1. CONFIDENTIAL
Basic Facts About Clinical Trials
Rob Glassman – NY
Marla Kessler – NC
Prat Kumar – AT
PD document
March 1999
This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client
organization without prior written approval from McKinsey & Company.
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2. CLINICAL TRIALS FACT PACK
• What is a clinical trial and who are the key players?
• What are the key trends and issues of the industry?
• What are the important terms to know?
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3. DEFINITION OF A CLINICAL TRIAL
Carefully designed scientific investigation of the effect of a drug,
medical treatment, or device on a group of patients. The purpose of a
trial is to find new and/or better ways to prevent a disease or disorder.
During clinical trials, key questions are answered
• Is the drug safe?
• Is the drug effective for its intended treatment?
• What is the appropriate does to prescribe for the targeted
population?
• What side effects, if any, does it cause?
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4. CLINICAL INVESTIGATION COMES IN SEVERAL FLAVORS
Types of activities
• Physiological trials: disease
understanding
• Outcome trials: cost-effectiveness of
standard tests/therapies Ways to collect data Types of analyses
• Clinical trials: treatment algorithms
• Retrospective studies • Qualitative
Types of clinical areas • Prospective studies • Quantitative
• Interventional trials – Statistical analyses
• By therapeutic area: respiratory, – Meta-analyses
cardiovascular, surgical, oncology,
infectious diseases, rheumatology, etc.
• By care setting: emergency room,
intensive care, outpatient, inpatient,
etc.
• By type of illness: acute, chronic, etc.
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5. OVERVIEW OF CLINICAL PART OF DRUG DEVELOPMENT Clinical
Phase Preclinical Clinical Scale-up/ market
Development Full
Product launch
Exploratory
Basic research and
Process Phase Phase Phase
discovery Preclinical
1 2 3 Manufacture Marketing/
Phase 4
Formulation
Key regulatory
checkpoints IND* NDA**
* Investigationaly new drug application
** New drug approval
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6. ELEMENTS OF DRUG DEVELOPMENT PROCESS
Pre-clinical Phase 1 Phase 2 Phase 3 Phase 4
Subjects • Rodents, dogs, • 20-100 healthy • 100-300 patients • 300- • 300+ patients
primates, in vivo volunteers 3,000 patients
studies
Objective • Toxicology to • Establish safety • Establish • Confirm efficacy, • Widen spectrum of
identify risks for in humans, study effectiveness of dosage regime, patients and
humans; gathering how the drug drug and optimal and safety profile indications, gain
early pharmaco- works, how it is dosage further study safety
kinetic data metabolized, data, pharma-
interactions with coeconomic data
other drugs
Key require- • Animal testing and • High occupancy • Data • Data • Data management;
ments lab facilities test beds management; management; global operations;
therapeutic area global operations; therapeutic area
expertise therapeutic area expertise
expertise
Comments • Low margins, high • Low margins, • Lower resource • Higher • Recent upsurge in
(profitability fixed costs. high fixed costs. intensity, higher profitability. Long use because of FDA
refers to CRO) Overcapacity, Relatively slow margins. contracts requirements.
especially in U.S. growth. Growing more Higher profitability
Profitable in Companies often slowly than later
specialty areas. overbook phases
Regulatory changes facilities (like
may shrink demand airlines)
Source: CenterWatch
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7. TIMING AND COST OF THE DRUG DEVELOPMENT PROCESS
Submission OTC
Preclinical Phase 1 Phase 2 Phase 3 Phase 4
to NDA submission
IND NDA OTC
approved
Timing 1.6 1.5 1.5 2.5 1.5 5.0 1.5 drug
Years
Cost* 5.9 7.3 18.9 43.3 1.0 12.5 1.0
$ Millions
Attrition rate 10.0 5.0 3.5 1.5 1.0 1.0 ?
