The current crisis related to the COVID-19 pandemic has shaken markets and economies worldwide, testing investment strategies. Today, it is difficult to find an industry that has not been directly or indirectly affected by the epidemic. The list of industries already experiencing or about to experience serious turbulence is long and growing. Consumer services, tourism, and passenger transport, as well as the fashion industry, were the first to be hit. Supply chain disruptions have shaken manufacturing. Construction is next in line. The International Monetary Fund predicts that Poland’s GDP will fall by 4.6%, with a rebound expected next year. Even if a rebound comes, the IMF estimates that the current crisis on a global scale may be the worst since the Great Depression of the 1930s.
No wonder investors are nervously looking for a safe haven for their capital. Few areas in the economy will remain unaffected, even to a small extent. The specificity of the current crisis is that it was triggered by a health crisis. Amid the heated discussion about vaccines and treatment, the world learned about a very hermetic industry that has been supplying patients and healthcare systems with new drugs for years, yet remained in the shadows until recently. This is the clinical research industry, part of the pharmaceutical market. It includes pharmaceutical and biotechnology companies, manufacturers of medical equipment and devices, healthcare service providers, including companies that organize and conduct clinical trials. The importance of this industry is evidenced by the fact that every drug, biocidal product, or medical device must successfully undergo clinical trials before being registered and reaching patients.
Coronavirus as a Development Impulse for the Industry
In the last 10 years, the index of the Life Sciences Tools & Services sector, which includes companies involved in conducting clinical trials, has increased its lead over the S&P 500 index (the largest capitalization companies listed on NYSE and NASDAQ). After a dip at the beginning of the epidemic, the index quickly returned to a growth path. In 2008, the entire pharmaceutical industry demonstrated high resilience to the crisis.
Index for the Life Sciences Tools and Services Industry in the healthcare sector. The index includes companies involved in drug discovery and development, clinical research, tools, analytical instruments, and supplies mainly for pharmaceutical and biotechnology companies.
Source:
fidelity.com
The pressure that patients, governments, and economies put on companies creating drugs and vaccines positively influences their development. The current pandemic only confirms the importance and prospects for this sector, as well as for the closely related sector of companies conducting clinical trials. The increase in the number of lifestyle diseases, along with the growing wealth of societies and the pressure for greater healthcare efficiency, has so far been the driving force behind the creation and testing of increasingly effective and innovative therapies. Even before the current pandemic, experts widely expected it. It was only unknown what pathogen would cause it. Whether it would be a new mutated strain of the flu virus, one of the already extinct diseases, or another health threat transferred from tropical zones, which would inevitably emerge with climate change. Currently, the pathogen turned out to be the SARS-CoV-2 coronavirus, similar to previously known coronaviruses that caused the SARS and MERS epidemics. Thus, the new drug industry received additional momentum. Not only economic but also social. Momentum eagerly funded by governments, funds, and investors.
The clinical research industry belongs to the area of advanced research and development activities. It deals with innovations in medicine, but it also improves itself. For some time now, numerous IT solutions have been used in clinical trials to increase the organizational efficiency of research. Further innovations, the implementation of which will only accelerate due to the current pandemic, will avoid limitations resulting from frequent personal contacts between the patient and the research team, including telemedicine technologies and web applications (e.g., Pfizer, PRA, or IQVIA).
What is a Clinical Trial
It is a scientific study involving humans, aimed at discovering or confirming the effectiveness and safety of a drug. Clinical trials can be commercial, commissioned by so-called sponsors, i.e., pharmaceutical and biotechnology companies (98% of all clinical trials in Poland), or non-commercial – funded by research grants. The quality requirements for clinical data in commercial and non-commercial trials are the same. The requirement for clinical trials applies not only to drugs but also to medical devices and biocidal products, although not to dietary supplements, which are treated as foodstuffs.
A clinical trial is part of a very costly process of developing, testing, and registering new drugs. Before a drug reaches patients, it must go through a long journey, starting with preclinical laboratory analyses, through animal testing, to three phases of clinical trials. To proceed to the next phase of the trial, the previous one must be successfully completed. Idea Pharma, a company publishing the innovation ranking of pharmaceutical companies, estimates that the average cost of a new drug, including research and commercialization, is USD 4.5 billion. The process of developing and registering a drug takes an average of 12 years. However, special events and available knowledge and experience can significantly accelerate the development process of a new drug. This is currently happening. The crisis caused by the COVID-19 pandemic has led many pharmaceutical companies, biotechnology companies, and scientific laboratories to focus their efforts on developing a vaccine against the SARS-CoV-2 virus, which is responsible for the current pandemic. Other companies are researching the use of existing active substances to combat COVID-19 and its related complications.
Success in the third phase of the trial opens the way to registration and sales, but clinical trials continue as part of the fourth phase, which concerns the long-term effects of the drug. Clinical trials are conducted according to strictly defined Good Clinical Practice (GCP) rules, monitored by specialized departments in companies and drug registration agencies, such as the US Food and Drug Administration (FDA), the European Medicines Agency (EMA), and the Polish Office for Registration of Medicinal Products, Medical Devices, and Biocidal Products (URPL).
Research in Poland on the Verge of Expansion
The clinical research sector is considered one of the most innovative. Not only because of its work on innovative drugs, therapies, and medical devices. Regular implementation of process innovations in the administration and management of clinical trials, as well as IT solutions, make this sector considered to be growing and resilient to shocks. Relatively inelastic demand for new drugs and healthcare services makes the industry readily funded by investors.
