Emerging Contract Research Organizations – Driving Success

Emerging Contract Research Organizations – Driving Success Key Takeaways

In the life sciences industry, the global outsourcing market for clinical research and laboratory services is predicted to grow to $24 billion by 2010.

Despite ongoing challenges, emerging CROs are altering the global pharmaceutical and biotechnology landscape by providing significant value to clients.

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Success requires a reversal of common leadership gaps experienced across the CRO space. A new model of talent is needed to drive CROs ahead.

Many astute leaders of emerging contract research organizations (CROs) are striving to establish profitable niches and sustain growth by providing significant value to clients. Despite challenges, emerging or upcoming CROs are attempting to alter the global pharmaceutical and biotechnology landscape. How can these smaller CROs become permanent fixtures on this landscape? This white paper explores strategies that are yielding results and examines the constellation of leadership skills and talent needed to sustain success.

By Robert Ferguson and Ruchira Pathania In the life sciences industry, the global outsourcing market for clinical research and laboratory services is predicted to grow to $24 billion by 2010. Opportunities are rich; obstacles to success, many.

This outsourcing market is dominated by major contract research organizations. In fact, some of these CROs are approaching the size of the “big pharma” clients they serve. Marketplace rumors about some CROs planning to compete with clients by “owning product” have subsided, and CROs are now focusing on their core capabilities and strengths. A handful continue to dominate the outsourcing space and capture market share.

Global players and smart entrepreneurs, however, are mounting a charge to transform the clinical outsourcing space into a new landscape.

What will it take for these mushrooming CRO’s to establish profitability and sustain success? In an effort to uncover insights on these opportunities, Korn/Ferry set out to analyze the challenges and explore successful strategies of up-and-coming CROs. In talking to executives of CROs large and small, several compelling patterns took shape.

Identifying Source of Opportunities Despite economic, regulatory and quality pressures – or, ironically, due to those same pressures – the market for contract research organizations is active and busy. Some studies place the annual expenditure of bio-pharma drug development at $60 billion (USD), with $15 billion allocated to outsourcing.

The Tufts Center for the Study of Drug Development in Outlook 2007, its study of pharmaceutical and biotech development, reports 1

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“With clinical trials spread across multiple CROs and multiple sites, pharmaceutical companies are becoming much more adept at managing multiple CROs.” D. Sucheth Rao

Executive Director and COO Neuland Laboratories Limited

several reasons for optimism about market opportunities: greater use of technologies to reduce late-stage development failures and contain rising costs, increased reliance on global outsourcing to speed development and reduce costs, and more coordination between U.S. and European regulators. In fact, the report forecasts that over the next five years, demand for CRO services will grow by 16 percent annually. The study also predicts that up to 65 percent of FDA-regulated clinical trials for top pharmaceutical companies will be conducted outside the United States in two to three years.

D. Sucheth Rao, Executive Director and COO of Neuland Laboratories Limited, which has undertaken a joint venture with Cato Research Ltd., attributes the emergence of smaller CROs to several additional factors.

“With clinical trials spread across multiple CROs and multiple sites, pharmaceutical companies are becoming much more adept at managing multiple CROs.” Rao also points to opportunities opening in Russia, the Ukraine and China to complement the more well-established CRO markets in Canada and Eastern Europe.

According to research by Frost & Sullivan, the CRO market in the Asia Pacific region is expected to generate $2 billion (USD) during Phase I-IV clinical trials by 2010, compared to $1.2 Bn in 2006. India and China are considered to be the favorite destinations for outsourcing clinical research in Asia and will witness significant growth in the CRO markets. Other countries, its research reveals, will likely experience an increase in CRO activity; they are Australia, Taiwan, Hong Kong and South Korea.