Compounds
required for each
approved drug
* Does not reflect ~$10 million for manufacturing and processing research throughout Phases 1-3 and opportunity cost of
capital
Source: PERI study of 117 development projects of 20 pharmaceutical companies; Nature Biotechnology 12/15/97; McKinsey data
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8. OVERVIEW OF THE CLINICAL OPERATIONS PROCESS FLOW: CONCURRENT STREAMS OF WORK
Planning phase Start-up phase Enrollment Close-out Analysis
Design trial Project management and review
Enlist/scout sites Site management and monitoring
Site relationships/training and clinical hotline
Dispose unused
Pharmacy prepares and distributes medications
medications
Enrollment*/randomization
Clinical events review and adjudication
and core lab
Final statistical
Interim statistical analysis
analysis
Present findings
* Includes follow-up visits
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9. KEY MILESTONES
* May be one step if using remote data entry
** Key milestones for data management and statistical purpose
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10. KEY MILESTONES (CONTINUED)
* Key milestone for data management and statistical purpose
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11. INTRODUCTION TO KEY PLAYERS AND THEIR ROLES
Player Description Role
Sponsor The pharmaceutical, biotech,  Discovers, purchases, or identifies the
research institution, health drug, treatment, or medical device to be
organization, or government that tested
pays for the clinical trial  Defines questions to be answered by test
 Coordinates and sometimes conducts the
clinical trial
 Applies for approval of drug, treatment, or
medical device from FDA for tested use
Food and Drug Government agency charged with  Reviews applications for new drugs or
Administration ensuring that “drugs” sold in the U.S. devices or new uses for existing drugs and
(FDA) are safe and effective devices to ensure they are significantly
better than current options
 Approves applications for drugs after
animal and clinical testing before they can
be sold to the public
 Approves language of labels and inserts
provided with drugs and devices
Contract Organization providing outsourced  Provides a specific service (e.g., drug
research product development and related development, toxicology study)
organization activities to make the drug  Coordinates (potentially) activities of sites,
(CRO) development process proceed sponsor, and/or other CROs
more efficiently and cost-effectively,
maximizing the benefits in product
life cycle and profitability of patent-
protected products
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12. INTRODUCTION TO KEY PLAYERS AND THEIR ROLES (CONTINUED)
Player Description Role
Principle investigators A medical professional who is  Identifies patients to enroll in trial
overseeing the treatment of  Administer treatment/therapy
patients in the clinical trial at a site  Provides care for patient during entire trial
Study coordinators Individual (e.g., nurse or  Identifies patients to enroll in trial
physician’s assistant) who  Fills out the CRF based on patient files
manages the conduct of a clinical  Manages paperwork related to trial
trial at a site
Institutional review A board consisting of health care  Scrutinizes all trial activities including
board (IRB) professionals from the institution recruitment, advertising, and potential
where the clinical trial takes risks
place as well as members of the  Ensure FDA regulations are being
local community that must followed
approve a protocol before the  Verifies that the study does not present
trial can be conducted at the an undue or unnecessary risk to the
institution patient
Enrolled patients People receiving treatment (or  Agree to be included in study
placebo) in a clinical study  Return for follow-up visits as necessary
Source: CenterWatch literature search
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13. CONTRACT RESEARCH ORGANIZATIONS STAND IN THE CENTER OF DRUG DEVELOPMENT
$6.5 billion in
clinical trials
NIH*
Pharma,
medical
Contract research
product, and
organizations
biotech
firms
$3 billion in revenues Sites (specific
$20 billion in physicians at a
development hospital or practice)
expenditures
Multi-site networks
• Cooperative groups
• Physician consortiums
* Includes private funding sources such as Robert Wood Johnson Foundation and the Pew Charitable Trust
Source: Analyst reports
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14. WHY SPONSORS USE CROs
Percent
Data collection/monitoring
Statistical analysis
Pharmacoeconomics
Patient recruitment assistance
Medical writing
Negotiating budgets and contracts
Site selection
CANDA preparation
CRF design
Protocol design
Source: CenterWatch survey of 15 pharmaceutical companies
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15. SNAPSHOT OF U.S.-BASED CROs
When founded Annual revenue
Percent Percent
$30 million-
69 million
1980-84
Over $70
1985-89
million
Before
1980
$10 million-
29 million $0 million-
9 million
1990-94
1995-
present
Number of employees Foreign offices
Units Percent
1-9
10-39
1,000 more
500-999
40-99
100-499
Source: CenterWatch 1998 survey of 158 CROs Europe Asia Australia Central Africa
and
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S. America
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16. THE LARGEST PUBLIC CROs
$ Millions
* Based on November 1998 exchange rate
Source: CenterWatch
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17. CLINICAL TRIALS FACT PACK
• What is a clinical trial and who are the key players?
• What are the key trends and issues of the industry?
• What are the important terms to know?
