulted in an increase in trial activity but a slower increase in spending on investigator payments.

“At a patient or site level, we are not seeing a decrease in the amount investigators require to conduct our clinical trials. We are finding it important to be more responsible or prudent with where and how we spend it,” said John Barry, head of vendor strategy and management at Merck. “In aggregate, as we deploy our global development strategies, we may find trial growth outpaces spend growth, as we increase our presence in emerging, lower-cost geographies. However, when we decide to spend, we don’t want to encumber our trials by not spending enough.”

The deceleration of growth in grant spending raises concerns for sites, which already have seen profit margins erode over the past six years and feel pressure from sponsors and CROs to perform at higher levels for the same grant dollars.

“From our perspective, budgets are not increasing as fast as they should, based on how complex clinical trials are and all of the extra work required. The bottom line is, for the time we spend conducting a trial or patient visit, we are getting less for it,” said Richard Litov, Ph.D., director of Pedia Research, which operates sites in Kentucky and Indiana.

Analysis methodology

Clinical trial grant metrics, which CenterWatch introduced to the clinical research marketplace in the early 1990s, have become a critical tool for sponsors, CROs and sites to use to adjust their business plans and glean signals about how fast the grants market is growing relative to overall growth in drug development spending.

The new spending figures, which update a 2010 CenterWatch analysis, are based on data gathered from original research conducted by CenterWatch and by various government and private organizations. Government figures include grant spending information published by the National Institutes of Health (NIH) and other federal funding sources as determined by the National Health Expenditures Accounts (NHEA). Industry figures come from the Pharmaceutical Research and Manufacturers of America (PhRMA); the FDA’s Bioresearch Monitoring Information System (BMIS) database; Burrill & Company, which publishes R&D expenditures of biopharmaceutical companies that are not PhRMA members; and from annual reports of the 20 largest drug and medical device companies.

Growth in spending decelerating

Many factors have lead to the slowing of grant spending by industry during the past six years. The economic downturn in 2008 and the impact of patent expirations have forced sponsors to focus on controlling costs. R&D budgets have been flat, yet development costs continue to rise. Sponsors now terminate more unpromising drugs earlier in development. And many companies have shifted their focus to more targeted therapies and drugs for rare diseases, which require fewer patients in clinical trials.

Andy Lee, SVP, head of global clinical trial operations at Merck, said the industry isn’t spending less on clinical trials, but spend is being diverted into different areas of the clinical trial enterprise such as large, long-term safety studies required as part of regulatory approvals. The cost per patient in these trials tends to be lower when compared to more traditional registration trials. Another example: comparator agents used in testing the effectiveness of investigational treatments against existing therapies are increasingly more expensive and reduce the discretionary budget available to invest in new study grants. Also, more focus has been put on developing biologic products, such as immunotherapies for cancer or arthritis, that can have large clinical benefits. These studies typically are more expensive than those of small, chemically manufactured molecules. The delivery of these medicines requires devices such as auto injectors or syringes, and involves complex production and supply-chain management to get the medicines to sites and patients.

“For some of the more advanced studies, the cost of the comparative agents and the cost of logistics of packaging and developing delivery devices are as much as running the clinical trials,” said Lee. “The spend in R&D hasn’t gone down; it’s a shift in where the money is spent. We are spending it on comparative agents, innovative biologics, delivery devices, cold chain storage and other support areas.”

In addition, as researchers better understand the biology of diseases, development programs have become more complex and target smaller patient populations. Many of these studies require complex data, such as specialized laboratory assessments and genetic testing not included in investigator grants, to identify and target specific patient groups.

“It used to be a diabetes study, for example, was fairly straight forward in terms of the patient population we were trying to recruit,” said Michael Jones, senior director global clinical operations at Eli Lilly. “Today we are looking for very specific HbA1c ranges and a whole variety of parameters that are based on either failing certain therapies or certain concomitant therapies. Some of the data we are trying to get isn’t actually collected by the investigator. It’s collected by other third parties, such as central laboratories, special laboratories or electronic patient reported outcomes vendors.”

The rise in full-service outsourcing to CROs, according to Merck’s Lee, also has diverted some clinical trial spend. Lee said using these CROs cost him more than the internal model, since the full-service model includes CRO infrastructure and management costs Merck absorbs to support its internally managed programs.

“A CRO is by nature a profit generator. So all things being equal, and even if it has a minimal profit of 10% or 15%, it still is making a profit. Internally, we run these studies at cost so, at a minimum, we would expect our internal costs to be 10% to 15% lower than a CRO. At times we are willing to pay a premium for greater resource flexibility and geographic span offered by CROs, but not across the board. Further, we haven’t seen gains in operational efficiencies in the full-service model as compared to trials we manage ourselves. Consequently, if the internal versus external spend was the same, it means we would do 10% less development work using an external model, just based on the small difference of a profit center versus a cost center,” he said.