According to Grand View Research, the global clinical research market was worth USD 46.75 billion in 2019. It is expected to grow to USD 69.8 billion by 2027 (CAGR 5.7% in 2019-2027). The stream of clinical research is gradually being redirected to Central and Eastern Europe, among others, due to the possibility of achieving higher cost efficiency in this region compared to more developed countries. Investments in “digital health” will also increase in the coming years. Pfizer, a leading sponsor of clinical trials, is working on a project to conduct clinical trials via a web application to shorten the study time and reduce operating costs.
After many years of stagnation, the clinical research market in Poland has revived thanks to the activities of the Ministry of Health and the Agency for Medical Research, established by the Ministry. Both institutions are also supported by the Ministry of Science and Higher Education. According to the Agency for Medical Research, the value of the Polish medical research market is currently around PLN 2 billion, and considering the size of the Polish market, its value should be three times higher. URPL reports that in the first half of 2019, the number of applications for starting clinical trials in Poland increased by as much as 40%. The exceptional significance for the development of the research market in Poland is due to the activities of the Ministry of Health and the Agency for Medical Research. In the Drug Policy Program 2018-2022, the Ministry of Health aims to increase the number of clinical trials, including through the Agency for Medical Research, which plans to allocate PLN 400 million for non-commercial research by the end of 2020, including PLN 50 million for research related to the coronavirus. Radosław Sierpiński, President of ABM, stated at the Economic Forum in Krynica in 2019 that he wants to encourage pharmaceutical companies to conduct clinical trials in Poland. Due to the coronavirus pandemic, all these activities have accelerated and are receiving higher funding than planned, partly due to strong social expectations regarding increased healthcare spending.
No SMO, No Population Clinical Trials
It is impossible to conduct clinical trials involving large numbers of patients without the support of SMO (Site Management Organization) companies, managing networks of clinical research centers. Especially those located within clinical hospitals and institutes. A characteristic feature of the Polish market is the large share of small, one-person clinical research centers, run by a doctor who also acts as the principal investigator, occasionally supported by a nurse. Worldwide, there is a trend towards the consolidation of the sector, particularly in the area of research centers. This trend results from the need to increase the efficiency of the research process in its organizational part. The answer to the needs of the clinical research market is the emergence of professional networks of clinical research centers centered around SMO organizations, which coordinate and support their centers through so-called shared service centers. SMO is an organization that provides various services to Sponsors (pharmaceutical and biotechnology companies) and CRO (intermediaries between sponsors and SMO and research centers) and clinical research centers. The scope of services may include contracting and initiating studies in centers, recruiting patients, budgeting and accounting for studies, managing administrative processes in clinical research centers. Professional clinical research centers have specialized staff for managing research in
the center, varying degrees of their own technical infrastructure, laboratory facilities, archives, etc.
Several dozen pharmaceutical and biotechnology companies are working on developing a vaccine against SARS-CoV-2 for billions of people worldwide. The desired product, before being approved for widespread vaccination, requires successful completion of preclinical studies and three phases of clinical trials involving humans. These studies will be conducted by SMO, and since there is a race against time, these companies must grow rapidly to meet this task. However, they will bring high returns to investors who are chosen to secure capital for growth. The rate of return on capital invested in SMO companies is well reflected by the Life Sciences Tools & Services index. In the entire value chain, there is room for investors with different investment potentials and for investments aimed at various participants in this chain.
In the Polish market, there are several significant entities operating in the SMO sector. They deal with clinical research or IT software supporting administrative and management processes. Notable Polish SMOs include Synexus, Pratia, and KO-MED Clinical Centers. In the IT technology area, particularly interesting solutions are offered by Clinical Trials Solutions within its SaaS platform, SMARTrials®. KO-MED Clinical Centers is a crown jewel of the Polish SMO sector because it operates on the premises of hospitals and institutes, with access to a large base of patients and researchers, following the modern trend. The company has gained experience by conducting nearly 200 clinical trials in all key areas of medicine. KO-MED Clinical Centers, as the only Polish SMO, was the world leader in flu vaccine trials in two seasons, 2018 and 2019. Therefore, it has the best chances to conduct SARS-CoV-2 vaccine trials on a large, multi-thousand group of Polish patients, which will consequently open access to this vaccine to the Polish market as one of the first in the world.
The company has undertaken intensive preparations to conduct this trial, which will likely take place at the turn of August and September 2020. KO-MED Clinical Centers, as one of the few entities in Europe, holds first-choice certificates from, among others, the American company IQVIA. It has been cooperating in clinical trials with such entities as Pfizer, GSK, Sanofi, Roche, and many others for years, which are currently intensively working on a vaccine against SARS-CoV-2 or drugs for COVID-19. A few months ago, the company successfully passed an audit of its clinical trial processes conducted by the American FDA agency. The company is open to capital investments in preparing for clinical trials of the vaccine on an even larger number of Polish patients, as emphasized by President Marek Konieczny. To achieve this goal, he specifies a capital requirement of PLN 30 million.
Author:
Stanisław Pisarski, CEO at Factor Consulting, Strategic Advisor
An expert in the organization and management processes in healthcare. He is, among others, the creator of an ecosystem model in clinical trials, enabling the optimal functioning of all stakeholders, including sponsors, CROs, SMOs, regulators, researchers, investors, and patients, as well as IT technology providers. IT solutions are particularly important in this context, as they enable the standardization and automation of all processes and control and supervision of the interests of each entity involved in the ecosystem. In this model, the role of the investor is as important as the role of the researcher.
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