Kenneth A. Getz MS, MBA

The market for managed site networks has been quietly and steadily changing during the past five years. With the exception of Radiant Research, classic site management organizations (SMO) appear but a remnant of their former selves. At the same time, new decentralized site networks have taken a dominant position within this small—and shrinking—study conduct segment. Given widespread and rising levels of sponsor–site relationship ineffectiveness, it is critical that biopharmaceutical and CRO companies understand how managed site networks are evolving in order to more effectively manage collaborations with this particular service provider.

Sponsors are spending less on managed site networks in favor of individual part-time and dedicated investigative sites, a reversal of the trend observed in the late 1990s and early 2000s. In 2006, research sponsors will spend in total an estimated $7 billion on study grants to investigators. This level of spending has grown 10.7% annually since 2000. In that same period, spending on study conduct services provided by managed site networks—including SMOs—has grown only 2.5% annually, from $281 million in 2000 to $325 million in 2006.

Radiant the Outlier

This year, community-based part-time and dedicated investigators capture 56% of the market for investigator grants; academic center-based investigators capture 39% of the market. Managed site networks capture only 4.6% of the total study grant market, down from 7% six years ago. Despite all of its promise, traditional SMOs never fully took hold in a study conduct market characterized by fragmentation and high levels of inefficiency, and one that lacks sophistication and standardization. So what happened?

A walk down memory lane

In the mid-1990s, SMOs appeared well positioned to meet growing demand for faster development cycle times, improved data quality, and controlled clinical trial costs. Few argued with the numerous conceptual benefits offered by SMOs including:

• Centralized clinical research operations
• Standardized contracts and operating procedures
• Trained and accredited staff
• New technologies to better manage data
• Systematic management of patient recruitment and retention
• Streamlined regulatory and legal review and approval processes
• Reduced fixed costs to offer more competitive pricing
• Applied business and management principles

But since their introduction 15 years ago, SMOs have struggled to deliver on these conceptual promises and have been through a wide variety of incarnations. The first SMOs emerged under a cloud of scandal, when Future HealthCare, an early entrant, was indicted for manipulating its financial records in order to influence investors.

The mid-1990s saw a wave of new entrants—owned-site and affiliation model SMOs offering single-and multi-specialty expertise—including Affiliated Research Centers (ARC), Clinical Studies Limited (CSL), Collaborative Clinical Research, Hill Top Research, Health Advance Institute (HAI), InSite Clinical Trials, Protocare, Integrated Neuroscience Consortium (INC), Rheumatology Research International (RRI) and several hybrid CRO/SMOs such as Clinicor, MDS Harris, and Scirex.

In the late 1990s, SMOs entered their most active period of venture capital fund-raising and aggressively pursued expansion and diversification strategies. Collaborative Clinical raised $42 million in a 1996 initial public offering. ARC, INC, InSite, and HAI each closed rounds of venture capital financing. Phymatrix, a $200 million physicians practice management group, acquired CSL for $85 million. nTouch Research (formerly Novum) raised $8 million in venture capital funding in order to double the size of its investigative site network through the acquisition of HAI. And having raised more than $14 million in 1999, Radiant Research purchased SMO Hill Top Research.