Admittedly, it is more difficult for Western companies to establish themselves in India and China than for Asian companies
to come west due to restrictive regulations governing foreign investment and the challenges of learning to operate in a different
culture. But most Western service companies seem to be held back by a severe aversion to risk and an unwillingness to accept
near-term losses and uncertainties in return for longterm strategic opportunities. It would be unfortunate if the pharmaceutical
services industry's pioneers ceded their future to a band of relative newcomers, but it wouldn't be the first time that happened
in the history of business.
CROs on parade
Like all corporations, CROs and CMOs have three principal constituencies: customers, employees, and shareholders. Presentations
to customers and employees are usually focused on how the company will help them be successful, but presentations to shareholders
are about how the company itself will be successful. As such, shareholder presentations provide a window into company strategies,
their executives, and how they view market trends.
The annual JPMorgan Healthcare Conference, held in San Francisco last month, brought together CEOs and CFOs from more than
200 public and private bio/pharmaceutical, medical device, diagnostic, and managed care companies. The CEOs and CFOs addressed
some 7000 money managers and dealmakers to explain why they should invest in their companies. The CRO and pharmaceutical supplier
sectors were well represented at this year's conference, with more than 15 companies presenting.
Because profit margins and growth prospects drive stock valuations, investors want to know how companies will grow their revenues
and profits. The CRO executives, in particular, had a very compelling story: major pharmaceutical companies are embracing
outsourcing as part of their efforts to restructure their business models, and those efforts will drive the CRO business for
years to come. All noted that the bio/pharmaceutical industry outsources only about 25% of its R&D spending, so they expect
to enjoy robust growth simply by taking a piece of the growing share that will be outsourced. The bigger CROs also expect
to fuel growth by increasing their market share of outsourced spending (e.g., by building massive preclinical toxicology laboratories
or enhancing their ability to conduct large global trials). In their view, the balance of power has shifted from the pharmaceutical
companies to the service providers over the past three years.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, email@example.com