The global market for contract research organisations (CROs), including independent central laboratories, grew by 13% to US$23.5 billion in 2009, a new report estimates.
“At first site this looks to reflect a very healthy industry sector”, comments the report, Contract Research Annual Review 2010. Indeed, the 2009 figure compared favourably with the 12% growth seen in the worldwide CRO market in 2008, although that followed a marked revenue increase of 28% in 2007.
However, looking at the profitability of 13 publicly quoted CROs – including Covance, PPD, Charles River Laboratories, Parexel, ICON, Kendle, Phase Forward and Omnicare – in 2009, the report finds that the overall income of this group declined by 18% to US$570 million, while average income as a proportion of revenue was 8% compared with 10% in 2008.
The report published by Biopharm Knowledge Publishing acknowledges the tough environment faced by the biopharmaceutical industry and its outsourcing partners over the last couple of years, as companies look to cut R&D costs while improving productivity. But it also identifies encouraging pointers for the future, not least the trend towards strategic outsourcing in contract research.
“There is no doubt that companies are now under huge pressure to show evidence of cost reduction, but this needs to be achieved through a sustainable model,” writes report author Dr Graham Hughes in his introduction. “While there will be some ‘knee-jerk’ deals done as a reaction to the economic downturn, supplier value propositions will be under the microscope as clients look to ensure not only value for money, but also strategic success.”
While cost-driven tactical outsourcing of large-scale, low risk functions has widened to include capacity management, flexibility and the externalisation of non-core functionality, these approaches “still have a focus on cost-containment rather than a focus on value generation which is the key to strategic outsourcing success”, Dr Hughes notes.
As such, attention is turning to more reciprocal relationships. “Presently there is intense competition within the CRO industry for outsourcing and drug discovery services, and the expectation is that they will deliver problem-solving skills and innovation in both chemistry and biology,” Robert Goodnow Jr, head of global medicinal chemistry outsourcing at Hoffmann-La Roche Inc, is quoted as saying.
Among the emerging trends identified in the report are:
• Pharmaceutical companies are looking to enhance flexibility by divesting fixed assets in R&D – “and, in certain instances, entire segments of their drug discovery engine”. In these cases, the “outsourcing partner’s capabilities and skill sets need to dovetail with the talent and facilities that the pharmaceutical company has retained internally in a seamless manner”.
• Outsourcing to companies with facilities in locations that provide significant research or tax credits through government sponsorship programmes, such as Singapore, Canada, China and certain areas of the European Union.
• Potential for growth in the preclinical and toxicology segments, particularly in light of the EU’s REACH legislation on the safe use of chemicals.
“Regardless of the eventualities of the various drivers related to outsourcing trends in the industry, the demand on the contract research industry will likely only continue to increase,” Dr Hughes predicts.
“Contract research companies must be able to proactively respond to this demand; those unable to do so could be potentially subject to dissolution or acquisition. Many companies are already reacting to this demand by aggressively expanding their offerings to support a broader footprint of the R&D pipeline under one roof.”