More attractive study conduct market invites competition
Profit margins are up at investigative sites. This is welcome news as 2016 promises record levels of study grant spending mixed with intensifying competitive pressures in the study conduct market.
A recently completed CenterWatch online survey among 252 experienced investigative sites finds that profit margins have improved substantially. Average reported profit margins in 2015 at these investigative sites were up nearly four percentage points, at 13.9%. This compares with average reported profit margins of 10.1% in 2010. In open-ended responses to the global online survey, principal investigators and study coordinators indicate that they are making business-side improvements to boost operating efficiency. Specific areas of improvement mentioned include budgeting, financial management and leaner staffing. Several investigators also note that more profitable studies—including vaccine trials—played a large role in their mix of active clinical trials in 2015.
Profit growth expectations are also high: 63% of investigative sites anticipate that their profitability will increase “strongly” (13%) or “somewhat” (50%) in 2016. One-out-of-four investigative sites expects their operating profit to remain the same.
Study grants reach new heights
More positive news in the study grant market: total research sponsor spending on clinical research study grants for FDA-regulated clinical trials is poised to exceed $14 billion this year. This represents a 2.2% annual increase over the 2014 levels. Growth in government spending on clinical trials has been flat at approximately $3.2 to $3.3 billion each year since 2011, falling from a peak of $3.5 billion in 2010.
Each year, the majority of clinical trials—77%—is funded by pharmaceutical and biotechnology companies. Although industry spending continues to grow, the rate of growth in spending has been well below the 9.9% annual increases observed between 2002 and 2008.
The years 2012 and 2016 stand-out as peak periods for pharmaceutical and biotechnology company study grant spending at $10.6 billion and $10.8 billion respectively. Spending in 2014 was down by approximately $300 million from the 2012 level due in large part to the global recession that impacted nearly all economic sectors.
Independent assessment of clinical trial grant metrics, which CenterWatch introduced in the early 1990s, has become an important reference point for sponsors, CROs and investigative sites to gauge and adjust their budgets and operating plans. The new study grant spending figures are based on original data gathered from multiple sources including government agencies 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).
CenterWatch analysis indicates that government funding will account for 23% of total clinical trial grant spending in 2016. That figure is likely distorting total NIH support. If the government figures are adjusted to account for the portion of federal grants allocated to infrastructure (e.g., staff training, IT development) and study monitoring, federal spending on clinical trial grants is closer to 18% of the total $14 billion.
Industry figures come from the Food and Drug Administration’s (FDA’s) Bioresearch Monitoring Information System database; R&D spending from members of the Pharmaceutical Research and Manufacturers of America (PhRMA); Burrill & Company’s figures on R&D expenditures for non-PhRMA member companies; and from direct reports from investigative sites to CenterWatch via online survey assessments.
It’s important to note that the direct reports CenterWatch receives primarily come from experienced investigative sites and site networks. These organizations conduct a high relative volume of clinical trial activity and they have built the necessary infrastructure, capabilities and operating controls. It is a biased measure. Very few principal investigators conducting one or two clinical trials within a community-based clinical practice respond to CenterWatch surveys. These investigative sites have limited infrastructure and a high likelihood of dropping out of the clinical research enterprise after participating for a relatively short term.
Drivers of spending growth
Several factors are driving study grant spending. Protocol complexity—characterized by the number of unique procedures conducted more frequently—continues to increase. According to the Tufts Center for the Study of Drug Development (CSDD), whereas the typical phase III protocol administered between 2001 and 2005 had an average of 97 procedures, during 2011 to 2015, the typical phase III protocol had 163 average procedures performed, representing a 68% increase.
In an effort to manage the rising cost of study conduct, historically sponsor companies have placed a higher proportion of their clinical trials among investigative sites based abroad—particularly in areas like Latin America, India and China where the labor costs and the per patient costs are lower. Earlier this year, CenterWatch reported that sponsor companies have retrenched their placement of clinical trials in emerging regions, instead selecting a higher relative proportion of investigative sites from mature markets including the U.S., Canada, Western and Northern Europe.
