CRO industry coming under pressure

Contract research organisation (CRO) revenues have been growing strongly as a result of drug developers' need to reduce R&D costs while shortening product evaluation times. However, as demand for more efficient preclinical and clinical testing services has risen, so too have pressures on CROs, according to a new report.

Contract research organisation (CRO) revenues have been growing strongly as a result of drug developers' need to reduce R&D costs while shortening product evaluation times. However, as demand for more efficient preclinical and clinical testing services has risen, so too have pressures on CROs, according to a new report from Frost & Sullivan.

"Heightened regulatory scrutiny and consolidation within the pharmaceutical industry, as well as internal challenges such as shrinking supplies of appropriately trained personnel and a diminishing group of attractive acquisition candidates, are mitigating future growth despite CROs' attempts to improve efficiency," said the report.

The CRO industry generated revenues totalling $7.78 billion (€6.9bn) in 2002, according to F&S, which predicts that total market revenues will reach $14.37 billion in 2007. Last year, the USA accounted for $4.18 billion of the total, followed by Europe ($2.6bn) and Asia ($0.8bn). Compound annual growth rates out to 2007 will be 13.1 per cent, 10.4 per cent and 9.4 per cent, respectively.

Nevertheless, the heady growth rates of the past will likely diminish as pharmaceutical spending flattens and competition among CROs intensifies, according to Ajit Baird, F&S' pharmaceutical and biotechnology industry manager. "The contract research market is undergoing significant change as the top players consolidate and firms focus on core strengths," he said.

CROs, like their pharmaceutical and biotech clients, are extending their global reach. This positions them to capture a greater share of client business and gives them access to low-cost clinical testing in areas such as Eastern Europe and China, said Baid.

"Many are using alliances and acquisitions of local providers as a means to quickly access local expertise and relationships, and others are deepening their service offerings through acquisition of specialized providers and experts in various therapeutic areas," he noted.

In addition, CRO companies are also continuing to upgrade their technical capabilities through the acquisition of time-saving technologies such as voice-response data collection systems and Web-based clinical trial platforms. Such enhancements position CROs as cutting-edge service providers who can deliver technological advantages not readily available to clients on their own.

Better relationships with sponsors have also been aided by a spate of mergers and acquisitions but, while these activities are likely to continue strongly in the short and medium term, when the industry runs out of acquisition targets companies will have to grow more organically.

"This long-term plan will require robust sales and marketing capabilities - competencies that many CROs have taken for granted as they have relied upon reputation, repeat business and acquisitions to drive growth," observed Baid. Many will have to build their sales and marketing departments from scratch, while others may have to refine theirs if they wish to lead market growth.

The industry will continue to be dominated by a handful of top multinational players in 2007, although some of the current crop of second-tier companies may challenge current leaders such as Quintiles, Parexel, Covance, Charles River, PPD, Ingenix, Inveresk and ICON.

The report - called World Contract Research Organizations Markets (Report A547) - is part of F&S' Pharmaceuticals Monitor Service. For more information and sales, contact Marc Guillet.