The CRO market is going through major and unanticipated structural changes. Given high sponsor dependence on contract clinical
services, it is essential that biopharmaceutical companies monitor and anticipate these changes in order to anticipate and
manage them effectively.
Kenneth A. Getz
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Financial analysts and outsourcing consultants predicted that niche and mid-sized CROs would steal a growing share of the
market for contract clinical research services between 2000 and 2005. They anticipated that sponsors would increasingly seek
higher levels of specialization and service quality that could only be offered by niche companies. The opposite occurred—according
to the results of a recent study that Julia Wenger and I conducted at the Tufts Center for the Study of Drug Development (Tufts
CSDD).
In our study, we arranged CROs into one of three segments: Largest, Next 10, and All Other Companies, based on their annual
revenues from clinical services. Tufts CSDD compiled and analyzed financial and headcount data on companies in the three segments.
The largest CROs
Table 1: Leading CROs from the three segments for the years 2002 to 2005.
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We found that the Largest CROs—primarily publicly-traded companies with the exception of Quintiles—have expanded their dominant
position in the outsourcing market. The Largest companies captured nearly 80% of the market in 2005. Companies in this segment
saw their revenues increase 15.7% annually—from $3.4 billion in 2002 to $5.2 billion in 2005 (see Table 1 for a list of companies
in this segment). The Largest segment accounted for 76% of total headcount employed by CROs to provide contract clinical research
services in 2005. The Next 10
The second segment, the Next 10 companies—also primarily publicly-traded entities—captured 11.5% of the total outsourcing
market in 2005 and generated approximately $754 million, up from $495 million in 2002. Companies in this segment grew 14.9%
annually between 2000 and 2005.
Analysts projected that the middle market for contract clinical services would struggle the most to maintain revenue growth
through its inability to dominate either full or niche positioning. These projections were mistaken. The Next 10 segment accounted
for 11.9% of total headcount employed by CROs for clinical research outsourcing services in 2005 (Table 1 lists companies
in this segment).
All Other Companies
Very little is known about the All Other Companies segment. This group is highly fragmented, comprising nearly 100 organizations
of which most are niche service providers, founded in the mid-1990s or later. This segment is also comprised of more than
100 freelance consultants. Companies in this segment are privately-held, making it difficult to compile information about
them.
Tufts CSDD gathered data on 93 representative companies in this group. In 2005, the typical company in this segment generated
average revenues of $3.1 million. This compares with average 2005 revenues of $568 million per company in the Largest segment
and $42 million in 2005 revenues per company in the Next 10 segment.
The All Other Companies segment captured an 8.5% share of the total market for contract clinical research services in 2005.
Contrary to analyst projections, this third segment is growing at a substantially slower rate than the other two. In 2005,
companies in this segment generated a total of $561 million in revenue. This represents 6.6% annual revenue growth since 2002—less
than half the average annual growth rate for the CRO market overall. This segment accounted for 12.1% of the total headcount
employed by the CRO market for clinical research services in 2005.
