Major pharmaceutical companies are increasingly forming long-term, strategic partnerships with a small number of global contract research organizations (CROs) in order to cut costs and streamline their outsourced clinical work.
In the most recent deal, Sanofi-aventis signed an agreement worth up to $2.2 billion with Covance for a wide range of research and development services. While this deal, the largest and most comprehensive to date in the CRO industry, has garnished a great deal of media attention, a number of other significant partnerships in recent months indicate a shift in how large pharmaceutical firms will work with CROs in the future.
GlaxoSmithKline (GSK), for example, recently chose Parexel International and PPD to handle its future clinical drug development; this announcement came just a few months after GSK CEO Andrew Witty told analysts the company would move from working with "30 CROs down to just a couple." Bristol-Myers Squibb, which recently signed three-year agreements with Icon and Parexel to support its clinical development program, is moving in a similar direction.
In another recent deal, Eli Lilly handed over study start-up and clinical trial monitoring duties in the Asia/Pacific region to Parexel in a functional service provider agreement.
These collaborations illustrate how major pharmaceutical companies, under significant pressure to cut costs, increasingly are restructuring their R&D operations and developing new outsourcing models, including alliances and partnerships, in order to have a faster, more efficient drug development process.
"In the bigger picture, partnerships present an opportunity for a much more integrated, efficient approach to development," said Doug Peddicord, Ph.D., executive director of the Association of Clinical Research Organizations (ACRO). "To maximize the benefits of these partnerships, there must be a high degree of trust between the sponsor and the CRO so that all of the potential efficiencies, time savings and cost savings can be realized. Ultimately, these arrangements are all about bringing new drugs to market faster and at a lower cost of development."
Rising development costs and greater regulatory scrutiny to ensure drug safety also have led to more strategic partnerships between drug sponsors and CROs as a way to combine the scientific and operational knowledge of both organizations. While pharmaceutical companies have cut staff to reduce R&D costs, Peddicord said CROs are hiring many highly-skilled personnel. "We believe this is not only a shift in staff but also of expertise. Increasingly, CROs possess a level of drug development expertise that not only complements but also extends the capabilities of sponsor companies," he said.
Research conducted last year by the Tufts Center for the Study of Drug Development indicates that partnership models will be the dominant form of outsourcing within the next three years. "We expect to see more announcements of these arrangements," Peddicord said.
But the trend toward drug sponsors outsourcing substantial aspects of their development work to strategic partners, along with the recent consolidation in the industry, has reduced the number of opportunities available to small and mid-sized CROs. In fact, according to an analysis from Wells Fargo, the top five CROs have increased their market share and now control 50% of the global market.
In order to stay competitive, many small and mid-sized CROS have refocused their businesses to offer specialized, niche-market services based on therapeutic areas. "CROs are trying to truly differentiate themselves," said Kim McLean Boericke, global vice president of site services and strategic outsourcing at i3 Research. "Everybody has project management and everybody has monitoring, but CROs are trying to truly differentiate themselves with some boutique services that nobody else has, so that your company gets up on the short list."