-- 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
By Joseph Walker
Peregrine Pharmaceuticals Inc. (PPHM) 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) 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) and Basilea Pharmaceutica AG (BSLN.EB) 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.
With information about closely guarded drug trials limited to the disclosures made by companies, investors count, in part, on the FDA to ensure the integrity of trial protocols and data. Yet most trial sites are never inspected.
The FDA inspected 1.2% of the 12,000 clinical trial sites where data were produced for drug approval in 2008, a government report found. The FDA's inspection regulations have "fallen behind industry practices" as "clinical trials have grown increasingly complex," the Department of Health and Human Services said in 2007.
In a statement to Dow Jones Newswires, the FDA said it "recognizes that the growing number of clinical trials" and "the range of contract research organizations (CROs) who assume various sponsor responsibilities create challenges for effective oversight of trial conduct."
The agency said it has begun using software tools to analyze data like the location of trial sites, financial disclosures made by physicians, and the number of patients being studied, to make more efficient use of its "limited inspectional resources."
On occasion, the agency has found errors. Inspections of two different CROs found widespread errors that forced drug companies to re-evaluate data or re-do studies completely, resulting in lost revenues and lawsuits. The CROs have since been broken up and had their assets sold.
The contractor implicated in Peregrine Pharmaceuticals's cancer drug trial had past difficulties. Clinical Supplies Management Inc. was a subcontractor on a separate study in which it was accused in a lawsuit of giving out placebos that contained elements of the study drug, invalidating the trial's data.
In September, Peregrine sued Clinical Supplies Management, accusing it of committing errors in the coding and distribution of study drugs during the cancer trial.
Clinical Supplies Management declined to comment.
Peregrine also declined to comment. Calls to its investor relations hotline went directly to a voicemail message.
"The company is not making any further comments at this time," the message said. "Thank you for your interest in Peregrine Pharmaceuticals."
Write to Joseph Walker at Joseph.Walker@dowjones.com
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