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taining profitability. To provide the range and spread of services now required by sponsors demands capital and also a guaranteed cash flow. |
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Many of the major CROs are now public companies, which, although this provides capital for expansion, also brings a need for profitability. Now, they need investor relations departments, advertising, marketing and business development groups, and strong internal administrative departments, such as training, financial accounting, and human resources. There may be an optimal size for a service company like a CRO above which the needs of infrastructure and profit may start to negate potential savings. The medium-sized CRO of today may continue to grow until it, too, reaches optimal size, and the specialist or niche player will likely continue to thrive. |
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II.
Essential Steps to be Taken Within a Pharmaceutical Company When Deciding to Contract Out Studies |
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From the discussion in the introduction to this chapter, it is clear that the decision to contract out work can be prompted by several reasons. Lack of capacity within the pharmaceutical company used to be the main reason, but now it is becoming increasingly more common for studies to be contracted as a result of a strategic decision. This is particularly so for biotechnology companies, but, in many pharmaceutical companies, a decision has been made to contract out a fixed proportion, perhaps, 20 percent of studies. Whatever the reason for contracting, there are several basic steps which must be followed to allow a smooth flow for the anticipated study. These steps relate to determining budget availability, authorizing the expenditure, responsibilities to be retained and contracted, decision making ability, and responsibility and management of the contract. |
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The financial aspects of clinical studies have increasingly become the focus of senior management of pharmaceutical companies within the past few years. The total R&D budget of sponsor companies, which has risen by a compound growth rate of 12 percent annually since 1989, has been currently estimated at about $37 billion. For individual companies, the clinical budget is a large proportion of the entire operating budget and is incurred at a strategic stage in the drug development cycle; make a blunder at this stage and all the preclinical work will have been for nothing. Thus, budget setting and managing the clinical budget of a pharmaceutical company has become a very important and increasingly sophisticated activity. Studies must be identified early in plans and costs budgeted, expenditure monitored and accruals made correctly for expenses incurred but not yet |
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