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Hot and cold? Analysts unpack CRO market expectations

Melissa Fassbender

By Melissa Fassbender

13-Mar-2017
Last updated on 13-Mar-2017 at 17:40 GMT2017-03-13T17:40:26Z

CRO market reports: analysts look to the future

A recent CRO market report  from ISR projects increasing outsourcing, though analysts remain less optimistic moving into 2017.

Overall, the health of the CRO looks good out to 2021 based on increased outsourcing and strong R&D spending fundamentals,” Andrew Schafer, President, Industry Standard Research, told Outsourcing-Pharma.com, who said that many factors that can influence the R&D budgets of organizations engaged in clinical development activities.

 
R&D Sources and Distribution. (Image: ISR)

R&D Sources and Distribution. (Image: ISR)

For example, mergers at top pharma companies can sometimes slow R&D spending, VC investment levels into emerging companies can swing up and down, and new drug discovery techniques or scientific breakthroughs (or breakdowns) can influence overall spending levels,” he explained.

According to Schafer, ISR’s research points to a strong preclinical pipeline, solid R&D spending projections, and increased outsourcing levels, “all of which are positive to the CRO industry,” he added.

Overall, ISR's recent report shows an annual growth in the ~7% range through 2021.

Wall Street weighs in

While CROs have continued to grow, Schafer said stock prices have not risen as fast as they did 12 to 24 months ago.

The past twelve months have been interesting to watch in terms of how Wall Street has treated CROs,” he said, as most of the larger public CROs lagged the DJIA from March 2016 to March 2017 “despite delivering some solid topline growth.”

From the Wall Street perspective, David H. Windley, CFA, CPA, Managing Director, Healthcare Equity Research at Jefferies LLC, told us that though cancellations, overall, were generally more benign in the most recent quarter, companies are not generating bookings growth that he normally expects to see.

To the extent that bookings are a precursor to the future … we have some concerns about revenue growth as we move into 2017,” Windley explained.

[CROs] are seeing growth slow into the sub 5% range on their core businesses,” he said, adding, “outsourcing penetration trends are slowing.”

Additionally, through surveying efforts at Jefferies, Windley said the firm has seen “a pretty marked change in future outsourcing expectations.”

What we were seeing was that respondents in the survey, over time, had dialed back their expectations of outsourcing,” he explained.

Normally, Windley said he would expect outsourcing levels and expectations for the future to “inch up over time,” as companies remain under pressure to save money.

However, the survey results show that these expectations have dropped by 9% in two years. “That’s kind of concerning,” he said.

Some indications that especially large pharma are not poised to outsource a lot more,” Windley explained, further adding that some large pharmaceutical companies are pulling some work back in-house.

(Feature image: iStock/peshkov)

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