Self-built teams reduce costs, and pharmaceutical companies compete with CXO for control of clinical trials

Clinical trials are the most expensive and time-effective link in the clinical research and development process. In order to reduce the cost of clinical trials and improve the overall quality level of this link, some innovative drug companies have chosen to build their own teams to complete this part of the work.

On February 17, the first financial reporter was in Henlin (02696. HK) learned at the Global R&D Day that a large-scale clinical trial project within it can reduce the cost per patient by nearly half compared to handing over to a CRO (contract research organization) enterprise.

As the number of clinical trials of innovative drugs continues to grow, the speed of approval of new drugs has accelerated, and pharmaceutical companies and CXO companies are accelerating their pace to expand their business and expand production capacity.

High cost of clinical trials

CXO (including CRO, CMO/CDMO) is an emerging R&D and production outsourcing model, including CRO (ContractResearchOrganization) enterprises, that is, contract R&D service outsourcing enterprises of pharmaceutical companies, CMO (ContractManufacturingorganization) pharmaceutical contract custom production enterprises, CDMO (ContractDevelopmentand ManufacturingOrganization) contract research and development and production business in the pharmaceutical field.

With the rise of innovative drug investment boom, coupled with the rising cost of patient recruitment, stricter policies, CRO companies in short supply and other multiple factors, the cost of clinical trials is increasing. Usually the cost of the clinical stage will account for more than 66% of the entire cost of new drug research and development, but in recent years, the actual proportion of many innovative pharmaceutical companies has exceeded this figure, so some companies have begun to try to build their own CRO teams.

On November 10, the "Annual Report on the Status of New Drug Registered Clinical Trials in China (2020)" released by the Drug Review Center of the State Food and Drug Administration showed that a total of 2602 clinical trials were registered in 2020, an overall increase of 9.1% over 2019 (2386), but less than half (45.4%), and the clinical trials completed in 2020 were still dominated by Phase I clinical trials. The average completion time was 95.7 days; the completion of phase III clinical trials was only 5, with an average completion time of 176.6 days. At the same time, the average number of registered drug clinical trial target enrollments (international multi-center clinical trials in terms of domestic target enrollments) was 320, of which 53.2% (783 items) of the clinical trial target enrollment was less than 100.

In addition to technology iteration, the problem of target homogenization has also become a major reason for the difficulty of patient recruitment. Among the 2602 clinical trials registered in 2020, the top 10 targets with the largest number of clinical trials are also concentrated in PD-1, VEGFR, etc., of which more than 60 clinical trials have been carried out in PD-1, VEGFR, PD-L1 and other target varieties.

The more fierce the competition between innovative pharmaceutical companies, the more incentives will be given to doctors and patients, especially the third phase of clinical trials is the most expensive, and the competing drugs used in the trial are generally not cheap. It is worth noting that in addition to the cost of doctors, patients, drugs and so on involved in the entire clinical trial process, the most important thing that cannot be ignored is the clinical monitoring link (Clinical ResearchAssociate, hereinafter referred to as "CRA").

"Clinical trials in the clinical research and development process are the most expensive and the most time-effective link. Once a new drug is made and the clinical team can't keep up, it may lose the opportunity. The head of an innovative pharmaceutical company that has successfully developed and listed a number of new drugs has told reporters.

The person in charge of the above-mentioned domestic leading innovative pharmaceutical company said that 90% of clinical trials are failures, and in the whole process, the program design of clinical trials is the most important and critical. The protocol is designed, and then it includes phase I., II., III., IV. clinical trials, generally starting from Phase II. clinical trials, it is necessary to screen eligible patients as subjects.

The risk of talent flow

The long and cost of clinical trials and the difficulty of recruiting patients have become challenges for innovative pharmaceutical companies. In view of the overall rise in the cost of new drug research and development, a person in charge of an innovative pharmaceutical company that develops oral PD-1 products analyzed that from small molecules, monoclonal antibodies, double antibodies, ADCs to cell therapy, the technical iteration of drug research and development will lead to the corresponding research and development costs will continue to rise, and the cost of related talents will also rise year by year.

