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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _________
Commission file number 33-69586
CLINTRIALS RESEARCH INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1406017
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
One Burton Hills Boulevard, Suite 210, Nashville, Tennessee 37215
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(Address of principal executive offices)
(Zip Code)
(615) 665-9665
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(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of
the Act
Title of each Class Name of each exchange
------------------- on which registered
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Common Stock, $.01 par value Nasdaq Stock Market
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $147,251,276 as of March 8, 1996. The number of Shares of
Common Stock outstanding as of March 8, 1996 was 8,836,047.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into Part II, Items 6, 7
and 8 of this Form 10-K: Portions of the Registrant's Annual Report to its
stockholders for fiscal year ended December 31, 1995.
The following documents are incorporated by reference into Part III, Items 10,
11 and 12 of this Form 10-K: Portions of the Registrant's definitive proxy
materials for its 1996 Annual Meeting of stockholders.
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PART I
ITEM 1. BUSINESS
The Company is a full service clinical research organization ("CRO")
serving the pharmaceutical, biotechnology and medical device industries. The
Company designs, monitors and manages clinical trials, provides clinical data
management and biostatistical services, and offers product registration
services throughout the United States and Europe. The Company generates
substantially all of its revenue from the clinical testing of new
pharmaceutical and biotechnology products. At December 31, 1995, the Company
had contracts in backlog to perform clinical research services in 25 countries
worldwide. To date, the Company has performed services for approximately 100
clients including the ten largest pharmaceutical companies in the world. Net
service revenue increased 34.9% to $57.8 million in 1995 from $42.9 million in
1994.
New pharmaceutical and biotechnology products must undergo extensive
testing and regulatory review to determine their relative safety and
effectiveness. Companies seeking approval for these products are responsible
for performing and analyzing the results of multi-phase clinical trials.
Clinical trials, typically lasting eight to twelve years and involving hundreds
or thousands of human subjects, were historically performed almost exclusively
by in-house personnel at the major pharmaceutical companies. In recent years,
pharmaceutical companies have begun to outsource clinical trials management to
CROs, which has resulted in significant growth in the CRO industry. The
Company believes worldwide research and development expenditures by the
pharmaceutical and biotechnology industries reached $30 billion in 1994,
approximately $10 billion of which was spent on clinical trials, with
approximately $2 billion being outsourced to CROs. Research and development
expenditures in 1994 for the top 50 pharmaceutical companies in the world
increased approximately 8% from the previous year. The Company believes that
certain industry trends have led pharmaceutical and biotechnology companies to
increase research and development for proprietary new drugs, conduct
increasingly complex clinical trials, and develop multinational clinical trial
capability, while seeking to control internal fixed costs. These trends
include the increased emphasis on finding treatments for chronic disorders and
infectious diseases, the desire by manufacturers to market pharmaceutical and
biotechnology products simultaneously in several countries, and cost
containment pressures from certain governments, managed care organizations and
other payors. By providing experienced clinical and database management
personnel to conduct complex trials on a contract basis, CROs have enabled
pharmaceutical and biotechnology companies to respond to cost containment
pressures by turning the fixed costs of internal clinical research into
variable costs.
The Company has offices in Nashville, Tennessee; Research Triangle
Park, North Carolina; Lexington, Kentucky; Maidenhead, England; and Brussels,
Belgium. Recently, the Company expanded its geographic reach by opening new
offices in Melbourne, Australia and Jerusalem, Israel.
BACKGROUND
New Drug Development -- An Overview. Before a new drug may be
marketed, it must generally undergo extensive testing and regulatory review to
determine that it is safe and effective. This development process consists of
two stages, pre-clinical and clinical. In the pre-clinical stage, the sponsor
of the new drug conducts laboratory analyses and animal tests, generally over a
one to three year period, to determine the basic biological activity and safety
of the drug. Upon successful completion of the pre-clinical phase, the drug
undergoes a series of clinical tests in humans, including healthy volunteers as
well as patients with the targeted disease, generally over
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an eight to twelve year period. In the United States, pre-clinical and
clinical testing must comply with the requirements of Good Clinical Practice
("GCP") and other standards promulgated by the Federal Drug Administration (the
"FDA") and other federal and state governmental authorities. GCP stipulates
procedures designed to ensure the quality and integrity of data obtained from
clinical testing and to protect the rights and safety of clinical subjects.
