The 1,800-hospital Premier alliance is testing the limits of its already considerable influence with medical suppliers by encouraging them to use a consulting company in which it has a multimillion-dollar investment, MODERN HEALTHCARE*has learned.
Premier's arrangement raises the possibility that vendors desperate to win coveted supply deals will curry its favor by giving lucrative contracts to a small clinical research firm it is seeking to grow.
Called Premier Research Worldwide, the Philadelphia-based company employs about 130 people and offers research services for hire to drug, biotechnology and medical device companies. Before its association with Premier, dating back to September 1995, the company was known as Research Data Worldwide.
A relative newcomer among full-service clinical research contractors, Premier Research faces a tough sell. Drug and device companies generally are reluctant to trust anyone but a seasoned veteran to shepherd a new product through the high-stakes studies that are key to Food and Drug Administration approvals.
Despite a technologically innovative approach to conducting clinical trials, Premier Research faces formidable competitors such as market leaders Quintiles Transnational, Durham N.C., and Princeton, N.J.-based Covance, a recent Corning spinoff.
But Premier Research appears confident its special relationship with Premier, arguably the most influential healthcare group purchasing organization, will carry the day.
"We're a dinghy, and Quintiles is an ocean liner," said Joel Morganroth, M.D., president and chief executive officer of Premier Research. But, he quickly added, "having the (Premier) gorilla standing next to us doesn't hurt."
Company filings with the Securities and Exchange Commission reveal its strategy to catch up to the competition by trading on the powerful hospital alliance's group purchasing clout.
According to the consulting firm's prospectus, the hospital alliance has agreed to:
Introduce Premier Research to all the drug and device companies that pitch products to Premier.
Include a standard purchasing contract provision that vendors consider using the company's services.
Grant the company access to Premier patient and physician databases to identify study populations, investigators and clinical sites, and to offer drug cost-effectiveness and outcomes data to its clients.
To capitalize on those commitments, Morganroth said earlier this year he placed a sales representative in Premier's Westchester, Ill., office to "meet with everyone who comes to sell to them."
According to the company prospectus, this sales representative works exclusively at Premier and participates in "group purchasing meetings to directly market the company's services."
And while Morganroth said it has been too soon to ink any research deals, the strategic relationship had generated "several pages" of qualified leads.
In exchange for its assistance in landing customers for the research firm, the Premier alliance stands to profit from its investment and have more research conducted at its member hospitals.
"Part of the expectation from the get-go was that they'd have access to us opening doors to some companies they wanted to meet with," said Premier President Alan Weinstein.
He downplayed the notion that the cozy arrangement with Premier Research could cross the line separating introductions from arm twisting. "Sure, we've got influence," he said. "But certainly, we're doing it appropriately."
Weinstein added that the alliance takes pains to keep a "Chinese wall" between its investment interests and contracting awards. Vendors know that "whatever they are offering up as a product has to stand on its own," Weinstein said.
But should the consulting venture prosper, the Premier alliance stands to share in the wealth.
In February, Premier Research took advantage of Wall Street's recent infatuation with contract research organizations, or CROs, and went public on the NASDAQ exchange, netting about $35 million in fresh capital. In the process, the Premier alliance transformed its 1995 investment, which Morganroth valued at roughly $300,000, into a 4.9% equity stake worth $5.6 million at the initial offering price of $17 per share.
Despite a downdraft in the sector that had knocked Premier Research's stock down to $10 per share last week, the outlook for companies like Premier Research remains bright.
Pharmaceutical and medical devicemakers spent almost $35 billion in 1995 on research and development-about $20 billion of which goes for services that firms like Premier Research provide, according to its offering prospectus. Currently only about $2.5 billion is outsourced to companies like Premier Research, the prospectus said.
But the proportion continues to rise, industry analysts said.
CROs are essentially specialty outsourcing companies that take on the complex chores of designing, running and analyzing clinical studies used to support companies' applications for FDA approval.
With their eyes on head counts and a growing need for specialty expertise that is difficult to maintain in-house, even the largest drug and device companies now commonly turn to CROs.
Last year, Premier Research had sales of $15.4 million and counted Sandoz Pharmaceuticals and Zeneca Pharmaceuticals as its top customers.
Previously a niche player specializing in diagnostic testing, Premier Research only began offering comprehensive clinical trial management in September 1995, when it absorbed a clinical research unit that Premier had started in the mid-1980s and decided to spin off.
Without a significant history of success, Premier Research may find Premier's introductions lead to obsequious receptions from nervous vendors but very few deals.
"Track records are very important," said a clinical research executive at a medical products company who spoke on condition of anonymity because his company has supply contracts with Premier. "I'm always cautious making clinical or regulatory decisions based primarily on marketing considerations. Selecting the wrong CRO could really hurt you in the long run."
Cost overruns, study missteps or ultimately botching the job are all risks with unproven firms, he said. Although he had not yet been approached to use Premier Research, he didn't rule out the possibility. "Buying groups have a lot of leverage in many aspects of this business. It's part of being in the healthcare business in the 1990s," he said.
But not everyone sees the theoretical synergies materializing for Premier Research. "They're small and they have pretty high hurdles to achieve the economies of scale of Quintiles or Covance," said David Risinger, an analyst with Morgan Stanley, New York.