CROs Head for Early Phase Growth

In Frost & Sullivan's latest U.S. CRO Market report, it noted that the overall U.S. CRO market had revenues of $9.77 billion in 2008, with projected 2015 revenues at $23.78 billion. Where were the growth spots for the CROs? One large area is early stage work.

What Phase Gets the Most Dollars?

Barath Shankar, author of the report, told Applied Clinical Trials that the trends indicate that big pharma is outsourcing the start-up, early phase work of clinical trials to the CROs. This frees up the sponsor to work on pipeline development through mergers, acquisitions or in-licensing.

This observation has already come to fruition with the big three mergers of first quarter 2009: Roche/Genentech, Pfizer/Wyeth, and Merck/Schering-Plough. However, its effect on the clinical trials industry still remains to be seen.

As far as compound licensing trends, a 2007 Tufts CSDD analysis showed that in 2005, 44% of New Molecular Entity (NME) approvals came from large pharma, while 56% came from small/mid-tier pharma. However, new drug approvals from 2000-2006 indicate that the origins of approval were 66% for large pharma, and 28% for small/mid-tier pharma.

In the Frost & Sullivan report, Shankar noted that some areas of outsourced early-stage work, primarily toxicology, are historically underpenetrated. The top 10 CROs account for 55% to 60% of the global market, and most, according to Shankar, already have an early stage capability. Many are increasing their breadth instead of depth, which is achieved through capital expenditures (building it in-house) or acquisitions.

"Even in terms of adding capabilities, acquisitions may not be happening soon," said Shankar. "There still could be a lot of consolidation among the third-tier, and Mom and Pop shops. However, we'll know more when the funding situation eases a bit."

Shankar concluded with the following economic observation: "Our estimates are a bit more conservative now. A lot of these projections were done before the market meltdown [the report was released in October 2008], so the numbers could be less."

Emphasis is noticeable

The economy notwithstanding, many CROs have been making early phase service announcements. The Frost & Sullivan report specifically noted: "There is a strong demand for early stage services from the supply side (R&D spending) that could translate to higher business for CROs if their services are positioned to meet the demand and requirements of sponsors."

The following events prove that positioning is occurring:

• In March, Covance purchased a clinical pharmacology company with a 50-bed facility in Basel, Switzerland.

• In March, ACM Global Central Laboratory acquired its long-time partner lab Pivotal Laboratories, based in the UK.

• In January, Quintiles partnered in a 50-bed Phase I unit in Hyderabad, India, with plans to go to 100 beds.

• In January, Cetero Research, a clinical pharmacology and bioanalytical CRO, announced a 100-bed facility in San Antonio, TX, specifically for clinical trials in healthy diabetic and obese subjects.

• And, last August, the harbinger of both the new strategic model and the early phase drug focus, Covance and Lilly's agreement whereby Covance acquired Lilly's early drug development campus in Greenfield, IN. As part of the agreement, Covance will provide the drug-maker with a range of services over the next 10 years for $1.6 billion.—Lisa Henderson