The FDA pioneered the use of clinical trials in the regulation of new drug
development, and the agency's approval process has shaped much drug regulation
worldwide. In recent years, the FDA and corresponding regulatory agencies of
the major industrial countries (Canada, Japan and the European Community
("EC")) commenced discussions for the purpose of developing common standards
for both the conduct of pre-clinical and clinical studies and the format and
content of applications for new drug approvals. Data from multi-national
studies adhering to GCP are now generally acceptable to the FDA and the
governments within the EC.
In the United States, a drug sponsor must file an Investigational New
Drug Application ("IND") with the FDA before the commencement of human testing
of a drug. The IND includes pre-clinical testing results and sets forth the
sponsor's plans for conducting human clinical trials. The design of these
plans, also referred to as the study protocol, is critical to the success of
the drug development effort because the protocol must correctly anticipate the
data and results that the FDA will require before approving the drug. In the
absence of any comments from the FDA, human clinical trials may begin 30 days
after the IND is filed. In 1993, the last year for which the Company has
figures, there were 2,300 INDs filed with the FDA.
Human trials usually start on a small scale to assess safety and then
expand to larger trials to test efficacy. Trials are usually grouped into four
phases, with multiple trials generally conducted within each phase.
Phase I. Phase I trials are conducted on healthy volunteers,
typically 20 to 80 persons, to develop basic safety data relating to
toxicity, metabolism, absorption and other pharmacological actions.
These trials last an average of six months to one year.
Phase II. Phase II trials are conducted on a small number of
subjects, typically 100 to 200 patients, who suffer from the drug's
targeted disease or condition. Phase II trials offer the first
evidence of clinical efficacy, as well as additional safety data.
These trials last an average of two years.
Phase III. Phase III trials are conducted on a significantly
larger population of several hundred to several thousand patients,
some of whom suffer from the targeted disease or condition and some of
whom are healthy. Phase III trials are designed to measure efficacy
on a large scale as well as long-term side effects. These trials
involve numerous sites and generally last two to three years.
Phase IV. As a condition of granting marketing approval, the
FDA may require that a sponsor continue to conduct additional clinical
trials, known as Phase IV trials, to monitor long-term risks and
benefits, study different dosage levels, or evaluate different safety
and efficacy parameters in target patient populations. With the
increasing importance of Phase IV trials has also come increased
complexity in the scope of the trials (i.e., the number of patients
tested) and the manner in which they are conducted (i.e., the number
of sites at which testing is performed). Phase IV trials generally
last one to four years.
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Clinical trials often represent the most expensive and time-consuming
part of the overall drug development process generally lasting from eight to
twelve years. The information generated during these trials is critical for
gaining marketing approval from the FDA or other regulatory agencies. After
the successful completion of Phase III trials, the sponsor of a new drug must
submit a New Drug Application ("NDA") to the FDA. The NDA is a comprehensive
filing that includes, among other things, the results of all pre-clinical and
clinical studies, information about the drug's composition and the sponsor's
plans for producing, packaging and labeling the drug. Most of the clinical
data contained in an NDA is generated during the Phase II and III trials. The
average NDA filed between 1989 and 1992 (the last years for which the Company
has found data) contained 90,650 pages. The FDA's review of an NDA can last
from several months to several years, with the average review lasting two and
one-half years. Drugs that successfully complete this review may be marketed
in the United States, subject to the conditions imposed by the FDA in its
approval. The FDA has been subject to increasing pressure to allow drugs to
reach the public more quickly. As a result, in some instances the FDA has
expedited the review process by granting conditional approval of lifesaving
drugs or those for conditions for which there is no current treatment so that
they can be marketed while Phase IV trials are being conducted. In recent
years, the FDA has encouraged the use of computer assisted NDAs ("CANDAs") in
an effort to expedite the approval process.
CRO Industry Trends. The clinical research industry derives
substantially all of its revenue from the research and development ("R&D")
expenditures of pharmaceutical, biotechnology and medical device companies.
Accordingly, trends affecting companies in these industries may have an impact
on the CRO industry.