Rather than establish subsidiaries, large CROs are becoming increasingly willing to invest in smaller CROs in exchange for development work. Rao notes, “To date, most large CROs possessed real strength in their countries of origin, relegating their subsidiaries in other countries such as India or Eastern Europe to data management, not clinical trials. Today, however, global players such as Cato are recognizing the wisdom in leveraging the best global resources. As part of our joint venture agreement, we are complementing their global operations by leveraging the availability of infrastructure, resources and experience in India to become a major player in the Indian market for clinical research services.”

New, smaller players are not content to survive; they expect to succeed.

Adroit leaders at these contract resource organizations are courting small to mid-sized pharmaceutical and biotech clients. More importantly, they are embracing business from biotechnology companies as a hedge against a market downturn. As reported by Tufts, this strategy appears to be an astute one. Its 2007 study found that new product development at small/mid-tier pharmaceutical and biotechnology companies is

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increasingly filling the product gap that large pharmaceutical firms had been experiencing. This shift is creating opportunities for CROs large and small.

Defining a Model for Success As the explosive growth rate of 35 to 50 percent for smaller CROs demonstrates, good opportunities persist for those organizations with exceptional clinical and laboratory practices. A model of success for emerging CROs is based on niche positioning.

“As clinical studies get more complex,” says Alex Erdeljan, a founding member of Blackstone Healthcare Partners LLC, a private equity group, “specialization is becoming an important competitive advantage. Specialists possess the ability to recruit patients and start studies faster. I believe that ‘Big Pharma’ is increasingly emphasizing speed and quality when selecting outsourcing partners. Smaller CROs can satisfy that requirement. Despite the fact that some therapeutic classes such as those dealing with chronic disease require the ‘critical mass’ that only a large CRO can provide, in general, niche or specialized CROs can have an advantage.”

Key drivers for success among these niche players include: 1. Market Positioning 2. Right Talent 3. Value and Quality of Service

“The keys to success are: get good clients, deliver on time, be efficient and have a great talent pool,” states James Utterback, president & CEO of Reliance Clinical Research Services, a start-up whose sales grew by several multiples in the short span of 16 months, generated by business from mid-sized or small pharmaceutical and biotech clients.

Utterback predicts that middle-level CROs will eventually take market share away from the two or three dominant CROs now in the market.

He cautions, however, that problems at one CRO site or during one trial could shake the industry. His prescription to ameliorate this concern is high quality and exacting compliance standards. “No matter how big or small you are, you are only as good as your last trial. It is critical for small CROs to be highly compliant, following FDA guidelines now, more so than ever before, to stay in the game.”

The experience of Clinsys Clinical Research, Inc., a Jubilant Organosys company, is also instructive. Clinsys CEO David Williams reports that the CRO, which is headquartered in the United States, has grown over 300 percent in the last two years by targeting smaller and mid-sized biotech companies and offering expertise in such therapeutic specialties as dermatology, respiratory and oncology, among several others.

“Big CROs,” Williams explains, “are consolidating their positions and, therefore, openings are emerging under the CRO ‘umbrella.’ The niche can be defined by phase of clinical trial, therapeutic area or other unique 3

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“Clients or sponsors are looking for ‘A’ teams, ownership of projects, and accountability. If a new CRO can deliver on these factors, there is a lot of opportunity.”

David Williams

CEO Clinsys Clinical Research, Inc.

service position. Once you are able to establish a niche, it is easier to go after the business with a strong, clear story.”

“The unique factors that have contributed to our growth include not only our niche positioning,” Williams adds, “but also the strength of our project management team that oversees clinical trials and the infrastructure investments we have made in our U.S., European and Indian operations.”

Clinsys’ CEO also sees opportunity in the electronic data capture and software space. Several CROs are doing just that – offering clients a significant edge through “life science convergence” by incorporating data capture, software development and other technology-driven resources into their service profiles.

Neuland Labs, according to Rao, is “looking at” therapeutic niches like antiretrovirals and oncology. “There exists a real opportunity for emerging CROs with differentiators to establish their niche,” he adds.

