Times have never been better for providers of clinical and nonclinical drug development services. The number of early drug
candidates has jumped 50% over the past four years, fed by a continuous flow of venture capital and Big Pharma's desperate
need for more new product candidates. Backlogs at the major CROs have grown 30% in the past year, foretelling a wave of new
Phase III clinical research activity.
It's truly a seller's market right now, and most contract research (CRO) and manufacturing (CMO) service providers are benefiting.
In such a robust environment, it's easy for CRO and CMO executives to get complacent. After all, new business seems to just
walk in the door, and price resistance is low because clients are so desperate to get compounds into the clinic as quickly
In this environment, we see contractor executives falling into two categories: those who are lucky and those who are smart.
Executives in the lucky category are content to ride the high tide of prosperity with little thought to what happens if the
market weakens, while smart executives are those who are using their current good fortune to build a basis for lasting success.
Here's how to determine whether your company's management is lucky or smart.
If your business is growing at 10% per year or less, you are more lucky than smart.
Publicly traded CROs and CMOs have routinely reported revenue growth rates of 12–20% over the past two years. Service
providers that are growing slower than that are doing no better than holding their own, and they may actually be losing market
share. Smart executives are looking for ways to distinguish their companies so as to be able to grow faster than the market
and secure lasting relationships.
If your business is largely dependent on venture capital-backed bio/pharma companies, you are more lucky than smart. Major pharmaceutical companies are concentrating their spending with the largest CROs and CMOs, so smaller service providers
are increasingly dependent on the trickle down of venture capital from early stage bio/pharma companies. The level of venture
capital funding fluctuates from year to year, and just the prospect of reduced funding can cause small bio/pharma companies
to cut back on spending to conserve cash. Large and midsize bio/pharma companies fund their development activities internally,
and their spending is more consistent.
If your company is not investing in sales and marketing because you have enough business coming in unsolicited, you are more
lucky than smart. Now is the time for service providers to be investing in brand building and relationship development: the higher profit margins
resulting from current business activity provide resources for advertising, trade shows, and targeted prospecting. The objective
of these efforts is two-fold: to improve the quality of the current customer base and to provide a basis for sustained performance
when market conditions are less favorable.
If your company is growing by over-promising and under-delivering, you are more lucky than smart. Rapid growth stresses a company's physical, project management, and executive capacity. In the current environment, many
service providers are taking on more business than they can handle and disappointing clients with missed deadlines and performance
promises. Clinical packaging providers seem to be especially prone to this problem and major pharmaceutical companies are
victimized almost as much as smaller companies. Poor performance erodes client loyalty, which will be critical during periods
when demand is not so robust.
If your company is turning away business because it can't handle any more, you may be lucky or smart. Turning away business because you can't meet the client's requirements is a good practice—to a point. Turning away too much
business can hurt a company's reputation in the market, and it may be a symptom that management isn't being aggressive enough.
If a company isn't investing in more capacity to meet the growing demand, it suggests that management is too contented or
too scared to take some risks necessary to make the business a long-term player in the industry.