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18. EVOLUTION OF SPONSORED CLINICAL RESEARCH INDUSTRY
Cottage industry Mature hi-tech industry
Several small players in The once fragmented market is consolidating into full-
niche therapeutic areas to Consolidation service CROs and small niche playes
complement pharma/ • The top four CROs now have 55% of the market
biotech’s internal capacity • The top six CROs have been gaining about 4-6% market
share each year from small and mid-sized CROs
• Successful smaller players are often niche players with
highly specialized skills without large-scale production
“Manual yellow legal pad to Technology-enabled scale advantage where many manual
Sophistication
spreadsheet” based processes are replaced by large systems that can be
operations justified only with scale. Some believe that increasing IT
capacity and capabilities are fundamental for success
• The FDA encourages the use of computer-assisted filings
in an effort to expedite the approval process
• As regulatory requirements have become more complex,
the pharmaceutical and biotechnology industries are
increasingly outsourcing to CROs to take advantage of
their data management expertise, technological
capabilities and global presence
• Several large CROs have purchased remote data entry
companies/technologies and/or have formed alliances
with such companies
In-house operation Professional Professional management includes key players from
management pharma/biotech industry
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19. SCALE APPEARS TO PLAY A ROLE IN THE CRO INDUSTRY. . .
EBIT/sales
0.20
Kendle Covance
0.10
Icon Parexel Quintiles
PPDI
0.00
Chrysalis
-0.10 ClinTrials
-0.20
Premier
-0.30
CCR
-0.40
0 100 200 300 400 500 600 700 800 900
Sales
$ Millions
Source: Public financial statements
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20. . . . AND MAY BE DRIVEN BY THE ADMINISTRATIVE COSTS OF RUNNING THESE BUSINESSES
(ESPECIALLY IT)
SGA/sales
0.80
0.70 Premier
0.60
CCR
0.50
0.40
ClinTrials
0.30 Icon
PPDI Quintiles
Kendle
0.20 Parexel
Covance
0.10
0.00
0 100 200 300 400 500 600 700 800 900
Sales
$ Millions
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21. ALLOCATION OF DOMESTIC U.S. RESEARCH AND DEVELOPMENT BY FUNCTION
Percentage of overall research and development in 1994, 100% = $35.0 billion
Other Synthesis and extraction
Bioavailability 3.0
Process development for
manufacturing and quality
Biological
Regulatory IND and NDA screening and
pharmacological
Clinical evaluation
Phase 4
Toxicology and
safety testing
Clinical evaluation Pharmaceutical
Phases 1, 2, and 3 dosage formulation
and stability
Source: Pharmaceutical Research and Manufacturers of America, 1996
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22. OUTSOURCED CLINICAL RESEARCH BY THERAPEUTIC AREA ESTIMATE
Flow of pharma/biotech R&D funds Outsourced clinical research
$ Millions Percent, 100% = 3,200 ($ Millions)
35,000 30,40
0
Other Neurology/
(480) psychiatry (608)
Dermatology (64)
GI/GU (128)
Internal
R&D Respiratory CV* (384)
(192)
Outsourced
basic
research Infectious
Endocrinology
diseases
(480) (256)
Total R&D Outsourced Outsourced Rheumatology
spending R&D clinical Oncology (96)
research (512)
* Not including stroke
Source: PhRMA 1996 annual survey; analyst reports
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23. The CRO industry is likely to grow moderately to rapidly.
OUTLOOK FOR CRO INDUSTRY
$ Billions
Estimated CAGR Projected CRO revenues by
for outsourcing 2003
Percent
6.5 51.5
Scenario 1** 45.0
1996 U.S. R&D • Share of R&D outsourced to CROs 8
spending continues at current 13%
4.4 35.0
30.6
8.5 51.5
Scenario 2** 43.0
• Continued capacity shortfalls force 14
increase in outsourcing of R&D to
17%, but falls short of expectations
Total Outsourced Total
in-house to CRO
R&D*
11.0 51.5
Scenario 3**
40.5
• Based on analyst estimates 20
• Portion of R&D outsourced
increases significantly (as per
industry expectations) to 21%
Total Outsourced Total
* Or outsourced to academia in-house to CRO
** All scenarios assume that total R&D spending will grow at historical rate of 8% R&D
Source: Pharmaceutical Research and Manufacturers of America; analyst reports; interviews
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24. MIXED PERFORMANCE OF PUBLIC CROs ON WALL STREET
Ranked by annual return on stock price
Change Average annual
Highest Price on since IPO change since IPO Return in 1998
IPO Price price 8/14/98 Percent Percent Percent
Quintiles 4.88 (4/94)1 53.50 44.94 821 185 15
Parexel 7.50 (11/95)2 44.75 32.88 338 119 -12
Kendle 14.00 (8/97) 35.00 28.25 102 102 69
Phoenix3 5.00 (11/94) 16.50 10.95 119 31 16
Icon 18.00 (5/98) 32.25 28.00 55 n/a 55
Covance 19.75 (1/97) 27.25 26.06 32 19 31
PPD 18.00 (1/96) 47.75 23.25 29 11 51
ClinTrials 9.00 (11/93) 33.66 4.50 -50 -11 -43
Bioreliance 15.00 (7/97) 26.50 9.75 -35 -32 58
Collaborative 13.50 (6/96) 15.50 3.50 -74 -34 -31
Premier 17.00 (2/97) 26.25 4.00 -76 -48 -66
Research
Chrysalis n/a4 8.75 1.31 n/a n/a -39
BioAnalytical 8.00 (11/97) 10.25 6.75 -16 n/a -10
1
Adjusted for two-for-split on 11/95 and two-for-one split on 12/97
2
Adjusted for two-for-one split on 2/97
3
Chrysalis was formed through a merger of biotechnical company and a CRO and thus there is no IPO price for Chrysalis
4
Phoenix is traded on the Toronto exchange; amounts are in Canadian dollars
Source: CenterWatch
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25. CLINICAL TRIALS FACT PACK
• What is a clinical trial and who are the key players?
