Drug trial contractors improve efficiency

By Joseph Walker

-- Companies, FDA find oversight of third-party contractors in clinical trials tricky

-- Mistakes made by contractors can derail or delay drug development

-- Peregrine retracts cancer drug data after finding errors by a contractor

Peregrine Pharmaceuticals Inc. PPHM +1.45% was riding high in early September. Its experimental cancer drug had dramatically improved survival rates in a mid-stage trial, lifting the stock to multiyear highs and raising hopes that the 31-year-old company might be closer to bringing its first drug to market.

Three weeks later, Peregrine had lost more than 85% of its market value after telling investors that data from the trial wasn't reliable, blaming a third-party firm for making errors in its coding and distribution of study drugs. The error threw doubt on the drug's viability, prompted lawsuits against Peregrine and could lead to the company's stock being delisted from Nasdaq.

Peregrine's story highlights the role that third-party contractors known as contract research organizations, or CROs, play in drug research. The $25 billion industry--ranging in size from Charles River Laboratories International Inc. CRL +0.66% and closely held Quintiles Inc. to dozens of smaller CROs that perform niche tasks--can handle everything from analyzing data to choosing and conducting oversight of clinical investigators.

Outsourcing those responsibilities has saved drug companies money and quickened the development of life-saving therapies. But the process of supervising CROs has sometimes proven tricky for companies and even the U.S. Food and Drug Administration, as they juggle oversight of dozens of study locations and personnel across the world.

Even though contractors play an instrumental role in bringing drugs to market during the clinical trial phase, investors are seldom aware of the identities or reputations of the CROs involved. Neither drug companies or the FDA typically disclose the information, even when costly errors are made that derail drugs that took years of research and millions of dollars to develop.

Johnson & Johnson JNJ -0.34% and Basilea Pharmaceutica AG learned the risks of outsourcing in 2009 when the FDA rejected the antibiotic drug Zeftera, projected to be worth as much as $1 billion by analysts.

The FDA said J&J failed to properly monitor and ensure the accuracy of data collected by its CRO and didn't account for ineligible patients being included in the study, among other lapses. Basilea's stock price dropped 70% between 2008 and 2010.

Both companies declined to comment for this story. The name of the CRO was redacted in documents made public by the FDA.

There are risks for start-ups, too. Jay Lichter, a partner at biotechnolgy investment firm Avalon Ventures, said third-party errors are more common than many realize.

"We've been burned so many times by the lowest cost provider," Mr. Lichter said. A CRO with a poor reputation for quality-control can lower the price that big pharma companies pay to acquire or partner with a start-up.

"They'll say, 'Oh, it was those guys,'" and lower their offer, Mr, Lichter said.

As drug trials have become more diffused, they have also become more difficult for the FDA to monitor.

"The challenge of trying to have effective oversight in this complex, international ecosystem is overwhelming the FDA," said Greg Koski, associate professor at Harvard Medical School and co-founder of the Alliance for Clinical Research Excellence and Safety.