What's to become of the contract research organization (CRO) industry while the economy attempts to right itself? According to a recent report by Frost & Sullivan, there's good news: the CRO industry will likely keep growing. In the current climate, pharmaceutical and biotechnology companies are unlikely to invest in in-house capabilities to conduct their own clinical trials, says the report. And somebody has got to do them.

The same report also sounds a note of warning. “U.S. CRO Markets-Key Therapeutic Areas” predicts that limping biotech and pharma companies may default on payments for projects already under way. But that will likely only be a short-term phenomenon, the report suggests.

Frost & Sullivan senior industry analyst Barath Shankar Subramanian discussed the report with us, and pointed out that annual revenue growth among CROs has come down from the 14 to 15 percent range last year to closer to 10 percent this year. That's the bad news.

Growth Prospects

The good news, he says, is that annual revenues for the industry are expected to double between now and 2015, going from more than $10.91 billion currently to $22.87 billion. In part, the growth can be traced to sponsor firms trying to maintain profits by finally adopting strategic partnerships with services firms. “After 10 years of talking about such relationships, CROs and pharma companies are beginning to forge them,” says Subramanian.

He points to the massive Eli Lilly/Covance deal, which was inked in August of last year and has Covance conducting $1.6 billion worth of drug development business for Lilly over 10 years' time.

“That's the flavor of the season,” says Subramanian. “We're seeing some new models being explored when previously it was purely transactional, with CROs taking a wait and watch attitude toward strategic partnerships.”

Longer Gestation

Another trend is CROs enabling small sponsors to hold onto a promising molecule for more of the research cycle. Subramanian says start-up pharmas and biotechs formerly out-licensed their products after Phase I or II; that injected a great deal of uncertainty for the future of the project. Nowadays, however, more such companies are able to keep products in their pipeline longer, and get them closer to market—thanks to cost-savings provided by CROs. That is a positive development for the sponsor and the CRO.

“The advent of CROs provided the opportunity for small sponsors to hold on to the projects a lot longer,” Subramanian says. “It keeps the fixed cost off their books and they can continue to do the work on the project. With strategic partnering, you're seeing more and more of these risk-sharing partnerships over products.”

As for other trends, Subramanian says he's seeing “an undercurrent of interest” among private equity firms in acquiring CROs. Take, for instance, PharmaNet, which was bought by JLL Partners in February of this year, and PRA International, bought by Genstar Capital in December 2007 and removed from the public markets. He expects to see more of those soon.

Recruiting Partners?

Another trend that may be afoot, he says, is CROs entering long-term partnering arrangements with recruiting firms, since rounding up enough patients for large trials remains tough and the source of many a study start up slow down. No such deals have yet been struck—at least not large ones—but Subramanian thinks they're coming, judging by the large number of recruiting firms he's seeing glad-handing with sponsors and CROs at industry conferences.

Frost & Sullivan analysts looked closely at therapeutic areas for the report, and determined that the ones that are dominant today—oncology, cardiovascular, infectious diseases—will remain dominant through and after the economic slowdown. Central nervous system (CNS) may see a slow down, though, as more and more generic drugs in that area become available, he says.

Oncology Dominates

In 2009, oncology was the biggest therapeutic area, constituting 25.5 percent of all trials conducted by CROs during the year. Subramanian says it's slated to remain the largest therapeutic area in clinical research. Infectious diseases represented the second-largest group, with 10.8 percent of all trials conducted by CROs. CNS constituted 10.5 percent. Cardiovascular was 7.8 percent. Metabolic was 5.5 percent. And 36.8 percent fell into the “other” category.

The analysts also scrutinized the the global trials market and found that North America dominated, with 55.5 percent of the world's global clinical trials conducted here in 2009. Next was Europe and Middle East Asia with 25.2 percent. Asia had 10.2 percent. South and Central America had 4.2 percent. Rest-of-world garnered 2.9 percent and Africa had 2.1 percent.

How do sponsors feel about CROs and the jobs they do? When Frost & Sullivan asked whether outsourcing to CROs enhanced the quality of a trial, 47 percent of sponsors who answered were neutral, while 24 percent agreed, 17 percent disagreed, 7 percent strongly agreed, and 5 percent strongly disagreed. Ouch.

CRO Survey Data

But do CROs improve overall productivity? The answers show that forty percent were neutral, while 39 percent agreed, 13 percent strongly agreed, 6 percent disagreed, and 2 percent strongly disagreed.

About 75 percent of the report's information came from ongoing interviews with CROs and sponsors. The rest came from presentations, financial statements and public sources, says Subramanian. CROs that participated in the report include Covance, Icon, Kendle, MDS Pharma, Omnicare, Parexel, PharmaNet, PPD, PRA International and Quintiles.

Subramanian says Frost & Sullivan typically publishes a CRO report every few years, but the company undertook this one just a year after the previous one since so much had changed with the economy, making sponsors and CROs clamor for a new installment.

by Suz Redfearn