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Market forecast on the future of Contract Research Outsourcing

May 7, 2010

GBI Research, the leading business intelligence provider, has released its latest research, “The Future of Contract Research Outsourcing – Market Forecasts to 2015, Geographical Landscape and Competitive Benchmarking” provides key data, information and analysis on the global contract research outsourcing market. The report provides market overview, competitive landscape and market trends information on the contract research outsourcing market. This report provides comprehensive information on the different service models present in the industry, key trends affecting the contract research organizations and key analytical content on the market dynamics. The report also reviews the competitive landscape in terms of mergers and acquisitions, strategic partnerships and service agreements.

This report is built using data and information sourced from proprietary databases, primary and secondary research and in house analysis by GBI Research’s team of industry experts.

The contract research market will continue to consolidate even as the strategic partnerships with the pharma and biotech industry will continue to drive the market. The contract research outsourcing activity is expected to increase in the clinical trials stage. Emerging regions such as India, China, Latin America and Central and Eastern Europe will drive the market by providing cost advantage. The increasing compliance to international regulations and standards governing the market by these regions will support this trend. The market is driven by the increasing R&D expenditure and a strong need in the biopharmaceutical industry to improve R&D efficiency by cutting costs.

The key challenges to the contract research outsourcing market are the current economic recession which has resulted in reduced demand especially from the biotech industry. The contract research organizations are also impacted by the increasing focus on safety of the drugs and recent cases of failure in clinical trials has led to an increase in concerns over quality. But, the contract research organizations are changing themselves according to the international standards with an aim to take care of the quality concerns of biopharmaceutical companies. Therefore, the quality concerns can be overcome and will have a small impact on the overall contract research outsourcing market.

The leading players in this consolidated market continue to grow through expanding their services and emerging as end to end service providers with global presence. The major contract research organizations are active in the central nervous system (CNS), oncology and cardiovascular therapeutic areas and focusing on the unmet needs of the biopharmaceutical industry. The contract research organizations will continue to expand geographical presence and improve their capabilities in therapeutic areas such as oncology and CNS and also expand functional expertise through partnerships with other contract research organizations.

Contract Research Organizations are Emerging as Strategic Partners to Improve R&D efficiency by Reducing Time to Market and Costs

The pharma and biotech industry today is forming strategic partnerships with the contract research organizations to leverage on their global presence and research expertise. The agreements with contract research organizations are aimed at improving the time to market and reducing costs. The service models of the contract research organizations are evolving to become more functional, where services are outsourced based on the analysis of their core competencies. The increasing focus on strategic partnerships will drive the growth in emerging outsourcing destinations which have many small niche contract research organizations specializing in different functions. For example AstraZeneca and Eli Lilly both extended such agreements with BioFocus DPI. These partnerships help biopharmaceutical companies in reducing the time to approval by approximately a month and reducing costs by about 15-20%. Therefore pharmaceutical companies will rely on the contract research organizations across the world to enhance their product pipeline strength by bringing drugs to approval faster.

Contract Research Outsourcing Market will Continue to Grow at a rate of 13%, Driven by the Demand from the Biopharmaceutical Industry

GBI Research expects the contract research outsourcing market to grow at a rate of 13% over the next seven years. The growth in the market will primarily be driven by the demand from biopharmaceutical companies. The biopharmaceutical industry is facing challenges such as declining R&D productivity, patent expiries and generic competition. These challenges have increased the pressure on industry resources, leaving companies to look for ways to increase efficient use of resources. Also, the biopharmaceutical companies are under pressure to bring products faster to market in order to maximize its profits from the product. The market will also be driven by an increase in the clinical trials outsourcing to emerging regions. Clinical trials account for the largest share of R&D expenditure in the industry. In addition, the increasing complexity of clinical trials and stringent safety requirements by regulatory bodies across the world will drive pharmaceutical industries to leverage on the expertise of the contract research organizations.

Therefore, the increasing strategic partnerships and the need of biopharmaceutical companies to improve R&D productivity to bring products to market quickly will drive the market in the future.

The Global Contract Research Outsourcing Market is Dominated by Large Companies with Global Presence of Operations

The global market for contract research outsourcing is dominated by a few large players which have geographic presence in many countries. The top six leading players in the contract research outsourcing market account for approximately 50% of the market. All the market leaders are diversified and provide comprehensive contract research services to their clients in the biopharmaceutical industry. The large players have operations in many countries globally, which allows them to exploit the market potential of all geographies. The big contract research organizations are dominating their presence in the market by acquiring the small and medium players. The contract research outsourcing market is expected to be more consolidated in the future due to increasing M&A activities within the contract research organizations.

The Key Players in the Market Look to Strengthen Competitive Positions through M&A and Strategic Collaborations with the Industry

The M&A activities, service agreements, and strategic collaboration have increased over the last four years. The increase in these deals suggests a highly competitive and active market.

Majority of the deals in the contract research outsourcing market focused on establishing strategic alliances with other contract research organizations, technology providers and pharmaceutical and biotech companies. The players have entered into the strategic alliances and collaboration with other companies in order to enhance their competitive positioning. The increased number of M&A suggests a further consolidation which will increase the competition in the industry and are aimed at enhancing service portfolios and expand geographic presence. The intense competition will force medium sized players to expand services or geographic presence. The niche players focusing only on a specific function or therapeutic area will also continue to grow. Therefore, the larger diversified players or niche contract research organizations will be competitively placed in the future.

Regions such as Latin America, India and China Attract Increased Contract Research Outsourcing due to Competitive Benefits and Increased Regulatory Compliance

The US and Europe dominate the contract research outsourcing market and account for a majority of clinical research activities. However, this trend is changing with the emergence of regions such as Central and Eastern Europe, Latin America, India and China as preferred location for outsourcing. These regions provide a cost advantage, better patient enrollment and expert personnel. The emerging regions are more cost effective with comparable quality standards with the developed regions such as the US and Europe. However, the emerging countries compete amongst themselves on parameters such as experience in therapeutic areas, skill set of personnel involved in clinical trials, and government support. All the countries have aligned the clinical research regulations in line with the international standards and requirements which allows them to conduct clinical trials and research on behalf of pharmaceutical companies in developed countries. Therefore, pharma and biotech companies will increasingly outsource to emerging countries in order to benefit from the cost, time and expertise benefits and also to leverage emerging countries’ compliance with international standards such as the Good Laboratory Practices (GLP) and Good Clinical Practices (GCP).

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