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CMC service providers are doing well, but clinical and preclinical CROs are doing even better.
The 2008 PharmSource—Pharmaceutical Technology Outsourcing Survey, the results of which are published in August's 's Outsourcing Resources supplement, paints a bright picture for providers of formulation, analytical, and clinical trial manufacturing services. Nearly two-thirds of service providers surveyed say they expect revenues to grow by 10% or more in 2008, and they expect 2009 to be just as promising.
As optimistic as this outlook is, it pales beside the effervescent outlook of the clinical-research contract research organizations (CROs). In an informal PharmSource survey of exhibitors at the 2008 Drug Information Association (DIA) annual meeting held in Boston in June, 88% of clinical CROs surveyed said they expect 20% growth over last year. Respondents credited a growing number of studies as a principal factor, driven by downsizing at major pharmaceutical companies and the growth of trials in emerging markets. Respondents also emphasized the expansion of their own capabilities to meet that demand.
The greater expectations of the clinical CROs reflect the fact that outsourcing of clinical research activities has always outpaced outsourcing of chemistry, manufacturing, and control (CMC) functions. We're not entirely sure why that is, but we believe three factors are at work. First, CMC services involve fixed assets (laboratories and facilities), which are difficult and costly to shut down. Clinical research, on the other hand, involves mostly labor and information technology, which are easier to shed in favor of contract service providers. Second, CMC development often involves developing intellectual property (IP) whereas clinical research activities are less likely to expose IP to potential competitors and are more about operational effectiveness. Third, the need to access patient populations globally to recruit sufficient numbers of subjects, reduce costs, and support global regulatory submissions encourages use of clinical CROs.
Clinical-research CROs do, however, face several challenges. For starters, recruiting and retaining qualified staff is a real challenge today, especially for qualified scientific and technical professionals. Competition is driving up compensation costs, even with the hiring pool being deepened by professionals leaving pharmaceutical companies. In addition, many companies are concerned about meeting client demands and timelines. Patient-recruitment requirements, investigator needs, and site and study logistics require increasingly sophisticated management and planning. Competition was the third most frequently listed challenge for companies. Respondents cited the need to be flexible in responding to the market, and the importance of keeping costs competitive. Almost 68% of respondents plan to increase resource allocations to sales and marketing.
A recent survey of research and development (R&D) and outsourcing professionals by Jefferies & Company indicates that market conditions are highly favorable for continued growth in the clinical research sector. The survey found that R&D spending is expected to grow at a faster pace in coming years than it has in recent years, with the fastest growth in late-stage development (Phase IIb and Phase III). This undoubtedly reflects the maturing of the pipeline as rapid growth in early-phase compounds yields more late-stage candidates.
Jefferies' respondents expect the fastest growth in outsourced spend to be in early development, including preclinical toxicology and Phase I clinical testing. This reflects a growing reliance on early-phase testing to demonstrate proof-of-concept as a means of controlling R&D costs and identifying candidates likely to fail earlier in the development process.
Respondents to the Jefferies survey also expect more offshoring of clinical research activities, with a focus on data management and use of clinical sites in emerging markets. In fact, they expect the share of R&D budgets spent outside North America and Europe to almost double, from 29% in 2008 to 54% by 2011. For this to happen, however, they must overcome a variety of obstacles including IP protection, communication problems, and cultural differences.
There are already signs that outsourcing of development services for clinical-trial materials is headed in the same direction as clinical research. It may pay for nonclinical outsourcing professionals to "look over the wall" at what their clinical counterparts are doing.