Growth in grant spending also has been affected by the increasing complexity of clinical trial protocols. Research has shown during the past decade, protocol designs have become more complex and ambitious, requiring more procedures, which has made it more difficult for sites to recruit patients and has resulted in longer clinical trials.

“Anything that is complex or leads to delays is really, really expensive for us,” said Lee. “Once we have decided the grant cost—and we work in a fairly narrow band of what we can pay—that becomes a fixed cost. The variable part is that I have to keep a full-blown project team on the project for a longer period of time, and that is a huge cost for us. That is money I can’t spend on the next trial to give the sites more grant money.”

Sponsors have begun to adopt strategies to reduce complexity in clinical trials and conduct more efficient studies, but it’s unlikely the results of those efforts are reflected in the data used in CenterWatch’s analysis.

“Maybe we are beginning to listen and focus on collecting the things that matter most with regard to answering the research question,” said Lilly’s Jones. “That should translate into more focused R&D spend. In our own experience, budget pressures within the organization are forcing people to take a closer look at their project budgets. Across large pharma, the number of assets for which exclusivity has expired is quite large over the last four or five years. That may be creating similar focus in other companies as well.”

Grant amounts constrained

The Physician Payment Sunshine Act—which requires sponsors to report clinical trial grant payments to a government database—and corporate integrity agreements also have changed how sponsors pay clinical investigators in recent years and have resulted in tighter constraints on clinical grant payments. An increasing number of sponsors use a fair market value process, which typically assigns a specific value for procedures in each therapeutic area, to determine compensation rates for investigators and allow sponsors to defend their fee structures.

“We get audited very, very aggressively,” said Merck’s Barry. “It doesn’t surprise me that we have seen somewhat flat spending on the grant line, if we define grant line as what we pay investigators. We have fair market value constraint that limits what we can offer investigators for each of the procedures we ask them to perform in our trials. We have boundaries that we and all of our peers have to adhere to. Sure, there is a range around fair market value that we consider, but that range is pretty tight—and it’s tight for all of us in the industry.”

The adoption of fair market value processes, which investigators say do not adequately factor in all of the work that goes into conducting clinical trial procedures, also has restricted the ability of investigators to negotiate budgets or contracts with sponsors or CROs.

“It is a strategy they are using to minimize their costs,” said Litov of Pedia Research. “The problem is the contracts come in much lower than they used to and it limits our ability to negotiate, because you are not negotiating with the higher level folks in the contracts department. You are typically negotiating initially with the lowest person on the totem pole. We are told this is the figure and this is all I can do for you.”

Many sponsors also rely on their CRO partners to negotiate contracts, which adds another level of difficulty for investigators who want to challenge budget amounts. While some CROs are allowed to provide movement either in the budget or contract—perhaps 5% to 10%—any significant disparities have to be resolved directly with the sponsor.

“In the old days, you would actually construct an entire budget and submit it for review. Now, more than half of them never even itemize their budgets. It’s take it or leave it,” Litov said.

At the same time sponsors increasingly rely on CROs to negotiate contracts and conduct trials, CROs face mounting pressure to achieve higher levels of performance and efficiency from sites. Merck’s Barry said CROs are incentivized to drive for the highest level of investigator spend since, as a pass-through cost, it has no impact on CRO net revenue. But a higher spend arguably could mean a more attractive grant to sites compared to competing trials.

“At Merck, we prioritize where we might land in the fair market value range based on asset priority,” said Barry. “A CRO will shoot for the high end regardless. This could increase costs if we don’t carefully monitor this.”

Decline in government funding

The proportion of clinical trial dollars from the NIH and other federal sources going to sites—usually academic medical centers—continues to slide due to cuts in government research budgets. Due to inflation, the NIH has lost 25% of its purchasing power during the past decade, and budget pressures force the agency to reject half of all worthwhile research proposals. Between 2002 and 2008, growth in grant spending from federal sources grew 7.6% each year; between 2008 and 2014, the growth rate each year fell 1.8%.

The CenterWatch analysis found the government funded only 24% of clinical trial grants in 2014, compared to 33% in 2002. Yet, if the figures are adjusted to account for the portion of federal grants allocated to infrastructure support such as study staff training, IT development and study monitoring, federal sources funded only 18% to 20% of all grants to sites in 2014. In industry grants, the infrastructure support and monitoring expenses are included in the overall clinical study budgets, but they typically are not included in investigator grants.

“The federal grant money is incredibly hard to obtain,” said Megan Tenboer, director of strategic site operations at PharmaSeek, who works with large academic institutions that conduct trials. “Although there are many physicians who are eager to develop new practices in treatments, the total number of grants available is declining due to budget cuts from federal entities.”