The Company believes that an increasing percentage of R&D expenditures
by pharmaceutical, biotechnology and medical device companies are being
outsourced to CROs for the following reasons.
Research and Development Expenditures. The Company believes worldwide
R&D expenditures by the pharmaceutical and biotechnology industries reached $30
billion in 1994, approximately $10 billion of which was spent on clinical
trials, with approximately $2 billion being outsourced to CROs. Research and
development expenditures in 1994 for the top 50 pharmaceutical companies in the
world increased approximately 8% from the previous year. Such expenditures
have resulted from an increased emphasis on developing effective products for
the treatment of chronic disorders and life threatening acute conditions such
as infectious diseases. The cost of developing therapies for chronic
disorders, such as arthritis, Alzheimer's disease, and osteoporosis is higher
because the treatments take longer to bring to market as they must be studied
for a longer period to demonstrate their effectiveness in curbing the chronic
disorder and for their long-term side effects.
Cost Containment Pressures. While the recent movement to impose
government controlled healthcare plans appears to have lost momentum in the
United States, the generally recognized need to control rising healthcare costs
has caused the following changes in the pharmaceutical industry:
1. Managed care organizations. Managed care organizations have
become major participants in the delivery of pharmaceuticals.
Many of these organizations limit
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the selection of drugs from which affiliated physicians may
prescribe, thus increasing the competition among
pharmaceutical companies.
2. Consolidation. During the past year, there were several large
mergers within the industry. As pharmaceutical companies
attempt to take advantage of the economies of scale created by
these mergers, the industry has seen large scale employee
lay-offs and other cutbacks.
3. Foreign price controls. Certain governments outside the
United States have legislated price controls on pharmaceutical
products, thereby increasing pressure on companies to cut
costs in order to maintain profit margins.
4. Other factors. Factors such as competition from generic drugs
following patent expiration, more stringent regulatory
requirements, and the increasing complexity of clinical trials
have resulted in increasing market pressure on profit margins.
In response to these cost containment pressures, a number of United
States pharmaceutical companies have publicly committed to hold net effective
price increases generally in line with inflation. In the area of clinical
development, many pharmaceutical and biotechnology companies are seeking to
reduce the high fixed costs associated with peak-load staffing by reducing
internal clinical staff and relying on a combination of internal resources and
external resources such as CROs, thereby shifting fixed costs to variable costs.
Globalization of Clinical Research and Development. Due to the
increasing costs of getting a new drug to market, many projects which are not
expected to achieve sufficient annual worldwide revenue are abandoned. A one
year delay in getting a product to market may cost its manufacturer the entire
cost of developing the product. Reducing the time it takes to get a new drug
to market reduces costs, maintains margins and accelerates realization of
revenue. Currently, successfully developing a new drug takes approximately 8
to 12 years, a significant fraction of the drugs' 17-year period for protection
under United States patent laws. Certain clients of the Company have expressed
a desire to decrease this time to approximately 5 to 7 years. Pharmaceutical
companies are increasingly attempting to maximize the return from a given drug
by pursuing regulatory approvals in multiple countries simultaneously rather
than sequentially, as was the industry practice historically. A pharmaceutical
company seeking approval in a country in which it lacks experience or internal
resources will frequently turn to a CRO for assistance in interacting with
regulators or in organizing and conducting clinical trials. The Company
believes that the globalization of clinical research and development activities
has increased the demand for CRO services.
Growth of Biotechnology Industry. The biotechnology industry and the
number of biotechnology drugs requiring FDA approval have grown substantially
over the past decade. Many biotechnology companies have chosen not to expend
resources to develop sufficient staff or expertise to conduct clinical trials
in-house, but rather have utilized providers such as CROs to perform these
services.
