In my store of old files, I keep an inherited favourite that dates from a time before I joined the company. It is the record, from the 1980s, of how we completed a clinical trial which brought a market leading product to regulatory approval for virtually next to nothing - about £1,200. Even allowing for inflation, that is still an unbelievable bargain.

In order to gain approval from the UK competent authority, we did one single centre general practice study which used twenty-six patients in a placebo controlled cross-over study. The investigational product was so effective that after only one week of treatment, it showed a highly significant difference to placebo. What a score. Clearly there was no need to do anything else, and it would be unethical to conduct any further studies when the treatment affect was so marked.

Such scenarios are rare, and I have spent many hours defending the data from this study and trying to explain to marketing colleagues why other trials I propose seem to have more patients and cost up to a thousand times more. It was a classic win for a small company in that regulatory approval and promotional claims were achieved with a minimum of resources.

A bleak European outlook for pharma research?

Currently the outlook for small companies wanting to perform good clinical trials is bleak. When the new EU Clinical Trials Directive becomes law in May 2004, life will become more complicated and costly for clinical researchers.

Recent mergers and acquisitions have informally split the pharma industry into two camps. The multiple-merged companies are now in a position to introduce mass-market new chemical entities that usually aim for global sales of about $100 million or so.

Larger companies are better placed to protect their own intellectual properties and resist the attempts of generic manufacturers to cash in when a successful product reaches maturity. For niche markets, the smaller companies may have an advantage, as they are less likely to be in direct competition with multinationals not only for the market, but also for the patients needed for development programmes.

However, to make economic sense, if one is in the business of developing niche market products, it is difficult to justify development costs that will not be recouped within the timeframe set by your own organisation's financial rules. One constant problem for small companies dealing with novel molecules is that if they invest the time and money in bringing an NCE to market, will they have sufficient patent protection left at the end of the process to generate income before generic competition undercuts the market price?

Despite the plethora of criticism that the pharma industry is making too much profit too easily from sick people, there is absolutely no doubt that bringing new products to market is a far riskier business than it used to be. The chances of success appear to be slim (even after the rationalisations that the merged companies have created, and the promises that are exchanged with the city analysts).

Also, expectations are now higher. Not only are there the conventional hurdles of marketing approval and successful initial launch, but additional hurdles created by NICE. In addition there is the prospect of finding that your pricing structure in Europe means that your shiny new product starts reappearing on your domestic market at a lower price as a result of parallel importing. It just never gets any easier.

Hope for researchers from orphan drugs

There have been glimmers of hope. One recent development that seems to have been embraced by the smaller companies is orphan drug status (ODS) in Europe. In case you are unaware of this, orphan drug status is a condition granted by the EMEA if you have a new product (meaning one with a real therapeutic advantage), for a disease where there are less than five per 10,000 inhabitants (prevalence) in the European Community.

The benefit of using the orphan drug route is that once marketing approval is gained, and access is given to the centralised procedure, there will be 10 years of market exclusivity for the therapeutic indication requested. Another advantage is access to the Committee on Orphan Medical Products' protocol assistance scheme, which should help with agreeing a mutually acceptable phase III programme.

Now, let be very clear about ODS, it does not give one an easy ride. Your success in clinical development is still judged by the same criteria as any other product, and you will not receive special concessions to permit you to submit an underpowered study as your pivotal proof of efficacy.

Similarly, if you embark on an orphan drug route you have to recognise that you have been granted the status because patients are uncommon, and that is exactly what you will find when you go out to do recruitment for trials. The market exclusivity seems to be the important issue for small companies because, once approval is granted, you will have the exclusivity in that indication.

The impact of the new  Directive

By far the biggest challenge to small companies will be the impact of the legislation enshrined within the Directive, which is scheduled to become law in May. Until now, the conduct of clinical trials in the UK has been covered by the ICH GCP guidelines and the Medicines Act. However, from mid-2004, there will be new legislation more concerned with the conduct of clinical trials.

Rather than be made into European law, each member state of the EU has had to bring the new rules into their national legislation. This is something new, and the rules apply to everyone involved in clinical trials from the big mega-departments of multinational companies, to the lone university researcher trying out some blue-skies esoterica on their own. The only bit of good news is that it was not an attempt to harmonise clinical trial practice across the EU, but an attempt to transpose the directive into the local national practice. The Directive applies its rules even-handedly, however, it seems to take the point of view that no distinctions should be made between any party wanting to initiate or conduct a clinical trial. It is not possible to detect, at this stage, what allowances will be made for small companies or individual academic researchers where funding and resources are a real issue.

