According to a survey from Life Science Strategy group, the average number of CROs used is expected to increase 4% in 2014, and then it’s expected to climb another 3+% in 2015, to an average of 4.5 vendors per sponsor, which seems to indicate a push away from strategic partnerships.
Jefferies analysts note that “at first blush, these findings do contradict last year’s data that suggested larger CROs would continue to consolidate market share…however, they are consistent with more recent anecdotal data we collected that indicates some of the biopharmas that had transitioned to a strategic partner model are now back in the market for additional partners.”
The poll involved 61 R&D decision-makers at various-sized pharma and biotech firms, nearly half of whom are employed by large biopharmas, roughly a third by mid-sized firms, and the remainder from small companies.
Jefferies analyst David Windley told us the survey offers a mixed view with “some sponsors still looking to narrow vendors (typically the larger ones that responded), while others (mid/small) are looking to add vendors.”
“Also, sponsors indicated that they are increasing their outsourcing at an accelerating rate,” he added. “I wouldn’t tie that specifically to outsourcing on a trial by trial basis (on an individual trial’s needs), but more outsourcing.”
The increase in the number of CROs used may not be a boon for smaller CROs, however, despite recent trial wins. In the 2014 survey, 34% of respondents reported contracting with only large CROs, vs. 22% last year, which offers additional evidence that large CROs continue to take share from smaller vendors.
Following this trend, Jefferies upped its price targets for shares of the largest CROs, including Charles River Laboratories, Covance, Parexel and Quintiles. Of these, Jefferies anticipates the biggest growth between 2014 and 2015 in earnings per share to come from Covance.
Growth in Overall Outsourcing
Total outsourcing penetration is also expected to increase to 49.7% in 2014, from 45.3% in 2013, and that figure is expected to rise again in 2015 to 54.3%. That figure will grow even more in the years to come because when companies were asked what an ideal level of outsourcing would be, the consensus was about 60%, according to the survey.
“This answer does strike us as low; Pfizer, for example, is currently outsourcing 80%+ of its work,” Jefferies analysts noted.
Forty-four percent of the respondents also reported a growing active pipeline and 46% reported a pipeline that is stable, which further indicates that CROs will take a growing slice of the biotech boom.
And of the 90% reporting either stable or growing pipelines, 44% are reducinginternal headcounts and/or capacity over the next several years, which means greater penetration for CROs.