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Providing industry information, market research, indepth analysis and data from China research and Intelligence. China Research and Intelligence publishes market research reports, industry analytical reports, company reports and industry databases. CRI also provides outsourcing and custom... More
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  • Global Dealmaking And Operations Strategies In The CRO Market 0 comments
    Oct 11, 2013 1:55 AM

    PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market

    CRI report: The biopharmaceutical industry is currently facing significant headwinds. The blockbuster era is over, development costs are skyrocketing, uncertainty exists around regulatory and reimbursement, patent cliffs, generic erosion, and a sluggish global economy all have industry executives losing sleep at night. To respond to these pressures, biopharmaceutical companies have been changing the way they approach virtually every aspect of their business, including research and development. To remain competitive drug makers are intensely focusing on generating more value and productivity out of every dollar spent on R&D. The challenge of accelerating pharmaceutical product development while controlling costs creates a difficult balancing act for industry executives. Through the use of strategic outsourcing with third-party vendors, drug makers can maximize their internal resources while at the same time entering into risk-sharing agreements with CROs to generate significant cost savings.

    The CRO Sector Posted Strong Growth in 2012 - PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market

    The total combined peer group revenue from these leading CRO companies increased 10.2% year-to-year, from $12.4 billion in 2011 to $13.6 billion in 2012. Largely fueling the growth in the CRO sector was Quintiles, which independently contributed approximately $397 million to the $1.2 billion peer group increase. Quintiles' revenue grew by 12.1% year-on-year to $3.7 billion in 2012, considerably larger than its next closest rival Covance at $2.1 billion. Quintiles was effective at turning its order backlog into revenue, and garnering new orders in its clinical services business especially in markets abroad in Europe and Asia. In fact, most of the companies in this report saw positive year-on-year growth rates in 2012, ranging from 4.0% (Covance) to 22.8% (WuXi), with the exception of Charles River, which saw a slight year-on-year revenue decline of 1.1% largely due to unfavorable foreign exchange rates. The sector posted strong growth in 2012, outpacing the 6.8% increase in aggregate corporate revenue the same peer group recorded in 2011.

    Strategic acquisitions and partnerships carried out by CROs also helped to drive revenue higher for the peer group. Just before the close of FY12, Patheon completed its $255 million deal to acquire Banner Pharmacaps, one of the world's largest manufacturers of proprietary softgel capsules for the pharmaceutical and nutrition industries. The purchase of Banner fills gaps in Patheon's current product lines and also expands its geographic reach into markets in Mexico and Latin America. Catalent Pharma Solutions made significant investments in its clinical trial business when it bought Aptuit's Clinical Trials Supplies (NYSE:CTS) business in February for $410 million. The all-cash transaction transformed Catalent into one of the largest global providers of clinical supply solutions and adds analytical chemistry, respiratory product development and regulatory consulting services to its mix. The private CRO sector also saw its fair share of acquisitions. Clinipace Worldwide broadened its therapeutic expertise and regional footprint in Europe with its buy of Paragon Biomedical. Known principally as an oncology CRO, Clinipace will know have the talent, and resources to offer its clients services for managing clinical trials in the areas of immunology, infectious disease, cardiovascular and CNS. While traditionally known for its work in IT outsourcing, the industry giant Accenture purchased Octagon Research Solutions, complementing its data management capabilities with Octagon's proprietary software platform and deep regulatory knowledge. Accenture now has a fully integrated global business service empowered by customizable technology which will allow its pharmaceutical clients the ability to bring drugs to the market faster.

    The peer group average operating margin increased 60 basis points to 8.2% in 2012, from 7.6% in 2011. PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market attributes the increase to not only higher sales revenue, but to service providers implementing re-organization plans. Companies such as Covance and Parexel shuttered operations and laid off hundreds of employees across the globe in efforts to help stem the profit losses in their early-phase segments - a trend which will continue into the near future as demand for early-stage work is being tasked to niche CROs and academic research labs.

    CROs Focusing on Delivering Service Value to SMBs -PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market

    CROs are adding new capabilities specifically aimed at helping small and mid-sized biopharmaceutical companies (SMBs) optimize value and minimize risk. In a post-patent cliff world, small and mid-sized pharma and biotech companies will become the heart and soul of the drug industry, and will be responsible for the lion's share of the innovation the industry will see in the future. GlobalData believes CROs are ramping up their services to meet the requirements of small and mid-sized pharma and biotech companies who tend to have varied needs and much smaller budgets compared with their 'Big Pharma' brethren, hence requiring different outsourcing strategies.

