The rapidly evolving healthcare landscape in China provides a critical window of opportunity — and a corresponding challenge — for pharmaceutical companies to transform their drug development strategy. China promises double-digit growth for the next five years as the EU, and US markets are trying to recover from the financial crisis. Pharmaceutical development in particular has been singled out as one of seven key sectors that the government intends to foster over the next decade. Zhou Zixue, Chief Economist of the Chinese Ministry of Industry and Information, now projects that therapeutics development in China will grow at an annual rate of 24 percent between 2011 and 2015 before slowing down to a 21 percent growth rate in the following five years. To benefit from this faster growth at a lower cost, companies must begin clinical development on their drugs in China now in order to enter the market in the next five years.
Currently, the State Food and Drug Administration (SFDA) regulations in China require at least one clinical study of Chinese patients treated with test drugs manufactured locally in China before any new or branded generic drugs can be granted approval to enter the market. Establishing the infrastructure to manufacture drugs locally and navigating the regulatory pathway to begin a study can take time, perhaps several years if these actions are not well planned. While continuing to build their own facilities and workforce, pharmaceutical drug developers (Sponsors) are outsourcing the immediate work to local service providers, namely contract research organizations (CROs) to conduct the studies and contract manufacturing organizations (CMOs) to manufacture the test drugs.
This outsourcing strategy may speed the course of clinical development and time-to-market. However, the shift of drug development to emerging markets increases corporate risk and global liability for both Sponsors and CROs aiming to establish their presence in those regions. Accelerating clinical research through a third party by using a transactional approach may magnify the risk exposure of global pharmaceutical companies.
Recent regulatory news have reported litigation against pharmaceutical companies in regard to actions interpreted as bribery and corruption in studies conducted in emerging markets such as Eastern Europe or South America. In April 2011, Johnson & Johnson paid approximately $77 million in settlements with the US Department of Justice and Securities and Exchange Commission as well as Serious Fraud Office in the UK. This penalty was related to the alleged inappropriate payment provided to healthcare providers, primary investigators, and regulators by one of J&J’s regional subsidiaries in Greece, Poland, and Romania. Global pharmaceutical companies can be found liable for the actions taken by their local subsidiaries or service providers or may have to repeat studies. In 2011, the FDA discovered that a CRO (Cetero) had falsified study data, and as a result, all drugmakers who outsourced to Cetero had to repeat or reconfirm the findings of those studies while Cetero declared bankruptcy.
Pharmaceutical companies must take proactive action to identify and mitigate these risks. To do so, they must first be able to recognize the potential risks when utilizing a CRO and of outsourcing in emerging markets. Key compliance risks, gaps and questions to consider when outsourcing clinical research to CROs in China include:
The trend towards outsourcing has uncovered the need for outsourcing managers on the Sponsor side to have different levels of resources, skills and training to effectively manage the CROs. Capabilities required of outsourcing managers include competencies in partnering, influencing, governance, change management, talent development, process integration and performance management. The outsourcing managers who have only been on the Sponsor product development side would not necessarily be aware of all risk areas when managing CROs, as they operate differently as a service provider. Outsourcing managers need to understand the complexities and nuances of CRO operations. It is important to familiarize outsourcing managers with how differently CROs function and to train them on risk management when overseeing the work of the CROs, especially in emerging markets.
A CRO, by virtue of its service business model would operate differently and assume different types of risks than those of Sponsors. As a unified organization, the Sponsor is likely to have global systems and policies in place that govern processes in each region to ensure compliance. On the other hand, CRO staff may be trained on the standard operating procedures (SOPs) supplied by the Sponsor to be utilized for the projects they are assigned. Being assigned to multiple projects at one time, CRO staff may need to comply with and document their training on different combinations of SOPs for the different Sponsors of their studies which adds complexity.
Furthermore, project managers, study managers and monitors of studies with sites around the world would need to understand and ensure that the study conducted adheres to the laws and requirements for every region that they are managing. Most staff would be familiar with the guidelines of their own region, but might not be familiar with the ever changing rules of the emerging markets. The implications of the new guidelines in emerging markets are not fully understood or aligned with those of the FDA and EMA. Thus, actions considered compliant to local guidelines may in some ways be interpreted as violations of regulations in the region of the Sponsor or CRO headquarters. It is essential that global study teams be trained on the regulatory requirements in each region that they are managing studies.