This is not an uncommon situation, and the competent regulatory authorities could argue that this has been the case for a long time with new licence fees, in that you pay your fee independent of whether the product sells a billion or nothing at all. That is what taking a risk all is about. Similarly, the Prescription Medicines Code of Practice Committee has used flat fee structure penalties for breaches of its code, independent of a company resources. It is obvious some fees will create financial burdens for small companies that have no real impact on the major multinational players.

The Directive has put ethics committees on a much firmer legal footing, and they carry far more apparent responsibility for protecting the rights of patients. As before, ethics committee approvals must be obtained before starting any trial, but the activities, and presumably the performance standards, will now be regulated by a new UK Ethics Committee Authority. Twenty years ago, whilst one had to take account of what the committees said, they appeared to operate as philanthropic bodies. Now monies are involved, and not only are there substantial fees, but additional fees if anything needs to be done after the first perusal of a clinical trial protocol. This is something that small companies will have to build into their agendas. In practice this means that every time there is an amendment to a protocol, there is a process and fee.

One of the key areas that have become a common sticking point with ethics committee approval is patient information leaflets and consent forms. The creation of these documents, especially for trials where minors are involved has become an art form in its own right: again this is a resource burden for small companies who find themselves diverted from the main activities of initiating and conducting studies to semantic exercises in satisfying ethics committees.

The Directive financial implications

The above is just the pinnacle of an iceberg of change in the way that clinical trials have, and will continue to change in terms of the way that funding is calculated for sponsors of clinical trials. Most of my comments are made in the context of the UK NHS, but are applicable to other EU territories. The NHS research and development committees have taken the authority to negotiate the funding of clinical trials away from investigators, and are now very firmly in the hands of the NHS trust administrators. Their brief appears to be that the resources of the NHS are for patients, and if a sponsor organisation wants to use NHS facilities, then every aspect has to be paid for (even if the expense would have been incurred already).

Greater transparency in agreements

Gone are the days when agreement would be reached with an investigator, and monies be channelled so that investigator directly or indirectly benefited. To a sponsor, the channelling of income becomes hidden. What is made transparent to the sponsor is the agreement that a trust makes to provide patients and data for a particular protocol, and the obligations of the sponsor to pay for the services provided. It is understandable that the trusts cannot conceive of any differences between the resources of big and small companies: in their eyes, we are all profiteers. What is not clear is what happens if the trust defaults. In the case of a big study run by a multinational company on numerous sites, defaulting of one centre can be built into the equation. For a small company running a small study (say, proof of principle at phase II) the impact is far more critical.

What is not popular knowledge at the moment (a known unknown, as Donald Rumsfeld would have it) is what would happen if a small company seeks to recover its losses from a trust that fails to complete its side of the bargain. The possibilities for such a thing to happen are endless, eg, lost laboratory results, unexpected sickness by a staff member, meaning that patients are not evaluated, maternity leave, simple failure to recruit eligible patients, and so on ad infinitum. A contract is at least a two-sided thing and one could not imagine the sponsor being let off lightly.

The future may not be bright

Amongst the other spectres for small companies are the statutory GCP inspection, and obligations for pharmacovigilance (such as use of MedDRA and electronic reporting). For small companies these could become huge burdens. The future for small company research looks problematic. Phase I and II studies, which have typically been small will probably remain within their provenance, as they are manageable and need the therapeutic expertise that probably resides within the company.

All the indications are that phase III trials for regulatory purposes will become subject to calculated risk contracting out. Small companies simply will not have the resources internally to cover the legal requirements of GCP studies. That will probably mean that medical departments in small companies become more virtual.

Dr Vernon Harten-Ash, managing director of the Harten Group (a problem solving organisation) says that small companies will need to think smart and not aim for the obvious. He thinks that innovative and experienced individuals should be appointed to reduce the risk and costs of a project. The role of the traditional CRA will disappear, and will take on the role of project co-ordinator and progress chaser. The medical advisor will become more of a consultant to a project and will be almost hands-off once the protocol has been contracted out. For appropriate contract research organisations (CROs), there will be the opportunities for new business acting as extensions of the clinical research/medical departments of small companies, and they may find themselves at the cutting edge of orphan projects.

They will have to become familiar with many new disease areas, or have a portfolio of expertise; CROs will have to become used to clients committing a minimum investment up-front. Until the changes within the Directive come into force, in my opinion, no one will know the true fate of small companies.