The number of newly initiated clinical trials has also reached a high watermark. In 2014, the most recent year data is available, pharmaceutical and biotechnology companies initiated 782 investigational new drug (IND) programs involving both small molecule chemical entities and large molecule biologics. This compares with the 10-year average of 695 commercial INDs initiated annually, according to the FDA’s Center for Drug Evaluation and Research (CDER)—the agency that publishes these figures. New commercial INDs targeting disease conditions in oncology, neurology and immunology/anti-infectives are leading the charge with 27%, 9% and 8% of the total, respectively.
Lastly, the number of companies now supporting at least one active drug in the R&D pipeline has proliferated. According to Pharmaprojects, over the past 10 years the number of companies has doubled from 1,621 in 2005 to 3,286 in 2015. During that time period, the proportion of the overall R&D pipeline funded by non-top 50 pharmaceutical and biotechnology companies has increased from 53% to 61%. Whereas the top 50 largest companies are aggressively seeking ways to reduce their fixed operating costs and to control spending, smaller companies can devote a larger proportion of their operating capital—and in some cases private equity and venture capital—to core R&D activity including demanding scope and labor-intensive protocols.
The 2016 study grants market is a relatively attractive one. With profit margins up and study grant spending reaching record levels, the market is ripe for competition to intensify. But competition appears poised to come not only from consolidation, but also from new entrants.
The past 12 issues of The CenterWatch Monthly have extensively covered industry consolidation driven by private equity-supported site networks and CROs forward-integrating into the study conduct arena. In February 2016, for example, Synexus—the largest global dedicated site network—acquired Research Across America to gain a foothold in the U.S. study conduct market. Industry insiders expect Synexus to continue its buying spree during 2016 and 2017.
Several months earlier, leading CRO Icon stunned the research community with the acquisition of PMG Research, one of the top investigative site networks in the U.S. Indeed, all major CROs are implementing initiatives to strengthen ties with experienced investigative sites. Quintiles Prime and Partner Site programs and INC’s newly launched Catalyst program are examples of key initiatives presently underway. A number of the leading CROs also have recently joined the Global Impact Partners program with the Society for Clinical Research Sites (SCRS).
With respect to potential new entrants turning up competitive pressure, Covance and Quintiles now have access to large central lab networks that could double as investigative site locations in remote areas throughout the U.S. Covance was acquired by LabCorp in November 2014, which ties Covance to 1,700 LabCorp patient service centers nationwide. In March 2015 Quintiles and Quest Diagnostics responded with an announced partnership giving Quintiles access to Quest’s 2,200 U.S.-based patient service centers. These relationships also give Covance and Quintiles access to massive databases of patient information.
Home and mobile nursing networks are also making inroads in the study conduct market. According to a recent Tufts CSDD study, approximately 40% of pharmaceutical companies report using home nursing networks to improve study volunteer access and convenience in clinical study participation. Although the use of wearable devices in clinical trials is relatively low at this time, a number of sponsor and CRO organizations anticipate that device use may replace the need for some study visits as study volunteers participate in more clinical trials remotely.
While consolidation is occurring among experienced dedicated sites, a growing proportion of clinical trials now target specialty and rare diseases and small patient subpopulations. According to the FDA, one-third of all new drug approvals are for drugs targeting rare and specialty disease, up from 20% 10 years ago. These clinical trials typically require engaging novice, new entrant physician investigators treating very specific patient subgroups.
Large health systems also are expected to play a more active role in conducting industry-funded clinical trials as these settings offer unprecedented access to electronic health and medical information necessary to identify and recruit highly targeted patient subpopulations.
Looking forward, promising news in 2016 about site operating profit and record clinical grant spending, combined with intensifying competition, suggests that investigative sites cannot rest on their laurels. To remain viable and successful, experienced investigative sites must continue to improve operating performance and form strategic alliances with sponsors, CROs and less traditional players including healthcare providers and payers.
This article was reprinted from Volume 23, Issue 07, of The CenterWatch Monthly, an industry leading publication providing hard-hitting, authoritative business and financial coverage of the clinical research space. Subscribe >>