That is the view of Gareth Down, head of European Healthcare at William Blair International, who shared his - generally upbeat - analysis of the contract research market with delegates at Partnerships in Clinical Trials (PCT) Congress in Lyon, France last week.
The total value of publicly traded contract research organisations (CROs) has increased 327 per cent since 1995 according to Dr Down, far outstripping the 124 per cent increase seen in the S&P 500 index in the same period. Over the short and mid-term, however, trends emerge that reflect both thinning pharmaceutical company pipelines and cost cutting and restructuring initiatives
“Over the last three months when you start looking at the clinical guys and compare them to the preclinical and early upstream chemistry side...you start seeing some disparities between the three groups. Clinical has done better than the other two,” Down explained, adding that this continues the trend seen over the last 12 months.
Pharma R&D deployment is one of the key reasons for the divergence between early and late stage according to Down, who said that - based on a William Blair survey of drug industry R&D teams -”it is currently more difficult to get funding for new product development.”
This interpretation is supported by the latest US Food and Drug Administration (FDA) data which shows that while the number of candidate pharmaceuticals in preclinical development has increased 12 per cent since 2009, the number at the clinical stage has grown by almost 24 per cent.
Pharma and Biotech budgets to sustain CRO growth
Down also looked at total Pharma R&D budgets over the period and found that - while there was a dip between Q3 2009 and Q3 2010 – in the last 12 months more money has been spent on development and the pattern looks set to continue.
“[CROs asked in a Blair survey] are pretty confident about the coming period... pretty much everyone suggested that they feel [Pharma] R&D budgets are going to sustain growth of around 12 to 13 per cent year on year.”
The news is also positive from CRO customers in the biotechnology sector said Down, explaining that while – traditionally -such companies have generated funding from public and private markets in recent years this has shifted with the majority of investment now coming from Pharma partners.
“It is demonstrating that maybe the world is changing in terms of how biotech gets funded and how drug pipelines get filled.”
This interpretation is leant further support by public CROs book-to-bill ratios which - according to Downs - seem to have staved off pressure during the recession with the net effect being that revenue growth has returned.
Pharma restructuring
The wave of Pharma restructuring that has seen most major drugmakers cut internal R&D capacity significantly in recent years is also impacting the CRO community in a positive way.
“Pharma companies are having to move away from a fixed R&D to a variable model and that means they have to outsource,” continued Downs, adding that the percentage of R&D spend dedicated to out sourcing - which currently is about 25 per cent - looks set to continue increasing.