Preclinical CROs (contract research organisations) are looking to discovery to drive growth at a time when demand for GLP (good laboratory practice) toxicology is below historic highs. A recent survey of 136 biopharma employees contained encouraging signs for CROs pursuing this growth strategy.
“We are encouraged to see modest increase in respondents focusing on early-stage work compared to last year. Also the larger jump in discovery services compared to 2011 may prove modestly positive”, Eric Coldwell, equity analyst at RW Baird, wrote in his biannual outsourcing survey.
On average over the two surveys last year 14 per cent of respondents said, if they ran a global CRO, they would invest most heavily in discovery. This figure increased by four percentage points in the latest results.
The upturn comes as larger biopharma companies become more comfortable with outsourcing drug discovery. Charles River Laboratories has said it is planning acquisitions to help it win this work and other preclinical CROs are also looking at the sector.
“[There is] growing sentiment that discovery services can be a material driver of growth in the coming years, and thus may help fill the capacity glut across GLP toxicology providers”, John Kreger, equity analyst at William Blair, wrote after the Society of Toxicology (SOT) conference last month.
After SOT Coldwell also noted the recent small increase in preclinical outsourcing volumes is skewed towards discovery and non-GLP work. Charles River has contracts in both areas, including a big deal it inked last year that it is using as a template for future business wins.
Low discovery outsourcing penetration, Kreger estimates less than five per cent, means Charles River and its peers could expand quickly in the sector as use of third-parties becomes more commonplace.
“We believe that at least one large pharma will make a sizable outsourcing move by mid-year, while two to three others could get more aggressive on externalising work by 2012 end”, Coldwell wrote last month.
Respondents to the RW Baird survey said outsourcing penetration will increase by six per cent this year, building on a similar rise in 2011. The six per cent increase is the average across all phases of development so it is possible penetration of drug discovery outsourcing could outstrip this figure.
Gains could push penetration up past 35 per cent. “We have believed that the ultimate end game is for outsourcing penetration to settle between 60 and 80 per cent in the distant future. At current growth rates, the market would hit the low end of the range over the next decade”, Coldwell wrote.