    Allume is a comprehensive go-to-market service introduced by Quintiles that combines consulting, clinical services, commercial expertise and information technology. The service helps SMBs biopharmaceutical companies efficiently launch new products and shorten timelines to peak sales, while retaining strategic and corporate control of their assets. Biopharma companies are looking for new ways to optimize product value, expedite market access, and mitigate commercialization risk. Allume Quintiles achieves this by simplifying and organizing the complex, resource-intensive launch planning process leaning on Quintiles' 15 years of market entry experience. To maximize value, companies must plan product launch much earlier in the drug development process, especially when preparing to enter new geographic markets. Through Allume Quintiles provides the strategic thinking, deep therapeutic insight, and local market access knowledge to help its customers design roadmaps to navigate a pathway to successful commercialization.

    Not surprisingly, Parexel followed suit. However, instead of launching a service line, Parexel created the Parexel BioPharm Unit - a dedicated division of the company to focus solely on the unique needs of small and mid-sized biopharmaceutical companies to help them achieve their development goals. Parexel's internal research has found that 81% of all ongoing development programs are originating from sponsors outside of the top 25 pharmaceutical companies - a significant growth opportunity that Parexel wants to capitalize on with its new delivery model. Under a collaborative team-based approach, Parexel's BioPharm Unit provides SMBs the opportunity to accelerate patient recruitment, increase the speed of study start-up, and improve overall efficiency for meeting critical development milestones.

    Evolving Strategic Partnership Model -PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market

    Over the past five years, a wave of strategic partnerships between biopharmaceutical companies and CROs has been put in place to drive more flexibility, reduce costs, and extend expertise. Collaborations have evolved from simple transactional relationships into multi-year, highly integrated strategic engagements focused on shared objectives, mutual investment, and involvement in clinical trial design and drug plan development. The growth of contract research outsourcing will primarily be driven by the need of biopharmaceutical companies to improve research and development in mature and emerging markets. Today, many biopharmaceutical companies are engaging clinical research organizations through this more integrated approach aimed at optimizing performance and minimizing risk.

    While the number of licensing deals fell slightly, from 40 in 2011 to 36 in 2012, the total licensing deal value soared to $958.9 million in 2012, a 159% increase when compared with 2011. We attribute the growth in deal value to a number of significant partnerships being struck over the past few years for which contract revenues are now beginning to be realized.

    PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market believes that strategic partnerships provide companies with higher levels of integration, alignment and collaboration that will support industry success. Merck engaged Quintiles in a five-year clinical development collaboration to essentially reshape its entire R&D machine. The pharma giant just announced a major shakeup to streamline its operating model and aggressively manage its cost structure. The company spent $8.2 billion in R&D in 2012 (which was down from $11.1 billion in 2010), yet has very little to show for it, as the company has a very weak late-stage pipeline. However, GlobalData expects the partnership with Quintiles will play a major role when the company reviews its R&D apparatus this year.

    Covance was also busy signing deals with large pharma outfits. Over the past couple of years, Covance booked multi-year outsourcing deals with Bayer Healthcare, Eli Lilly, and Sanofi to conduct a variety of market access and R&D services including discovery support, toxicology, central lab, and managing Phase I-IV clinical trials. Over the next 10 years Covance will be paid handsomely for its work. The contracts from these three drug makers alone will add close to $4 billion to the company's coffers.

    BRICs and Other Emerging Regions Represent Huge Untapped Markets for Clinical R&D -PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market

    With lower overall costs, better recruitment and retention rates, strong investigator networks and populations in need of novel treatments, conducting studies in the emerging markets is a strategic necessity. Biopharmaceutical companies with less experience in conducting trials in the emerging markets may need on-the-ground expertise to ensure their project is tailored to local patients and complies with regional regulations. Other drug makers that already have the experience in the region may need operational support or advice on how to ensure locally conducted trials satisfy the needs of global regulatory bodies to mitigate costly clinical trial disruptions. CROs with the ability to deliver cost and time saving efficiencies to clients without compromising patient safety and data quality will be able to yield higher returns from emerging markets.

    PharmaSphere: Global Dealmaking and Operations Strategies in the CRO Market estimates that total peer group revenue in the Emerging Markets from these leading CRO companies increased by 14.6% to $394.1 million in 2012. The emerging markets in Asia, Central America, and in Eastern Europe have remained attractive regions for pharmaceutical outsourcing due to easy access to large patient pools, low labor and manufacturing costs and highly skilled medical talent. The globalization of clinical trials has led many CROs and other service providers to expand their strategic investments in emerging markets, especially in Asia. Most CROs are growing their infrastructures in China, while others take a different approach - deciding to acquire the capabilities of domestic companies or launch subsidiaries to handle the workload. In May of 2013, Parexel announced it opened its sixth facility in China, in the town of Shenyang. The site will not only add to the company's presence in the region, but will serve as a hub for driving its MyTrials clinical informatics platform. Charles River Laboratories purchased a controlling stake in Vital River, China's largest provider of laboratory animal models for use in preclinical research. Meanwhile, PPD (BioDuro) and Quintiles (Kun Tuo) established subsidiaries in China to strengthen their ability to provide biopharmaceutical clients in Asia with a comprehensive range of capabilities, from drug discovery services to regulatory submissions preparation.

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