According to KPMG’s research, the overall contract research organization (CRO) sector is expected to realize topline growth of 6% to 7% by 2021, with double-digit gains occurring in emerging countries.
While the top ten CROs are expected to see the majority of the growth, smaller niche firms can position themselves to attract the business of small- to mid-sized pharmaceutical companies, Anuj Kapadia, a director at KPMG Strategy told Outsourcing-Pharma.com.
The comments are an echo of Citi Research analyst Garen Sarafain, who previously told us “the large will get larger,” while the mid-size CRO market will “not be very robust.” However, both Sarafain and Kapadia agree that a need will remain for smaller organizations with niche capabilities.
In parallel with industry consolidation, KPMG also reports an increase of inorganic growth in “non-traditional” areas, such as commercial services.
“The broader trend of healthcare ‘convergence’ means that traditional industry lines are blurring, and ecosystem players are exploring new ways of working with each other,” explained Kapadia.
Consequently, manufacturers have to do more with less, which has positioned CROs as strategic partners to help companies reduce operating costs and focus on advancing innovation.
“What this means is an opportunity for CROs to leverage their assets and capabilities to diversify their revenue streams outside of core R&D activities, and play a larger role in commercial activities that are increasingly being outsourced by life science companies,” said Kapadia.
“They can essentially play a broader and more strategic role in helping their clients,” he added.
On average, Kapadia said R&D represents about 20% of the estimated $650 billion of total biopharmaceutical spend annually. As such, he said, CROs would do well to expand into these other areas such as sales and marketing, which represents almost 25%, or $160 billion, annually.
Other potential high-revenue areas for CROs include, market planning and development; brand management and multi-channel marketing; market research and strategic analytics, among others.
For example, Parexel’s acquisition of Health Advances in January boosted the company’s consulting business. As Outsourcing-Pharma.com reported at the time, the combination provides Parexel with more clients in the medical device, diagnostics, and healthcare IT segments.
“Clients will now be able to fulfill all of their development and commercialization needs ... with a single company,” said Parexel CEO Mark Goldberg, MD.
According to Kapadia, as CROs work to build a suite of commercial offerings, the organizations will need to carefully evaluate their long-term strategies and determine both “where to play” and “how to win.”
“Companies will need to continue to build on strategic partnerships formed with their clients, and assess which service offerings (outside of core R&D) they want to double down on going forward, so there will be a strong emphasis on portfolio management and development,” he said.
“This dynamic may likely require CROs to formulate and implement inorganic growth strategies – given the highly fragmented nature of the industry, the small to mid-size companies are clearly at a disadvantage and may risk becoming acquisition targets.”