Under pressure

With the pharma industry under increasing stress to perform faster and better, are CROs taking the pressure off the industry?

Business Insights has compared estimated global revenues of $6.4 billion in 2000, $8.3 billion in 2002 and $10.8 billion in 2004. They predict that the market should reach $18.2 billion in 2008 and $23.7 billion by 2010. The rapid growth in global CRO revenues over the last decade reflects the increasing pressure on the pharmaceutical industry to reduce R&D costs and time to market. In order to do this pharmaceutical and biotech companies have been outsourcing their clinical trials, which has been found to be around 30 percent quicker than those handled by pharmaceutical companies in-house.

Since the 1970s the pharmaceutical industry have been outsourcing R&D processes, and the CROs have evolved to cover all aspects of the industry from discovery through to post-marketing. One of the reasons they have become more popular is that pharma companies can use them not only to cover gaps in capacity but to reduce timelines and costs and increase the skills base in order to face the increasing challenges of pipeline surges and slowdowns, consolidation and expansion.

A significant factor in the growth of the CRO market is the amount of R&D spending that pharma and biotech companies choose to outsource - on average a huge 20 percent. The CRO market has grown in response to this rising demand and as such there are currently around 1100 worldwide, with 900 based in North America and Europe and approximately 100 operating regionally with only the top 10 being truly global.

Despite the only the top 10 CROs being global there is a steady increase in global operations, as clinical trials increase in size and begin to go offshore to benefit from untapped patient population and cost efficiency.

The emerging biotech industry has matured in the last few years with an estimated 300 biotech drugs and vaccines currently in clinical trials. With a record $3.6 billion in venture capital raised in the US as well as impressive amounts in Europe, the impressive financial performance means that they are willing to outsource to CROs, which is driving the CRO industry growth.

However, it isn’t all positive for the CRO industry as they will face number of challenges in maintaining growth rates, from growing competition and customer consolidation and a shortage of clinical research personnel to new financial realities altering the biopharmaceutical outsourcing landscape.

The Business Insights report predicts that the future brings even bigger things for the CRO market. They suggest that CROs and pharmaceutical companies will turn to strategic partnerships in order to gain a competitive edge in the global business environment and that risk management will become important for CROs as pharmaceutical companies increasingly look to share development risk with them. Thirdly, the report points to electronic data capture (EDC) as a key to the future. Traditionally paper-based techniques have been used to collect patient data but EDC has many advantages, including saving time, easy access to information and a reduction in the cost of development and data management.

An increasingly competitive industry, spiraling rules and regulations, expiring patents, and a demand for drugs are all contributing to the growing pressure that pharma is under. One way to divert this has been to employ CROs. And the reliance on CROs has developed significantly over the past five years, and looks set to keep climbing as outsourcing trends and predictions indicate a strong future.

Estimated CRO total market revenues, 2000-2010e

Source: ACRO, Business Insights

Global pharmaceutical R&D expenditure, 2000-2008e

Source: CMR International 2005/2006 Factbook, Business Insights

Global biotech R&D expenditure, 2004-2010e

Source: Parexel Statistical Sourcebook 2006/07, Business Insights

CRO market drivers

• The growth of R&D expenditure
• Cost pressures
• Demand for early drug development
• Regulatory and safety concerns increasing the size and number of clinical trials.