BUSINESS STRATEGY
The trend toward outsourcing the clinical testing process for
pharmaceutical, biotechnology and medical device products is accelerating. The
CRO industry is highly fragmented with many
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small, limited-service providers as well as in-house research departments,
universities and teaching hospitals, and other CROs, many of which have
substantially greater resources than the Company. However, the Company
believes it is well positioned to take advantage of the trend toward
outsourcing as a result of its demonstrated ability to provide a broad range of
professional, cost-effective clinical research and development services
worldwide. The Company's strategy is comprised of the following elements:
Provide Comprehensive Clinical Research Services. The Company offers
a broad range of clinical research services and believes that its knowledge and
experience in all stages of clinical research enhances its credibility with
prospective clients. The Company's capabilities allow it to provide the full
range of clinical services on a turnkey basis, which the Company believes can
be especially important to clients without significant relevant regulatory
expertise, such as biotechnology companies and international pharmaceutical
companies seeking to enter new geographic markets. To meet the needs of
specific clients, the Company offers its services separately or as an
integrated package. This allows a client to use the Company to design a
protocol, conduct a trial, analyze the results of one or more trials, prepare
and submit an NDA or CANDA to the FDA, or for any combination of these
services. This approach enables the Company to respond to clients'
requirements with flexibility and also allows it to establish a relationship
with a new client with a particular service which may in turn lead to larger,
more comprehensive projects.
Capitalize on Global Model of New Drug Development. The Company
provides clinical research and development services to major United States and
European pharmaceutical and biotechnology companies. The Company conducts
multinational clinical trials designed to pursue concurrent regulatory
approvals in multiple countries. The Company believes that this experience is
a competitive advantage, as pharmaceutical and biotechnology companies
increasingly are pursuing regulatory approvals simultaneously in multiple
countries. The Company has recently increased and strengthened its European
management team and increased its office space in Maidenhead, England to
provide more comprehensive services to its United States clients doing business
abroad and to better market its services to existing and potential European
clients. During 1995, the Company expanded its geographic reach by delivering
services in 15 countries and by opening offices in Australia and Israel.
Conduct Scientifically Demanding Trials. The Company provides its
services in connection with scientifically and clinically demanding trials in a
wide range of therapeutic areas, including Allergy, Cardiology, Dermatology,
Gastroenterology, Gynecology, Immunology, Infectious Diseases, Oncology,
Psychiatry, Respiratory Diseases, and Urology. The Company also conducts
studies in Pharmacoeconomics and Pharmacokinetics. The Company believes that
its experience with these complex therapeutic areas gives it an advantage over
those competitors who do not have the same broad experience as the Company.
Pursue Growth Opportunities. The Company intends to pursue the
following growth opportunities:
1. Internal Expansion. The Company intends to continue its
internal expansion by seeking contracts with new clients,
seeking contracts with other divisions or therapeutic areas
within its existing clients, and by cross-selling other
services to existing clients.
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2. Strategic Alliances. In these arrangements, the client agrees
to provide the Company with a minimum level of revenue and is
guaranteed adequate staffing over a multi-year period. The
Company believes this type of arrangement results in more
favorable pricing to the client and more efficient management
of the Company's resources. In 1994, the Company signed
strategic alliances with Baxter Healthcare, Sandoz
Pharmaceuticals Corporation, and SmithKline Beecham. The
Company will continue to seek other such alliances.
3. Acquisitions. The Company intends to pursue acquisition
opportunities within the CRO industry that management believes
are likely to increase the Company's profitability or achieve
other strategic objectives. The Company's success in past
acquisitions is not an indication of the Company's potential
with regard to future acquisitions. In addition, there can be
no assurance that the Company will be able to enter into any
acquisitions or that it will be able to secure financing for
any acquisition on terms acceptable to the Company.
SERVICES
The Company's services and related products include clinical trials
management services, clinical data management and biostatistical services, and
product registration services. The Company's services can be provided
separately or as an integrated package. Services from each of these categories
can be utilized for the development and execution of a turnkey NDA.
Clinical Trials Management Services. The Company offers complete
services for the design, placement, performance and management of clinical
trial programs, a critical element in obtaining regulatory approval for drugs
and medical devices. The Company has performed services in connection with
trials in many therapeutic areas. The Company's multi-disciplinary clinical
trials group has the ability to examine a product's existing pre-clinical and
clinical data for the purposes of designing protocols for clinical trials in
order to ascertain evidence of the product's safety and efficacy.
The Company manages every aspect of trials in Phases II through IV,
including design of operations manuals, identification and recruitment of trial
investigators, initiation of sites, monitoring for strict adherence to GCP,
site visits to ensure compliance with protocol procedures and proper collection
of data, interpretation of trial results and report preparation. Substantially
all of the Company's current projects involve Phase II, III or IV clinical
trials, which, in most cases, are significantly larger and more complex than
Phase I trials.
