CRO Trends in 2013

6 Mar

By Alejandro Zamorano, VP of Business Development, LSN

A clinical research organization (CRO) is an organization that provides support to the pharmaceuticalbiotechnology, and medical device industries in the form of research services outsourced on a contract basis. These services can include assay development, preclinical research, clinical research, clinical trial management, and commercialization services. CROs have grown massively over the past 10 years due to their ability to specialize; allowing clients to streamline operations far beyond what could ever be accomplished internally. These firms tend to be highly capital efficient, and play the space strategically. A CROs survival is hinged on moving with industry changes. Below are the top behavior trends among CROs for 2013 as we continue to see strong growth in this often ignored sector:

Strategic Alliances

2013 will be the year of strategic alliances for the CRO industry. Big pharma is already picking sides, signing multiyear agreements with the industry’s big players. By forming partnerships, big pharma is able to negotiate prices and take advantage of key personnel within the company. In addition, big pharma can consolidate its operations and streamline communications, easing the burden of managing multiple service providers.

Investors

CROs have begun to take equity positions in lieu of cash for services rendered, especially among small and emerging clients. We will continue to see this trend grow as CROs move more heavily into the small and emerging biotech space due to competition and the potential opportunity to foster a long-term relationship. In addition to this, these specialized organizations can (and will) leverage their in-house expertise to invest in particular assets. This trend is also being facilitated by the fact that CROs want to diversify their exposure from a specific service class, and want to participate in the upside potential with unique clients. As an entrepreneur getting a discount off of preclinical work, Phase I or Phase II study is huge relief. In addition, this is appealing for the entrepreneur as it aligns the interest of the entrepreneur and the CRO. Finally, CROs tend take modest equity stakes depending on the work rendered and the phase of the lead asset, which is often more attractive than what entrepreneurs can yield in the market.

Emerging Markets
CROs will continue to expand their operations in China and India to take advantage of the cheap labor force, a more lenient regulatory environment, rapidly accelerating R&D, and advantageous tax treatments. It’s not just US and European-based companies relocating operations to these markets; over the past 5 years, native companies in these emerging markets have begun to make a splash. Often competing on price, these native operations have begun to put pressure on the market, decreasing gross margins across the board.

Globalization

With growing the therapeutic market in the emerging markets, countries are now requiring that native populations are included in clinical trials. As a result, clinical trial organizations have significantly grown in countries such as Brazil, Russian, Japan, China, and South Korea. As of 2011, around 53% of clinical trials were performed in the US, 24% in Europe, and 23% in the rest of the world. Looking forward we can expect the market share especially amongst the BRIC’s (Brazil, Russia, India and China) to grow. Analysts for example project the pharmaceutical market in China will reach $200 billion by 2020, making it the second largest in the world.

Developing Biosimilars

Large CROs are starting to team up with CMOs as they realize that by combining their economies of scale in the area of biologics, they have a perfect partnership to start developing bio-similars. Small biotechs have realized that developing biosimilars is harder than most would have expected. More importantly traditional generic developers are not equipped to handle the next generation of biosimilars. This has provided a perfect opportunity for CRO’s to fill in the gap.

 

http://www.fiercebiotech.com/story/rd-trends-spur-cro-business/2011-08-05

http://www.contractpharma.com/issues/2011-05/view_features/cro-industry-update-2011-04-29-10-53-51/

http://www.niceinsight.com/ni_it.php

http://www.contractpharma.com/issues/2012-06/view_features/cro-outlook-opportunities

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