No wonder it’s hard for pharma and biotech companies to find and retain good clinical sites. Basic arithmetic and common courtesy are still sinking in.

According to numbers from the Tufts Center for the Study of Drug Development (CSDD), on paper, clinical sites make 9 cents in profit for every grant dollar they get from a sponsor. But once hidden costs (think management of adverse events and travel for training) are factored in, the profit drops to 2 cents per dollar—dangerously close to the break even point. 

These were among the startling numbers on site economics shared by Tufts Center senior fellow Ken Getz at the 2007 annual Drug Information Association (DIA) conference in Atlanta earlier this summer. Getz must be the industry’s most clear-eyed analyst of the dynamics between sites and sponsors.

Rest of the Pie

As for rest of the grant dollar? Getz says the Tufts numbers from 2005 showed that staff salaries capture 61 percent—by far the largest chunk. Next is overhead, which eats 17 percent. Profit is 9 percent, at least officially (see above). Training takes up 6 percent. Four percent is spent on marketing and sales, while the remaining 3 percent is spent on training.

Things are especially hard financially for smaller, community-based sites that don’t handle a large volume of studies and don’t have dedicated staff to manage studies. But Getz notes that such sites are exactly the ones that have a growing share of industry’s research.

According to the Tufts CSDD numbers, in 1994 just 30 percent of Phase I through III studies were conducted by community doctors. The rest were done at academic medical centers. By last year, however, the community physician share had risen to 64 percent, with the remaining 36 percent conducted by academic medical centers.

Source: Getz, Tufts CSDD 2007

Late, Late, Late

Often as not, the money is showing up in the sites’ bank accounts very, very late. Getz said that average receivable days for work performed was at an all-time high in 2003: over 139 days.

In 2004—the most recent year for which numbers are available—that had dropped a few weeks to just over 113 days. In 2001 and 2003, the average number of days a site had to wait for its money was 78.5 and 91.8, respectively. Those numbers were generated by Clinical Financial Services, a company that provides bridge financing to distressed sites waiting to be paid by sponsors.

Hard to Survive

All of this makes it hard for sites to run profitable operations, said Getz. Tufts Center numbers show that sites seem most profitable immediately after they get into the clinical trial business. But then their numbers drop off.

“When a site first gets started, and it has very low volume of clinical trial activity—maybe one or two trials annually—those are typically very profitable for the investigative site because they have virtually no infrastructure,” said Getz. “[Many sites] have no full-time study coordinator, but instead they are relying on a nurse to assist in managing that activity.”

Source: Ken Getz, Tufts CSDD, 2007

Fragile Period

Next, as the site begins to take on more volume, it typically creates more infrastructure than it can support, with expenses exceeding revenue.

Said Getz, “That is when the site is in its most fragile period—as they are migrating from more of a novice, part-time site to one that’s becoming more focused on clinical research. This is a place where we see a lot of drop out, a lot of turn over—and yet these are sites that are gaining experience, and are becoming more sophisticated.”

Finally, Profit

As the sites that stay in the field continue to get larger and larger, taking on more and more studies, they do tend to return to profitability, he explained.

Sites may not be too pleased with sponsors these days, but sponsors have their issues with sites, too. A study done by McKinsey & Co. showed that half of all clinical sites either fail to enroll a single patient or they under-enroll.

“Yet the identification, negotiation, the contracting and the engagement of a site is an incredibly costly activity, so this gives you a flavor of how poorly we do it today,” said Getz, adding, “It could be argued that this is one of the least efficient processes in all of drug development—certainly in study conduct—today.”

Sponsors Seeing Red

Additionally, sponsors reported that only 10 percent of their trials had enrollment completed within the contract period. The remaining 90 percent had to extend enrollment by six weeks. A full one-third of all trials are so delayed that sponsors have to go into “rescue mode” to quickly engage more sites, said Getz.

The solutions? There are no simple ones, said Getz. But he says he’s seeing two notable changes that bode well for site-sponsor relations.

Pushing Back

First, sites are getting more business-savvy, applying tighter scrutiny to project proposals and budgets. “They are learning to say no,” said Getz. “They are learning to push the sponsor to cover some of the costs they haven’t been getting remunerated for, like document storage, travel for training, payments for screen failures.”

In fact, said Getz, a 2006 Tufts Center study showed that one-third of sites are getting better at measuring their own economics and negotiating with sponsors.

Change is Afoot

The other change is coming from the sponsor side, with sponsors taking their relationships with sites far more seriously. The buzz phrase Getz says he now hears is “investigator relationship management” or IRM, an umbrella term used to cover a host of initiatives by sponsors to connect with sites. It’s about time, Getz said.

“Sponsors have tended to focus on impersonal metrics and databases to manage their relationships with sites. What they lost was that interpersonal connection,” he said. “They are now coming back the other way, realizing they’ve got to change things so that they are interacting with other human beings on a personal level. And that includes being open to hearing why sites are complaining about a budget.”

—by Suz Redfearn

Editor’s note: Getz will be the keynote speaker at The Center for Business Intelligence’s Investigator Relationship Management conference Oct. 24-25, 2007 in Philadelphia. An earlier ClinPage story about what Getz presented at DIA can be found here.

 

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