A recent development in the CRO industry is the emergence of trials
involving tests on over 1,000 patients over a period of several years at
multiple sites. These trials have resulted from the drug companies' emphasis
on treating and curing chronic disorders and the resulting need to thoroughly
test large numbers of patients for long-term side effects of new drugs. The
Company is experienced in managing such trials and actively markets its
abilities in this area.
Clinical trials are monitored for strict adherence to GCP. Efficient
data collection, form design, detailed operations manuals and site visits by
the Company's clinical research associates ("CRA") are employed to determine
whether clinical investigators and their staffs follow established protocols
and accurately record the findings of the trials.
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The Company assists clients with one or more of the following steps of
clinical trials:
- Study Protocol. The protocol defines the medical issues the
study seeks to examine and the statistical tests that will be
conducted. Accordingly, the protocol defines: (i) the
frequency and type of laboratory and clinical measures that
are to be tracked and analyzed; (ii) the number of patients
required to produce a statistically valid result; (iii) the
period of time over which they must be tracked; and (iv) the
frequency and dosage of drug administration.
- Case Report Forms. Once the study protocol has been
finalized, special forms for recording the desired information
must be developed. These forms are called Case Report Forms
("CRFs"). The CRF may change at different stages of a trial.
The CRF for one patient in a given study may consist of as
many as 100 pages or more.
- Site and Investigator Recruitment. The drug is administered
to patients by investigators, at hospitals, clinics or other
locations, referred to as sites. Potential investigators may
be identified by the drug sponsor or the CRO, which then
solicits the investigators' participation in the study.
Generally, the investigators contract directly with the
Company. The trial's success depends on the successful
identification and recruitment of investigators with proper
expertise and an adequate base of patients who satisfy the
requirements of the study protocol.
- Patient Enrollment. The investigators find and enroll
patients suitable for the study according to the study
protocol. Prospective patients are required to review
information about the drug and its possible side effects and
sign an informed consent to record their knowledge and
acceptance of potential side effects. Patients also undergo a
medical examination to determine whether they meet the
requirements of the study protocol. Patients then receive the
drug and are examined by the investigator as specified by the
study protocol.
- Study Monitoring and Data Collection. As patients are
examined and tests are conducted in accordance with the study
protocol, data are recorded on CRFs and laboratory reports.
The data are collected from study sites by specially trained
CRAs. CRAs visit sites regularly to ensure that the CRFs are
completed correctly and that all data specified in the
protocol are collected. CRFs are reviewed for consistency and
accuracy before their data are entered into an electronic
database.
- Medical Affairs. Throughout the course of a clinical trial,
the Company may provide various medical research and services
including medical monitoring of clinical trials,
interpretation of clinical trial results and preparation of
clinical study reports.
- Report Writing. The results of statistical analysis of data
collected during the trial together with other clinical data
are included in a final report generated for inclusion in a
regulatory document.
Clinical Data Management and Biostatistical Services. The Company's
data management professionals assist in the design of protocols and CRFs, as
well as training manuals and training sessions for investigational staff, to
ensure that data are collected in an organized and consistent
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format. Databases are designed according to the analytical specifications of
the project and the particular needs of the client. Prior to data entry, the
Company's personnel screen the data to detect errors, omissions and other
deficiencies in completed CRFs. The Company provides clients with data
abstraction, data review and coding, data entry, database verification and
editing, and problem data resolution.
The Company's biostatistics professionals provide biostatistical
consulting, database design, data analysis and statistical reporting. The
Company's biostatisticians provide clients with assistance in all phases of
drug development. These professionals develop and review protocols, design
appropriate analysis plans and design report formats to address the objectives
of the study protocol as well as the client's individual objectives. Working
with the programming staff, biostatisticians perform appropriate analyses and
produce tables, graphs, listings and other applicable displays of results
according to the analysis plan. Frequently, biostatisticians assist clients
before panel hearings at the FDA.
