Preclinical contract research organisations (CROs) have been hit by declining sales in the last few years, and though a recovery has been predicted , some analysts have forecast a period of stagnation in the sector.
However, at the JP Morgan Healthcare Conference last week, CRL’s CEO James Foster spoke about the firm’s recent uptick in revenue and how strategic relationships are becoming increasingly important to drive future revenue.
“All five of the top Pharma companies we have spoken with want to reduce their partners from several hundred to no more than a couple of dozen,” said Foster, describing one firm who approached CRL to be one of just six future suppliers, whittled down from over 2,000.
Currently, a quarter of the company’s revenue comes from strategic partnerships with Big Pharma and this will only grow, he said, increasing longer-term visibility and predictability in quarterly revenues.
The industry is “rapidly approaching its inflection point,” he continued, and clients “will take a lot of space offline, eliminate molecules earlier in the process, and reduce their headcount,” all of which will benefit CRL in the near future.
One such company is Merck & Co. (known as MSD outside North America) which last year said it was to reduce internal spending by $2.5bn (€1.85bn) , mostly in R&D. When asked in a Q&A session following his presentation whether CRL was hoping to benefit from such cuts, Foster refused to comment directly on Merck but said CRL’s range of R&D services and geographical footprint has meant CRL is “the primary share with virtually all of the big pharma businesses.”
He continued: “It would be surprising and disappointing if CRL weren’t the beneficiary of such facilities going off line.”
Mid-Tier and Biotech
However, CRL is not just targeting the large pharma firms with Foster saying its historic big pharma clientbase has changed, with CRL’s mid-tier pharma and biotech clients representing an equal share of business.
In a note, analyst Ross Muken from ISI Group, said CRL see this “as exciting and attractive given that renewal rates are high and most biotech lack internal capabilities and thus outsource to a higher degree vs. large pharma.”
Furthermore, Foster added “pharma is increasingly relying on biotech heavily, increasingly on academia and NGOs, small startup and venture capitalists,” and therefore CRL’s “ability to have strong relationships with all of them and facilitate conversations and work amongst them has become increasingly important.”
Discovery Research Service
It is not just the client that is changing, Foster told potential investors, but rather CRL’s service businesses. Though its traditional research model business and preclinical services represent over 30% each, its largest growing sector is its endotoxin microbial detection business, and its discovery research business was also high-lighted for its growth potential.
This sector – worth between $4-6bn according to Foster – determines the efficacy of a potential molecule with preliminary tests carried out on living mammals and was once again historically done in-house by pharma. Clients have been “hesitant to give it up,” but continued R&D cuts are pushing this once important in-house step in the discovery process to outsourcing partners.
“[This service is] in a strong position as it expands our end to end in-vivo biology capabilities,” he said, adding: “We’ve been able to reduce costs and in certain cases speed up the time to give them the info, and do it better than internally.”