Shrinking grants

The slowdown in federal funding has led many hospitals and academic centers to more aggressively pursue industry-sponsored research. Competition for industry grants is growing also because the number of investigators performing at least one FDA-regulated trial each year has reached its highest level in history; lower reimbursement rates have spurred many private practice physicians to enter research as a way to supplement their incomes. Yet these research naïve investigators, who have little or no infrastructure, typically don’t fully understand the cost of conducting research and often agree to unprofitable clinical trial budgets, which undercuts experienced investigators and hurts their ability to negotiate a reasonable budget.

“If the sponsor isn’t offering you enough money for that trial, and its a hard negotiation tactic, you have to be willing to walk away,” said PharmaSeek’s Tenboer. “We have a lot of sites that will accept any budget given to them and that really drives the cost of the clinical trial down. Some of the sites that actually are in it for profit can’t run these studies because there isn’t enough money in the budget for them to break even or make money.”

Grant payments also have shrunk as sponsors routinely hedge their recruitment risk by engaging a larger number of sites per IND, with each recruiting a smaller number of patients. The declining number of patients makes it difficult for sites to recoup start-up, recruitment and training costs.

“They are basically punishing the top-enrolling sites by adding a lot of competition,” said Litov. “They also end up getting less experienced investigators, who are more willing to take lower budgets or fewer patients.”

In addition, protocol complexity, combined with increasingly strict inclusion/exclusion criteria, has made it more difficult and expensive for sites to find enough patients eligible to participate in trials. Sites need to reach larger numbers of potential volunteers and screen higher numbers of patients to meet enrollment goals.

“The growing list of inclusion/exclusion criteria and the ever-finer cut of the population with the potential to randomize into that trial is probably the greatest challenge to the site industry. It means, on average, we get fewer people into each trial and it forces CROs to look overseas,” said Ben Trevathan, CEO of Accel Clinical Services, which runs sites in Florida and Alabama. “We spend a lot on our recruiting. And it’s an expensive part of our process. So capturing the right economics to compensate us for the amount of recruiting involved is where I am most concerned.”

Implications for sites

As trials become more specialized and require targeted patient populations, the new CenterWatch analysis highlights the need for sites to understand in which therapeutic areas trial grants are growing. Just as importantly, sites must become better at negotiating budgets, make sure grants are adequate to cover costs, help industry understand the pressures under which sites operate and communicate the benefits experienced sites have to offer.

“The real take home is that you need to become more savvy in the clinical trial negotiations. I think you are going to see more of that,” Litov said, noting the recent formation of the Society for Clinical Research Sites (SCRS), the first trade association to represent sites globally, as a positive development for the site industry. “It’s important that we voice what the issues are, because there is so much lack of understanding about how a site operates.”

Tenboer, who previously worked for Covance and has negotiated site contracts, suggests sites need to clearly understand and communicate their costs when negotiating a trial budget.

“Having both perspectives, what I would suggest for sites is really having an open line of communication with the CRO and using words that are really clear, such as, ‘this is an actual cost.’ If you use definitive language and you let them know you are just trying to cover your costs for most procedures, that transparency may allow them to increase amounts for some procedures,” she said.

As competition for clinical grants becomes more intense, sites can differentiate themselves, said Merck’s Lee, by being reliable and performing high-quality work.

“The message to sites is to be organized, have trained staff and be reliable in your recruitment,” he said. “There always is a shortage of qualified, well-trained sites. If there are small downturns, the sites that are organized and can perform high-quality work have nothing to worry about. They are going to get the work time and time again. There is nothing more desirable to us than to go back to a site that has done a good job.”

Looking ahead

Commerical IND activity has increased, compared to a decade ago, as industry continues to invest in clinical trials. Industry spend for trial grants is growing faster than overall pharma R&D spending. In addition, phase I and phase II grant spending is growing at a faster rate than that for later stage studies, which suggests that grant spending will carry over into phase III.

Yet growth in spend for clinical trial grants to investigators continues to slow, which could create even more pressure on investigative site operating profits. Sites will need to have a better handle on their operating costs, and they need to further refine their budget negotiation skills in order to stay profitable going forward.

 

Karyn Korieth has been covering the clinical trials industry for CenterWatch since 2003. Her 30-year journalism career includes work in local news, the healthcare industry and national magazines. Karyn holds a Master’s of Science degree from the Columbia University Graduate School of Journalism. Email karyn.korieth@centerwatch.com.

This article was reprinted from Volume 22, Issue 02, of The CenterWatch Monthly, an industry leading publication providing hard-hitting, authoritative business and financial coverage of the clinical research space. Subscribe >>

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