The Company believes that its data management and biostatistical
services capabilities can be utilized by a client more effectively when
packaged as part of its total clinical trials management services and used to
monitor Phases II through IV rather than just one phase. This packaging
permits a faster and less costly clinical trial process, as the data are
collected and analyzed more rapidly and the decision to move to the next phase
can be made more quickly. Although the Company believes that many
pharmaceutical companies treat each phase as a distinct trial, the Company is
emphasizing its "entire process" approach in its marketing efforts. Currently,
a significant portion of these services are utilized by clients to process data
that have previously been collected either by the client itself or by another
CRO as part of a distinct phase in the drug development process.
Product Registration Services. The Company provides comprehensive
product registration services throughout Europe and the United States. The
Company provides regulatory strategy formulation, document preparation, Good
Manufacturing Practice consultation and acts as liaison with the FDA and other
regulatory agencies. Although these services have not generated material
revenue to date, the Company offers these services in order to provide the full
range of services necessary to remain competitive in the CRO industry.
The Company works closely with clients to devise regulatory strategies
and comprehensive product development programs. The Company's regulatory
affairs experts review existing published literature, assess the scientific
background of a product, assess the competitive and regulatory environment,
identify deficiencies and define the steps necessary to obtain registration in
the most expeditious manner. Through this service, the Company helps its
clients determine the feasibility of developing a particular product or product
line.
The Company's regulatory affairs professionals have experience in the
analysis, preparation and submission of FDA regulatory documents covering a
wide range of products, including drugs and over-the-counter products. The
Company also has experience with preparing regulatory documentation for
submission to European regulatory authorities.
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CLIENTS AND MARKETING
The Company has served many of the leading pharmaceutical companies in
the United States and the EC. The Company's clients include the ten largest
pharmaceutical companies in the world. The Company's clients also include
companies in the biotechnology and medical device industries. For the year
ended December 31, 1995, the Company recognized revenue on contracts with 67
clients. During 1995, approximately 88% of the Company's net service revenue
was derived from pharmaceutical companies, 10% from biotechnology companies and
2% from medical device companies. In 1994, such companies contributed 85%, 13%
and 2% of net service revenue, respectively.
The Company has had, and will continue to have, clients from which at
least 10% of the Company's overall revenue is generated over multiple
contracts. Such concentrations of business are not uncommon within the CRO
industry. During 1995, the Company generated approximately 25% of its net
service revenue from Sandoz, Ltd. and approximately 18% from SmithKline Beecham
Corp. The Company's contracts are entered into with numerous therapeutic areas
or divisions within each client and frequently involve different decision
makers. Thus, there is a reduced likelihood that the Company would
simultaneously lose all contracts with any single client. Accordingly, while
the complete loss of a significant client could have a material adverse impact
on the Company, the termination of any one contract would typically not have a
material adverse impact.
The Company's strategy is to seek contracts with new clients, seek
contracts with new therapeutic areas or divisions within existing clients,
cross-sell other services to existing clients, and develop strategic alliances
with major pharmaceutical companies. Marketing activities are conducted by the
Company's business development personnel based in each of the Company's
locations. In response to the highly technical nature of the Company's
business, most business development personnel have scientific backgrounds.
Additionally, the Company runs an extensive advertising program in trade
journals and publications and, from time to time, employs direct mailings of
information to existing and potential clients. The Company also attends and
exhibits at selected trade shows in the United States and Europe. The Company
is in the process of expanding its business development group in order to serve
additional clients.
CONTRACTUAL ARRANGEMENTS
The Company generally is awarded contracts based, among other things,
upon its response to requests for proposal ("RFP") received from
pharmaceutical, biotechnology and medical device companies. The contract may
require the Company to design a protocol, conduct the trial, analyze the
results of one or more of the trials, prepare and submit an NDA or CANDA to the
FDA, or perform any combination of these services. After negotiating a letter
of intent or definitive contract, the Company, and in many cases the client,
will coordinate the selection of clinical investigators and conduct pre-study
site visits. The clinical investigators, in conjunction with the Company, are
then responsible for enrolling participants in the trial, which may include
persons with a given disorder or disease, healthy persons and persons within
defined populations. Informed consents, in accordance with FDA and
institutional regulations, are obtained from all participants. Frequently, the
Company obtains additional revenue as a result of change orders to existing
contracts. Change orders are typically generated at the request of the client
based on the results
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of the trial to date and include changes in the scope of the trial and in the
services to be provided by the Company.