• What are the key trends and issues of the industry?
• What are the important terms to know?
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26. KEY TERMS USED IN CLINICAL TRIALS
Term Description
Analytical lab services  Laboratory tests/assays on biological samples, e.g., blood, collected during
clinical trials
 A specialized service with high entry barriers; can be quite profitable
Biostatistics  Consulting for statistical design and planning of trials
 Well qualified experts in short supply
Case report form  A form that contains data that needs to be collected directly from the patient
(CRF) based on information contained in the patient’s hospital/physician records
(e.g., patient’s blood pressure 10 minutes after treatment is administered)
Database  The electronic database where all the data collected from patients on the
CRFs are collected, stored, and later analyzed
Data management  May include development of CRFs, database design and management, and
systems for rapid reporting of adverse drug reactions
Drug formulation and  Pharma companies often are reluctant to interrupt production lines to
packaging manufacture material for clinical trials; lack of synthesized product a frequent
cause of development delays
FDA application  Application for permission to conduct tests on human patients or to sell the
product once these tests are complete
Source: CenterWatch; literature search
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27. KEY TERMS USED IN CLINICAL TRIALS (CONTINUED)
Term Description
Investigator and patient  Lining up investigators (the doctors and research centers who conduct
recruitment clinical trials) is another frequent cause of delays, particularly in specialized
patient populations
 CROs can maintain databases of experienced, high-quality investigative
sites for specific therapeutic areas
Pharmacoeconomics  Determine cost effectiveness of new medical therapies to support regulatory
submissions, pricing, and reimbursement strategies
 High-growth area which can be leveraged to broader managed care
applications
Pre-clinical laboratory  In vitro and animal models to establish toxic effects and potential to cause
cancer or birth defects
 Some niches, e.g., continuous infusion facilities for primates and
immunotoxicology, can be profitable
Protocol  A protocol defines the medical issues that a clinical study seeks to examine
and the statistical tests that will be conducted. Accordingly, the protocol
defines the frequency and type of laboratory and clinical measures that are to
be tracked and analyzed.
 The protocol also defines the number of patients required to produce a
statistically valid result, the period of time over which they must be tracked
and the frequency and dosage of drug administration.
 The study’s success depends on the protocol’s ability to predict correctly the
requirements on the regulatory authority.
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Source: CenterWatch; literature search
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28. KEY TERMS USED IN CLINICAL TRIALS (CONTINUED)
Term Description
Query  Process where data provided on CRFs are checked for consistency,
feasibility, and completeness with the person that completed and submitted
the CRF
Randomization  Process where patient is enrolled in trial and assigned a treatment to be given
(i.e., tested therapy, placebo, or currently accepted treatment/”standard of
care”), usually randomly through a predetermined algorithm
Regulatory  Pulling the package together: data, statistical analysis, medical writing for
submissions IND and NDA submissions
 Some companies, e.g., IBAH, particularly experienced in NDA process
Study design  Poor protocol design is a frequent cause of delays in drug development (e.g.,
unrealistic inclusion/exclusion criteria for study populations), or prolonging
development efforts of duds (e.g., spurious positive Phase 2 trial results
followed by therapeutic failure in Phase 3)
Study monitoring  Interviewing investigators, supervising, trouble shooting, and maintaining
quality control in clinical trials which may span hundreds of sites over several
years
Source: CenterWatch; literature search
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