Strategic deals to drive market share gains for big CROs

Market share gains made by larger contract research organisations (CRO) will be underpinned by strategic partnerships. Pharma majors have begun reducing the number of CROs they work with and this trend is set to continue, with Pfizer predicted to significantly cut its vendor list this year.

“We now strongly believe [Pfizer] will shift toward a short list of strategic, global vendors, probably five or less, enabling more internal efficiency in the management of the external partners​”, said Dave Windley, managing director, healthcare equity research at Jeffries & Company.

Pfizer now has a network of more than 50 vendors, said Windley, composed of functional service providers (FSP) and niche players. Windley believes an announcement about the shift to a short list of strategic, global vendors may be made in the third quarter of 2011.

Some details have already emerged though. Marc Hamm, associate director, procurement at Pfizer, said the new model is called “performance partnerships​” and will see CROs being more involved earlier in the clinical trial process.

Pfizer’s strategic partners could win significant business but, given the slow backlog conversion in these deals, revenue gains will be seen in 2012 and beyond. Gains for this group of CROs, likely to be large, global players, are expected to come at the expense of smaller, niche providers.

Kendle is known to have a FSP relationship with Pfizer. Speaking in the fourth quarter conference call with investors, Stephen Cutler, incoming Kendle CEO, said the company was well positioned to enter into talks if Pfizer changes outsourcing model.

Different strokes​

Strategic outsourcing by Pfizer and its peers will boost the market share of the big six public CROs – Covance, PPD, Parexel, Charles River, Icon and Kendle – and Quintiles. In 2010 these companies had 41 per cent of the market; by 2015 Windley predicts they will have 49 per cent.

“Within five years, and potentially much sooner, we could see over 80 per cent of sponsors engaged in some sort of strategic relationship​”, said Windley. This figure is based on a survey of 60 biopharm executives and research and development decision makers.

In light of this trend many have predicted the CRO sector will split into two groups​: large, global service providers working in strategic, high-level relationships; and niche providers focused on one or two therapeutic areas.

This trend would seem to put pressures on mid-tier CROs and recent difficulties at Kendle, the public player in this tier, adds evidence to the theory. However, mid-tier CROs, both clinical and preclinical, “are faring quite well​”, said Windley.

Mid-tier CROs have won strategic deals, although few are public, and the survey found small and mid-sized sponsors prefer form alliances with this group. There is also evidence mid-tier CROs are continuing to win business despite a sponsor having strategic partners.

“The demise of the mid-tier players has been greatly exaggerated​”, said Windley.