The successful business model for small CROs is one that offers indepth therapeutic specialization, that is, to “own” a therapeutic space.

Owning a therapeutic space is not without challenge, however. According to Rao, knowing how to run a trial, knowing the hospitals, knowing the investigators and knowing the patients is no guarantee of success.

“Knowledge is not the challenge; execution is. For CROs determined to succeed,” he advises, “compliance is fundamental – there can be no compromise when it comes to GCP [good clinical practice].”

Williams at Clinsys concurs, “Clients or sponsors are looking for ‘A’ teams, ownership of projects, and accountability. If a new CRO can deliver on these factors, there is a lot of opportunity.”

Capitalizing on Leadership to Drive Growth What characterizes Williams’ “A” team? How does Utterback ensure that his talent pool produces great results? How does Rao’s team exploit their expertise for the clients’ benefit? How are leaders establishing their CROs as go-to reliable providers?

Clearly, an organization’s ability to recruit, retain and develop talent – coupled with its executive’s leadership savvy – directly impacts success and growth.

“Your accumulated experience and reputation will help you attract business,” says Erdeljan at Blackstone. “The accumulated experience of your team can be leveraged in such a way that it benefits clients either by speeding up trials or reducing the cost.”

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Leaders of small CROs are cultivating entrepreneurial cultures known for exceptional responsiveness, flexibility and talent. Unlike their highly structured, larger counterparts, small CROs are highly adaptable and thrive on taking acceptable risk in a market that rewards entrepreneurial spirit.

Utterback explains, “Getting talented people to join a smaller CRO is not difficult; getting them to stay is. Your culture enables you to retain talent.

The CEO needs to cultivate a leadership style as a risk taker, and, in turn, to cultivate a participative work culture that expects, and rewards, high performance and service delivery.”

Erdeljan at Blackstone further clarifies the characteristics of a successful CRO leader when he says, “A CEO’s relevant background is highly important. While general management experience might be appropriate, and desirable, for some other outsourcing businesses, in this sector, I believe CEOs in a CRO need very specific knowledge and experience related to drug development and everything that entails – from science to regulation.” He adds one important point, which is, “The CEO is the key contact with customers and, therefore, must be able to speak ‘their language.’”

Williams at Clinsys exhorts other leaders to be practical visionaries. He advises leaders to put best-in-class processes and procedures in place to maximize competitiveness, then continue to be “hands on” as others execute. “Service and delivery must be the ultimate goal and driver,” he says, “and it’s imperative that we keep our focus and direction clear. We must not forget that we are a service industry and, as such, must create a strong, clear vision for others to follow and establish benchmarks to measure performance.”

“Getting talented people to join a smaller CRO is not difficult; getting them to stay is. Your culture enables you to retain talent. The CEO needs to cultivate a leadership style as a risk taker and, in turn, to cultivate a participative work culture that expects, and rewards, high performance and service delivery.”

James Utterback President & CEO Reliance Clinical Research Services

Leveraging a New Leadership Model Williams focuses on being highly selective and rigorous in the hiring process and setting high standards for execution and delivery. “We must persevere and stay focused on our vision, but we must recognize we need to challenge that vision and take prudent measures to shift our focus or strategy. In short, be adaptable.”

Several leaders interviewed express the view that the project management position is the fulcrum around which to build and sustain growth. “Strong cross-border project management teams enable us to ensure clients and other stakeholders that we are truly collaborative and, as such, will achieve success together,” Williams notes. These leaders caution, however, that it is the more difficult position to fill. The position requires the manager to be able to flourish in a team environment and take initiative.

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Today, joining a smaller CRO can be a career-building move. Many experienced project managers are recognizing the significant advantages to be found in this new landscape. They are attracted by the entrepreneurial challenge of accepting authority, being responsible and making decisions. They seek the opportunity to nurture and apply their professional creativity. They want the chance to break away from the highly-structured work environments of the larger organizations that have invariably come to resemble large pharma themselves.