The mobility of personnel in the pharmaceutical outsourcing industry even exceeds that of the Internet industry. Medici once mentioned in the prospectus that in each period of the reporting period, the company's turnover rate was 27.03%, 33.74%, 24.40% and 11.43%, respectively, and the turnover rate was relatively high. Under the background of the sustained and good development of the pharmaceutical industry and the CRO industry, the company is facing greater external pressure to tap talents, and the company is facing the risk of talent loss, and even high-end talent loss.

The head of the medical department of the above-mentioned domestic head innovative pharmaceutical company believes that the flow of CRA personnel is a market behavior and will form vicious competition. For example, the CRA jumped to a pharmaceutical company after the CRO agency did not have much upside. And when the talent loss of CRO institutions is serious, it will attract talents with high salaries. Such a supply and demand relationship leads to a large mobility of talents.

The large turnover of personnel has a certain relationship with pharmaceutical companies that want to build their own teams. For innovative pharmaceutical companies with increased R&D pipelines, self-built clinical trial teams will have more advantages, such as BeiGene (688235. SH，06160.HK，BGNE. NS), Henlius, and Hengrui Pharmaceutical (600276. SH), both have adopted the strategy of building their own CRO.

A number of interviewees said that self-built clinical trial teams and the use of third-party CROs have their own advantages and disadvantages, and deciding which channel to adopt is based on the company's own situation and actual needs. The self-built team has better controllability and large upfront investment, while outsourcing agencies, although experienced, do not necessarily have an advantage in quality control and cost efficiency.

Some crus companies believe that pharmaceutical companies will gradually establish their own clinical teams at a certain stage of development. However, the scale is larger, considering factors such as management costs, enterprises will prefer to choose CRO, which can refer to multinational pharmaceutical companies.

The CXO competitive landscape is emerging

China's CXO industry has been on the rise since 2000, and the current major players are WuXi AppTec (603259. SH, 02359.HK), Tigermed (300347. SZ, 03347.HK), Kelley Ying (002821. SZ, 06821.HK) and other leading enterprises, as well as Boteng (300363.SZ), Zhaoyan New Drug (603127. SH), Jiuzhou Pharmaceutical (603456. SH), Puluo Pharmaceutical (000739. SZ), Medici (688202. SH), Via Bio (01873. HK) and so on.

The continuous growth of the number of clinical trials and the acceleration of the approval of new drugs mean that the demand for commercialization in the future has increased significantly, and expanding business and expanding production capacity has become a link for pharmaceutical companies and CXOs to step up their layout. Pharmaceutical companies began to build their own clinical trial teams or new API factories strategic layout, trying to make each link within the controllable range, while CXO side hopes to provide pharmaceutical companies with more comprehensive and diversified integrated services.

For example, Kai Lai Ying extended its tentacles to CRO and clinical & testing services, WuXi AppTec told reporters that in 2021, it will continue to build new factories abroad to achieve integrated production of APIs and preparations. Zhaoyan New Pharmaceutical's nearly 1.5 billion yuan of funds were invested in Zhao Derivatives, Zhaoyan California and Jiangsu Xiantong, thus entering the two major fields of biological drug CDMO and molecular diagnostic CRO. and Kang Longhua (300759. SZ, 03759.HK), Yaoshi Technology (300725. SZ) expands upwards and downstream in its own CXO business, respectively.

"The domestic CXO industry should continue to develop towards specialization and large-scale, and the advantages of head enterprises will become more and more obvious." Enterprises and Tigermed and WuXi Biologics have in-depth cooperation, and high-quality CRO and CDMO have greatly contributed to the research and development of enterprises. The head of the above-mentioned innovative pharmaceutical company that develops oral PD-1 products said.

With the demand for innovative drugs to go overseas, CXO companies are increasing their investment at home and abroad. When talking about whether there will be more entrants, the staff of domestic CRO companies believe that the CXO field involves high content professionalism, and it is not easy to build successfully in the short term, and a lot of technology is needed.

"In fact, not all innovative pharmaceutical companies are suitable for self-built teams. Some companies are newly established, which is not enough to support such a large expenditure, and cooperation with CRO companies can accelerate the development process. Growing up and selling to large companies, they can share their clinical trial teams. Industry insiders who have a deep understanding of the new drug research and development process told reporters.

An expert in charge of the research and development of APIs of innovative pharmaceutical companies told the first financial reporter that the production of APIs is more difficult than the preparation, and will be handed over to a third party at present, but in the future, it will still plan to produce APIs by itself.