Kenneth A. Getz
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The widely held view that contract research organizations (CROs) are simply commodity-based capacity service providers is
mistaken and outdated. If this were the case, one would expect to see a far more mature outsourcing market characterized by
more extensive consolidation, declining CRO headcounts, small operating margins, and slow revenue and earnings growth. This
is hardly the case. If anything, the market for contract clinical research services has reached a renaissance, where the vast
majority of sponsors anticipate increasing their dependence on outsourcing.
Most small and mid-sized privately held CRO companies are reporting solid revenue and earnings growth. With few exceptions,
the largest and oldest CRO companies—most of them publicly held—are reporting strong financial health and annual revenue growth
rates that outpace overall sponsor spending on global drug development activity. Excluding pass through fees such as central
lab costs and investigator grants, the Tufts Center for the Study of Drug Development (Tufts CSDD) estimates that global biopharmaceutical
companies spent $5.5 billion on contract clinical research services in 2004, an annual increase of 15% since 2001. During
this same period, overall biopharmaceutical company spending on all global development activities grew 11% each year. Moreover,
the largest and oldest CRO companies report that their clinical research headcount has grown by nearly 6% annually since 2001.
Confluence of forces
The conditions are ripe for increasing usage of both full and niche contract clinical service providers. There are many forces
that have contributed to strong growth in spending on CRO services: increasing pressure on pharmaceutical and biotechnology
companies to contain rising drug development costs as revenue growth decelerates due to market competition; pricing pressures;
and the loss of large patent-protected sales. At the same time, biopharmaceutical companies are managing larger numbers of
active clinical programs and the scope of these programs are increasing due to rising protocol complexity and growing numbers
of globally dispersed investigative sites. Despite operating environment changes that require more capacity, major pharmaceutical and biotechnology companies are not
increasing their own clinical research headcount. According to the Pharmaceutical Research and Manufacturers Association (PhRMA),
member companies in 2004 employed 28,783 people who were engaged in global Phase I–III programs. This figure is down .72%
from the 28,992 clinical research personnel employed in 2001.
The dramatic proliferation of small and mid-sized companies now engaged in conducting clinical research programs has also
driven growth in outsourcing. An estimated 1600 companies are now actively conducting at least one clinical program. This
represents a 65% increase over the number of companies doing so five years ago. Smaller companies—many of them biotechnology
firms—typically outsource a much higher percentage of their total clinical research budgets as they look to contract expertise
that falls outside of their core capabilities.
Acknowledging impact
Key outsourcing insights
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CROs are nearly doubling the capacity of total clinical research personnel engaged in managing Phase I–III global drug development
programs. According to the Association of Clinical Research Organizations (ACRO), major CROs contributed 29,849 clinical research
personnel in 2004, a 5.5% annual increase since 2001. These employment trends suggest that CROs are a primary mechanism utilized
by sponsor companies to augment rising global capacity needs and contain development costs.
Major CROs identified, selected, and monitored more than 150,000 clinical investigators in 2004. They enrolled more than 640,000
new study volunteers in Phase I–IV clinical trials in that same year. The level of clinical trial activity carried out by
CROs, combined with a doubling of global drug development headcount, indicates something that few biopharmaceutical companies
have come to recognize: The CRO segment is integral—not peripheral—to the drug development enterprise. As such, CRO management
strategies and practices need to be reevaluated and modified to better leverage an asset that is now essential and vital to
the long-term viability of the enterprise.