Emerging CROs are acknowledging the need for making the “good hire,” and, in turn, are more willing to pay for a higher level of talent.

They accept that to build the brand, they must hire and retain experienced people who relish the challenge of meeting higher performance expectations of their executives, clients and other stakeholders. This formula is a winning one.

Best-in-Class Profile of Executive Leadership: Where do CRO Leaders Stand?

As the charts in this section illustrate, Korn/Ferry research reveals consistent patterns in leadership at the executive level that differentiate the most successful leaders. Extensive experience working with CROs suggests that this profile is highly applicable to CRO leadership today and is one to which most CRO executives can aspire.

The most successful executives demonstrate a strong interpersonal approach to leadership. They engage others well, build relationships, listen actively and are approachable. Best-in-class executives build strong teams, resolve conflict effectively and demonstrate a collaborative approach.

Notwithstanding this interpersonal orientation, successful executives are also “big picture” and analytic thinkers, yet drive for results and remain focused on execution. They are comfortable with uncertainty and change, are willing to take risks and readily step up to challenges.

Although CRO leaders possess many strengths in this profile, they also demonstrate a number of leadership gaps in a CRO environment. These may include: n n n n

a tendency to want to take control and potentially over-manage situations; a desire to get the job done themselves instead of working towards collaboration; the potential to overanalyze in situations where action is more effective; and a preference for stability in environments where change would be more beneficial.

With so much at stake at the bottom line and in the marketplace, executives at CROs would be well advised to address these leadership shortfalls and be more in line with the following best-in-class executive profiles:

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7 6 5 4 3 2 1 0 7 6 5 4 3 2 1 0

ActionFocused

TaskFocused

Flexible

Social

Complex

Creative

Intellectual Participative

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1. Executive Leadership Style. An individual’s decision-making style when focused on the task and unaware of his or her own behavior.

2. Executive Thinking Style. An individual’s decision-making style when influencing and motivating others or when presenting to an audience.

3. Executive Emotional Style. An individual’s learned capacity to get on well with others and deal effectively with emotionally-laden situations.

0 Empathy Humility Ambiguity Tolerance Composure Energy Confidence

Conclusion Emerging and smaller CROs are gaining significant competitive advantages by capitalizing on their internal strengths and nascent market opportunities. Despite the disruption of political, economic and competitive cross currents, they are quickly becoming lean enough and capable enough to “follow the business.” Emerging CROs worldwide are fostering profitable relationships with their clients. They are utilizing any and all advantages – flexibility, entrepreneurial drive, a high qualified and motivated talent base, access to and in-depth experience with specialized patient populations, and formidable technology, among other resources – to stake their claim in a burgeoning market. From this foothold, the cornerstone of a new, and profitable, market segment is taking root.

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The authors thank the CEOs and executives who participated in this research for sharing their time and perspectives about this increasingly critical issue.

Robert Ferguson is a Managing Director and Senior Client Partner in the Global Life Sciences Market of Korn/Ferry International, based in Seattle. He is also Global Leader of the Firm’s Life Sciences Contract Services Sector.

Ruchira Pathania is a Client Partner in the Global Life Sciences Market of Korn/Ferry International, based in Princeton.

About The Korn/Ferry Institute The Korn/Ferry Institute was founded to serve as a premier global voice on a range of talent management and leadership issues. The Institute commissions, originates and publishes groundbreaking research utilizing Korn/Ferry’s unparalleled expertise in executive recruitment and talent development combined with its preeminent behavioral research library. The Institute is dedicated to improving the state of global human capital for businesses of all sizes around the world.

About Korn/Ferry International Korn/Ferry International, with more than 80 offices in 39 countries, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to identify, deploy, develop, retain and reward their talent. For more information on the Korn/Ferry International family of companies, visit www.kornferry.com.

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