2005 was the best year ever for CROs and CMOs. Most publicly owned companies reported double-digit jumps in revenues, and
profits grew even faster. For clinical CROs, sales of services for future clinical trials grew nearly twice as fast as revenues,
indicating that public CROs should be especially strong performers in the next several years.
Among the nonclinical segments, preclinical toxicology offers the most visibility because the industry is dominated by public
companies such as Covance (Princeton, NJ,
http://www.covance.com/) and Charles River Laboratories (Wilmington, MA,
http://www.criver.com/). These companies require clients to book space as much as six months in advance, and they are rapidly expanding capacity
to meet growing demand. The strength in the preclinical and clinical markets should be a good sign for analytical chemistry,
formulation, and clinical packaging services providers.
One of the brightest spots in the clinical CRO business has been PPD, Inc. (Wilmington, NC,
http://www.ppdi.com/). The company is forecasting 18% revenue growth (to more than $1.1 billion) for 2006, enabling it to join Quintiles (Research Triangle Park, NC,
http://www.quintiles.com/) and Covance as CROs with more than $1-billion revenues.
The big jump in revenues is driven by PPD's phenomenal business development performance in 2005. Net bookings of new business
(i.e., new contract signings less cancellations) increased nearly 70% in the first three quarters of 2005, and the value of contracts
in its backlog has grown 41% to $1.7 billion. Robust growth is expected across all PPD service lines, including Phases I–IV
clinical research and bioanalytical and GMP laboratory services. PPD's CEO Fred Eshelman credited the increasing average size
and duration of new contract signings, reflecting the growth in large global clinical trials, and efforts by Big Pharma companies
to consolidate the number of CROs they work with.
For contract manufacturers, the picture is less certain because few give forward-looking guidance or indications of their
order backlog. Both active pharmaceutical ingredient (API) and dose manufacturers have indicated anecdotally that 2005 was
a good year for signing new business, especially compared with the early part of the decade. The mood at the CPhI trade show
in Madrid was more upbeat than it has been in several years, and exhibitors at the AAPS annual meeting were equally positive.
API manufacturers are looking at 2006–07 as the time period when their turnaround would become most evident.
Probably the biggest concern for manufacturers is the slow rate of new product approvals in 2005. Through Nov. 2005, only
14 new molecular entities had been approved, including 13 new drug applications and just 1 biological license application.
It's not clear why the rate of new approvals has been so slow, but heightened concerns over drug safety at the US Food and
Drug Administration combined with leadership turnover could be slowing new drug approvals.
Despite the overall robust outlook, many uncertainties hang over the services market. These issues could affect how much the
pie will grow this year, and even more likely, who will get the biggest slices.