Smaller CROs localized in emerging markets might be aware of the local laws, but might not have the same level of awareness of the global guidelines and laws of the other established regions. There have been trends of global CROs acquiring smaller local Chinese CROs. This market consolidation will ultimately help to reduce the Sponsor’s exposure to risk due to greater consistency in study conduct. From 2007-2011, a total of 8 Chinese CROs were acquired by larger CROs with more global reach. The value of this consolidation for the Sponsor is that the global CROs will likely have SOPs to govern the conduct of the locally acquired CRO. In this way, local clinical monitors can be trained on globally accepted guidelines and thus, lowering the risk of non-compliance to global regulations during the conduct of a study conducted in multiple regions, including China. However, while the global CROs have acquired the local CROs, they might not have integrated the processes and procedures immediately. Timely and coordinated integration of processes and procedures is critical to ensuring aligned global and local CRO operations.
New risks arise when CROs are trending toward longer term commitments across multiple strategic partners and development programs. The global CROs, who hold almost 50% of the clinical outsourcing market, are looking to maximize their business development by transitioning their transactional accounts to committed relationships with the large pharmaceutical companies. From 2007-2011, over 28 preferred providerships, partnerships, and other long-term commitments between top 10 pharma Sponsors and the top CROs have been established. CRO-Sponsor partnerships must be designed to bring sustainable value, which means bridging the gaps between client-vendor relationships, cross-cultural awareness, as well as global and local compliance across the partnership development programs.
With each layer of variability on the sponsor, program, study, regional, country and site levels, the magnitude of risk multiplies and the need for documentation increases. For example, as each CRO commits to multiple Sponsors outsourcing multiple clinical programs in various emerging markets, it is possible that investigators are not always compensated in the same way across regions and studies. Sponsor might not be aware of whether the payment negotiations and contract reconciliations are documented adequately. In 2003, FDA found a study site that falsified documents indicating patient visits and evaluations, when the site staff was not in the office; the staff were convicted and sentenced to fines, psychiatric care, and imprisonment. As Sponsors begin to outsource their studies, their visibility and control of the variable risks on the site level may seemingly be shielded, but all stakeholders involved may be held accountable and liable. In these cases, the staff of the CRO, Sponsor and site can all be held accountable and face fines, bankruptcy and imprisonment.
In China, the legislative landscape has been continually changing in recent years. This year, in 2012, China has released the twelfth 5-year plan in its healthcare reform. It is a challenge to keep the local practices aligned with evolving regulations and to keep all levels of stakeholders informed. A China-based CRO team working with local investigational sites may be out of compliance as new rules have emerged, but the SOPs might not have been re-evaluated and updated with the same frequency. Regulatory managers and legal departments might be aware of the new rules, but is the information and impact to the business filtered down to the site monitors? While general guidelines in SOPs may be intended to govern these practices, it is the lack of documentation and lack of awareness on all levels that exposes Sponsors and CROs to regulatory audit and inspection risks.
Adequate quality controls in the local Chinese operations are required for global marketing applications. While a study in China may be intended to support local registration, a global company will still be held accountable and may be audited by FDA and EMA if any of the data is to be included in marketing applications in the US or EU. These audit findings in China of non-compliance with FDA, EMA, and ICH regulations may jeopardize drug approval in the established markets. Due to distinct differences between laws in each country, each of the global pharma companies also must ensure that the local actions of the CROs are in compliance with regulations in the other regions.
Asia has historically been perceived to be a higher-risk geography with regards to regulatory compliance, anti-corruption, and intellectual property protection. Clinical operations in regional subsidiaries and outsourced companies may be compliant with local laws. However, these seemingly compliant local actions may actually increase risk and liability with laws governing the corporate policies at the global headquarters of the Sponsor or CRO. Each Sponsor must also consider the new risks resulting from outsourcing in a culturally and politically different environment.
Managing outsourcing partnerships is challenging, especially in a culturally different and rapidly changing environment like China. Both pharmaceutical companies and CROs have a true challenge ahead to ensure the right partnerships are formed and to continually monitor compliance with the changing regulations, both locally and globally. Those organizations that successfully forge compliant strategic partnerships and transform their internal operating models will benefit from the emerging market in China and lay the foundation for fast, sustainable growth.
About the Authors
Natalia Misciattell is a life sciences industry expert at PA Consulting Group.
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