Modelled Businesses

From being a mere spectator in the global clinical research revolution to becoming full-fledged contributory players, Indian CROs have come a long way. And with this change has come a transition in the way of doing business as well. Garima Arora explores the business models of Indian CROs over time

The Indian Clinical Research Organisation (CRO) industry has evolved from being a clinical trials monitoring services provider to a full service provider to the clinical drug development process. The introduction of the product patent regime has allowed for the CRO to truly grow and compete in the global market place. As India starts to align its laws to international laws, it has opened up the market allowing Indian CROs to compete on a level playing field. The benefits of the product patent regime are quite apparent to see, it has allowed international pharmaceutical companies to feel more confident about setting up R&D operations in India and outsourcing clinical trials to India.

The key to success is not cost but speed. India's CRO industry comprises of local CROs, Indian subsidiaries of global CROs and niche service providers. A few Indian companies are providing contract research services that support international drug discovery programs. Additionally, India's ability to provide cost-effective and high quality bioequivalence studies and clinical data management to meet the needs of global customers is well recognised.

If CROs are to continue their success, they will need to keep on top of the challenges that they face in today's market. Three of the biggest are commoditisation, staffing companies, and functional outsourcing. These three areas are eminent threats to the revenue streams of CROs right now. More and more, CRO services are viewed as being 'the same' and there's a lot of pressure on them to reduce their prices. In such a scenario, CRO business models are changing to keep pace with the changing times.

Coming from …

"Before the product patent regime, the CRO industry mainly catered to the generic industry and most of the CROs were involved with conducting bioequivalence and bioavailability (BA/BE) studies. Since the introduction of the patent regime there has been a real shift towards CROs providing all types of services required to take a new chemical entity (NCE) from discovery to phase IV," says Apurva Shah, Managing Director, Veeda Group.

The earlier models used CROs more for staff augmentation rather than an expertise and service provider. "This was the right model then, as the industry was evolving and pharma companies wanted more direct control over their projects. International pharma companies were cautious as it was their first foray into India and they wanted to tread with caution," says Anand Bidarkar, Vice-President, Service Delivery (India), inVentiv SIRO.

Another model that was very popular in yester years and has spilled over to more recent times is the Full Time Equivalent (FTE) model. In this model, pharma companies outsource the job of developing the facility, offices and human resources (FTEs), statistical programmer, statistician, data viewer, DB designer and medical writer to a service provider, who could be a CRO or an IT company with the understanding of the clinical trial data management and biostatistics business. The pharma companies provide hardware, software and arrange for their installation and training. This model is essentially an extension of the 'contract staffing' model as the service-provider provides the office and manpower both. "This model demands a lot of initial investment on the part of the CRO and provides an opportunity for the local service provider to learn the tricks of the data management business, besides promising a lot of future core business as an outsourcing partner," explains Bidarkar. Main competitors in this kind of business models are the local CROs and IT-enabled services (ITES) companies who plan to diversify into data management segment.

As it is …

"As the pharma industry is moving from short-term tactical decisions to longer-term strategic ones around outsourcing, sponsors are more open to integrated services and, as a result, are more inclined to look for partners who can provide broader portfolios of services. As this change takes place, CROs are getting prepared to contribute value to the sponsor's needs," says Utkarsh Palnitkar, Partner, Ernst & Young.

Today we see four basic models that complement sponsor-CRO relationships. The one-off-deals model, which is a historically dominant model, is still frequently adopted by smaller pharma and biotech companies. The one-off-deals model is characterised by 100 odd providers, sponsors Standard Operating Procedures (SOPs) and ad hoc contracts.

More recently, the Preferred Vendor Model consists of a set of preferred providers, a master services agreement, standard SOPs and an arm's-length relationships. This model is quite popular with big and certain mid sized companies. A few big size pharma companies are in the process of implementing the Strategic Vendor Model. This model typically consists of three-ten strategic providers, performance-based contracts, tight process integration and direct team communication.

A few mid-size pharma like Sankyo, Solvay and some big pharma like Wyeth in data management and GSK in lab services are implementing the Strategic Alliance Model. This emerging model typically provides five exclusive providers, risk sharing opportunities, very tight process integration, joint teams and potentially ownership links.

Heading to …

CROs are pursuing a number of opportunities in today's market, namely preferred provider status, alliances, and gaining access abroad. Some CROs are beginning to provide services in the area of biomarkers, said to be the wave of the future with the potential to change medicine as we know it.

"Also, in the last year, safety has become the front and centre of all clinical activities and a number of larger CROs are lining up to get involved in developing and providing the safety and efficacy data now requested by sponsors and the FDA," says Palnitkar.

In addition, it is believed that the future would lead to numerous alliances as pure-play CROs take steps to de-risk the business model. Alliances offer great potential benefit for the CRO industry, as well as its pharma and biotech partners, since its current business relationships are largely fee-for-service, project-by-project transactions. CROs that want to succeed in developing meaningful, strategic relationships will take the appropriate steps to bring such attributes to the fore front when courting alliances.

"The three main challenges faced by the industry are lack of trained human resources, pricing and regulatory issues," opines Binoy Gardi, Managing Director, Veeda Group. Due to the number of new entrants in the market, prices of studies is beginning to come down. However, at the same time, the cost of carrying out studies is dramatically increasing as salaries are increasing at a very fast rate.

Meanwhile it is important that the government continues to reform the patent law so as to come more and more in line with international practices. "The government needs to realise that this is going to be the next ‘sunrise industry’ and should therefore put in the resources to enable India to maintain its competitive edge over the rest of the world," explains Gardi. The government needs to ensure that the approval time frames of trials is dramatically shortened and are in line with international time lines. Once the government understands that the international pharma industry is interested in India not for the cost advantage, but because of the speed at which they can carry out studies, things should change for the better.

The product regime effectively means that India is now more closely aligned to international patent law. And this, therefore, has given international pharma companies the confidence to come to India. "India needs to be careful that incidents such as the Glivec case are well managed as the whole international pharma industry is watching the Indian market with a microscope. We need to show the world that not only can we make laws which are in line with international law, but that we are willing to enforce them as well," says Shah.

The advantages of India have been written about many times before, we all know that India can potentially conduct clinical trials faster and cheaper. However the question is not whether India has the potential, but how can this potential be realised.

garima.arora@expressindia.com