The role of a Contract Research Organisation (“CRO“) has become increasingly significant in the life sciences industry, providing invaluable support to clinical trial sponsors. In recent years, a trend towards CRO consolidation has been observed, driven by greater access to capital and strategic acquisitions. The legal landscape surrounding CRO agreements has become increasingly complex as a result, necessitating a comprehensive understanding of the potential risks and challenges. Inspectors from regulatory authorities are also increasingly focusing their attention on the sponsor-CRO relationship.

The recent case of Cardiorentis AG v IQVIA Limited and another [2022] EWHC 250 (Comm) underscores the importance of clear contractual protections and standards of care in CRO agreements. IQVIA, a CRO, was engaged by Cardiorentis AG to conduct a phase III clinical trial. The trial results were disappointing, and Cardiorentis claimed that IQVIA’s failures led to the inclusion of a significant number of ineligible subjects, rendering the data unreliable. However, the court found that Cardiorentis could not prove that any protocol deviations attributable to IQVIA had adversely affected the trial. The parties had contracted for the conduct of a meaningful study not a study that produced a particular result. This case highlights the need for all parties in a CRO agreement to have a clear understanding of the standard of care required and the importance of well-drafted contractual protections to manage risks and disputes effectively.

By considering the issues outlined below, sponsors can better navigate the CRO relationship and ensure that the success of current and future clinical trials are safeguarded. A well-drafted CRO agreement helps foster a productive and mutually beneficial partnership, providing clarity on deliverables, performance indicators, and the scope of work, allowing them to plan and allocate resources effectively. It also offers protection against liability shifts and sets out clear procedures for handling changes in scope or timelines, which are common in drug development.

1. Sponsor’s Level of Oversight

Study managers employed by sponsors are increasingly being asked by regulators to demonstrate that they have appropriate oversight on the CROs to which they have delegated. In particular, regulators have asked sponsors how they have set up and maintained the Clinical Trial Master File (“TMF“). This is a key tool used by auditors to reconstruct the trial and check whether relevant standards have been met. The TMF can become increasingly complicated once a CRO is involved, with gaps or a lack of clarity as common complaints. Comprehensive reviews of the TMF by the sponsor are not always viable, however a formal TMF review plan identifying the key risk areas and relevant controls is advisable. The CRO agreement should make any obligations in the review plan binding.

To exercise effective control over the trial, the CRO agreement should also stipulate that the sponsor has the right to conduct audits at the CRO and any sub-CRO, halt any study-related activity at any time, and request all trial documents. Any agreement should state that the sponsor’s oversight does not waive or release the CRO from its contractual liability. A sponsor that tasks a CRO with negotiating any clinical trial agreement should seek to provide templates and negotiation guidelines where possible.

2. CRO Consolidation Risks

After rounds of bids for a clinical trial, sponsors are often able to identify not only the most suited CRO but also a specific team within that CRO. However, securing that team is not enough, it is important to keep that team in place. This is especially true when anticipating CRO consolidation, a trend that has accelerated dramatically over recent years. CROs will push back on “locked personnel”, but it is possible to agree an obligation to maintain key roles subject to exclusions for personnel turnover outside of the CRO’s control. Sponsors should also specify the level of expertise required of personnel as well as the right to review training records. The CRO should agree not to replace personnel without the sponsor’s prior consent and should promptly notify the sponsor if any replacement is needed. The consequence of breach is often a set percentage of the CRO’s fees or liquidated damages.

3. Inadequate CRO Performance

Sponsors will want to be able to measure the quality of the CRO’s performance and obtain relief when that performance falls below the agreed standard. To mitigate against future disputes, the CRO agreement should clearly define deliverables and key performance indicators as well as including incentives for good performance. It should also set out remedies for underperformance, including the right to transfer management of the trial to the sponsor (or another CRO) as needed. The CRO should provide notice to the sponsor if it significantly deviates from the agreed service standard. Importantly, the agreement should also define the relevant threshold that triggers that notice obligation (i.e., what constitutes a “significant” or “material” deviation in that particular study).

The Cardiorentis case illustrates the importance of clear contractual standards of care in CRO agreements. In that case, the court held that the standard of care was not lower than the standard of reasonable skill and care implied under English law under the Supply of Goods and Services Act 1982. However, nor had the parties contracted for the conduct of a study to produce a specific result. Parties should carefully consider the standard of care enshrined in the contract.

4. Managing Change Management and Cost Control

As most CROs operate on a fee-for-service basis and clinical trials are often dynamic, changes in scope or timelines are an inevitability and clinical teams may find themselves in a never-ending cycle of change order negotiations. The CRO agreement should anticipate this, outlining a clear process for requesting, evaluating and agreeing a change order. Parties should consider a monetary threshold for orders to limit amendments to material changes. To allow the sponsor to maintain control and assume management of the clinical trial if needed, the sponsor might want to consider that only it (and not the CRO) should be party to any trial-related contracts.

5. Assignment Notice and Termination

A clinical trial sponsor may also seek to require its CRO to provide formal written notice before any acquisition or assignment to a third party. This forces the CRO to proactively engage with the sponsor regarding the nature and extent of known or possible changes arising from the transaction. In multi-centre studies, a CRO may push for consent to sponsor assignments to alleviate the risk of the new entity failing to meet its financial and indemnification obligations. However, such a provision can be onerous as it would require the sponsor to obtain consent from each site involved in the trial.

Sponsors may also seek a specific termination right tied to any transfer of rights and obligations. Such clauses often trigger specific financial assistance to facilitate the transition of the clinical trial back to the sponsor or an alternative CRO. Given the significant costs and resources associated with a clinical trial, and the ongoing assessments of a drug’s safety and efficacy, it is crucial for the sponsor to retain a broad right of termination. However, it’s important to note that sponsors are unlikely to terminate CTAs without substantial justification given their significant investment. CROs, on the other hand, may have concerns that even if enrolment at a site is adequate, the sponsor may seek the right to terminate based on generally low enrolment across sites in a multi-centre study.

Dispute resolution mechanisms form another vital component of CRO agreements. These mechanisms should be structured to provide an efficient and effective means of resolving any disagreements that may arise. It is essential to consider how any mediation process would impact the ongoing trial and how to establish a plan for the withdrawal or transfer of any enrolled study subjects if the dispute remains unresolved.

Naturally, pharmaceutical and biotechnology companies are aware of their responsibility to maintain appropriate supervision over CROs as well as the inherent risks in the relationship. Drawing on our experience in the sector, this blog post has explored some of the key issues to consider when entering into a CRO agreement and highlights a number of important contractual protections. Nonetheless, the question of how to translate obligations into effective processes, while retaining adequate control, is not a straightforward one.

If you have any questions on this topic, please contact the authors or your usual Herbert Smith Freehills contact.

Michael McErlaine
Michael McErlaine
Senior Associate, Tokyo
+81 3 5412 5414
Ali Qureshi
Ali Qureshi
Trainee Solicitor, Tokyo
+81 3 5412 5472