Most contracts are fixed priced, multi-year contracts that require a
portion of the contract amount to be paid at or near the time the trial is
initiated. The Company generally bills its clients upon the completion of
negotiated performance requirements and, to a lesser extent, on a date certain
basis. The Company's contracts generally may be terminated with or without
cause. In the event of termination, the Company is typically entitled to all
sums owed for work performed though the notice of termination and all costs
associated with termination of the study. In addition, some of the Company's
contracts provide for an early termination fee, the amount of which usually
declines as the trial progresses. Termination or delay in the performance of a
contract occurs for various reasons, including, but not limited to, unexpected
or undesired results, inadequate patient enrollment or investigator
recruitment, production problems resulting in shortages of the drug, adverse
patient reactions to the drug, or the client's decision to deemphasize a
particular trial.
The Company's strategic alliance agreements, although larger in size
and covering several projects over multiple years, are generally the same as
the contracts described above.
BACKLOG
Backlog consists of anticipated net service revenue from letters of
intent and contracts that have not been completed. Once work under a letter of
intent or contract commences, net service revenue is recognized over the life
of the contract using the percentage-of-completion method of accounting. In
certain cases, the Company will work on a project prior to finalizing a letter
of intent or contract. Backlog excludes anticipated net service revenue for
projects for which the Company has commenced work but for which a definitive
letter of intent or contract has not been executed.
The Company believes that its backlog as of any date is not
necessarily a meaningful indicator of future results and no assurance can be
given that the Company will be able to realize net service revenue included in
backlog. Clinical trials under contracts included in backlog are subject to
termination or delay at any time by the client or regulatory authorities.
Termination or delays can result from a number of factors. Delayed contracts
remain in the Company's backlog pending determination of whether to continue,
modify or cancel the contract.
At December 31, 1993, 1994 and 1995, the Company's backlog was $47.3
million, $71.1 million and $90.2 million, respectively.
COMPETITION
The Company competes primarily against pharmaceutical companies' own
in-house research departments, other CROs, universities and teaching hospitals.
The CRO industry is highly fragmented, with approximately 20
full-service CROs and many small, limited-service providers. In recent years,
several large, full-service competitors have emerged, some of which have
substantially greater capital and other resources, are better known and have
more experienced personnel than the Company. The Company's competitors include
Besselaar, a subsidiary of Corning, Inc.; Pharmaco, a subsidiary of Applied
Bioscience International, Inc.; Parexel International Corp.; and Quintiles
Transnational Corp. The trend toward industry consolidation is likely to
result in heightened competition among the larger CROs. The
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industry is not capital intensive and the financial costs of entry are
relatively low. The Company believes that clients choose a CRO based on
several factors, the most important of which is the quality of the work
performed for existing clients. Other factors include references from existing
clients, ability to provide the services required for projects in specific
therapeutic areas, and the price for the services performed. While the
contract price is an important consideration, the Company believes the more
important considerations are the Company's experience, reputation and
availability of resources. The Company believes that it competes favorably in
these areas.
GOVERNMENT REGULATION
The clinical investigation of new pharmaceutical, biotechnology and
medical device products is highly regulated by governmental agencies. The
purpose of United States federal regulations is to ensure that only those
products which have been proven to be safe and effective are made available to
the public. The FDA has set forth regulations and guidelines that pertain to
applications to initiate trials of products, approval and conduct of studies,
report and record retention, informed consent, applications for the approval of
new products, and post-marketing requirements. Pursuant to FDA regulations,
CROs that assume obligations of a drug sponsor are required to comply with
applicable FDA regulations and are subject to regulatory action for failure to
comply with such regulations. In the United States, the historical trend has
been in the direction of increased regulation by the FDA. The Company believes
that many pharmaceutical, biotechnology and medical device companies do not
have the staff and/or the available expertise to comply with all of the
regulations and standards, and this has contributed and will continue to
contribute to the growth of the CRO industry.
