SCOPE 2018

A CRO monopoly? Sponsors frustrated with lack of options

01-Mar-2018 - Last updated on 01-Mar-2018 at 20:00 GMT

(Image: Getty/martince2)

With fewer global mid-sized contract research organizations (CRO) through consolidation, some stakeholders are expressing concern that the industry could become a monopoly – “we may be getting there,” one expert said.

Ratan Ratnesh, director and head, clinical outsourcing, Otsuka, recently spoke at the SCOPE Summit, which took place in in Orland, FL. The presentation focused on the options, consideration, and implications of outsourcing in a market that has, according to Ratnesh, “a limited number of global suppliers.”

This is a problem from a commodity point of view, he explained. And while he concedes that many of the smaller CROs have alliances, he said this doesn’t work. “It just creates hassle,” he said.

“Global suppliers to some extent … it is becoming a monopoly,” Ratnesh continued. “It’s not a monopoly yet, but we may be getting there.”

CRO market could become a monopoly (is getting there) with few global suppliers, says Ratan Ratnesh @OtsukaUS at #SCOPE2018. Do you agree?
— Melissa Fassbender (@melfass) February 13, 2018

David Windley, CFA, CPA, managing director, healthcare equity research, Jefferies LLC, said Ratnesh’s comment reflects sponsors continued experience of uneven vendor performance and the desire to have more options.

“The frustration has not died,” he added. “Some of that is born out of unrealistic expectations – and some is driven by legitimate shortfalls in performance by the vendors.”

However, Windley said the industry is far from becoming a monopoly, as it is still quite fragmented. Though directionally, it has been consolidating.

As part of this, Windley said sponsors no longer have “Goldilock’s choice,” of a medium-sized company that’s not too big and not too small. "The choices in that particular size band are gone," he said.

“You have to choose between a pretty large CRO, or sub $500m,” Windley added. Though some of the smaller players are doing quite well, but won’t likely reach parity organically.

Organically, it would take way too long for the small companies to grow into that mid-sized CRO space, he said. But inorganically, with the help of private equity, the next medium-sized CRO could be built.

“A growing list of private equity players have had really good success in this space,” said Windley. “That success begets – if not more success – it at least begets interest.”

What are your thoughts? Is the industry headed towards a monopoly? Email me at Melissa.Fassbender@wrbm.com.