The services provided by the Company are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries,
although the level of applicable regulation in other countries is generally
less comprehensive than regulation present in the United States. The Company
is obligated to comply with FDA regulations governing such activities as
selecting qualified investigators, obtaining required forms from investigators,
verifying that patient informed consent is obtained, monitoring the validity
and accuracy of data, verifying drug/device accountability, and instructing
investigators to maintain records and reports. The Company must also maintain
records for each study for specified periods for inspection by the study
sponsor and the FDA during audits. If such audits document that the Company
has failed to adequately comply with Federal regulations and guidelines, it
could have a material adverse effect on the Company. In addition, the
Company's failure to comply with applicable regulations could possibly result
in termination of ongoing research or the disqualification of data, either of
which could also have a material adverse effect on the Company, including,
without limitation, damage to the Company's reputation.
POTENTIAL LIABILITY AND INSURANCE
The Company monitors the testing of new drugs on human volunteers
pursuant to study protocols in Phase II, III and IV trials. Clinical research
involves a risk of liability for personal injury or death to patients from
adverse reactions to the study drug, many of whom are seriously ill and are a
great risk of further illness or death as a result of factors other than their
participation in a trial. Additionally, although the Company's employees do
not have direct contact with the participants in a clinical trial, the Company,
on behalf of its clients, contracts with physicians who render professional
services, including the administration of the substance being tested, to such
persons. As a result, the Company could be held liable for bodily injury,
death, pain and suffering,
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loss of consortium, other personal injury claims and medical expenses arising
from any professional malpractice of such physicians. The Company maintains
insurance to cover malpractice liability of physicians who are employees or
consultants of the Company. To date, the Company has not received any claims
resulting from either the testing of new drugs or professional malpractice.
The Company believes that the risk of liability to patients in
clinical trials is mitigated by various regulatory requirements, including the
role of institutional review boards ("IRBs") and the need to obtain each
patient's informed consent. The FDA requires each human clinical trial to be
reviewed and approved by the IRB at each study site. An IRB is an independent
committee that includes both medical and non-medical personnel and is obligated
to protect the interests of patients enrolled in the trial. After the trial
begins, the IRB monitors the protocol and the measures designed to protect
patients, such as the requirement to obtain informed consent.
To reduce its potential liability, the Company seeks to obtain
indemnity provisions in its contracts with clients and, in some cases, with
investigators contracted by the Company on behalf of its clients. These
indemnities generally do not, however, protect the Company against certain of
its own actions such as those involving negligence or misconduct. Moreover,
these indemnities are contractual arrangements that are subject to negotiation
with individual clients, and the terms and scope of such indemnities vary from
client to client and from trial to trial. The Company also, in some
circumstances, indemnifies and holds harmless its clients and investigators
against liabilities incurred by such parties due to the actions or inactions of
the Company. Finally, since the financial performance of these indemnities is
not secured, the Company bears the risk that an indemnifying party may not have
the financial ability to fulfill its indemnification obligations. The Company
could be materially and adversely affected if it were required to pay damages
or incur defense costs in connection with a claim that is outside the scope of
an indemnity or where the indemnity, although applicable, is not performed in
accordance with its terms.
The Company currently maintains an errors and omissions professional
liabilities insurance policy in amounts it believes to be sufficient. There
can be no assurance that this insurance coverage will be adequate, or that
insurance coverage will continue to be available on terms acceptable to the
Company.
INTELLECTUAL PROPERTY
The Company believes that factors such as its ability to attract and
retain highly-skilled professional and technical employees and its project
management skills and experience are significantly more important to its
performance than are any intellectual property rights developed by it. The
Company has developed, and continually develops and updates, certain computer
software related methodologies. The Company seeks to maintain its rights in
the software it develops through a combination of contract, copyright and trade
secret protection. While the Company does not consider any of this software or
methodology to be material to the Company's business, the Company believes its
software capabilities provide important benefits to its clients.
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EMPLOYEES
At December 31, 1995, the Company had 820 employees, of which 44 held
Ph.D. or M.D. degrees, and 102 others held masters degrees. Approximately 89%
of the Company's employees are located in the United States and the remaining
11% are located in Europe. The Company believes that its relations with its
employees are good.
The Company's performance depends on its ability to attract and retain
a qualified management, professional, scientific and technical staff.
Competition from both the Company's clients and competitors for skilled
personnel is high. While the Company has not experienced any significant
problems in attracting or retaining qualified staff to date, there can be no
assurance the Company will be able to avoid these problems in the future.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CLINTRIALS RESEARCH INC.
By: /s/ John W. Robbins
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John W. Robbins
Chief Financial Officer
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