Smaller firms driving full-service CRO work as Big Pharma rethinks its outsourcing strategy
Late-stage contract research organizations (CROs) will likely be broadly affected by the slowing of outsourcing penetration within large pharma, according to a recent report co-authored by David Windley, CFA, CPA, managing director, Healthcare Equity Research at Jefferies LLC.
Per the report, which collated survey data and interviews with drug development professionals, 35% of large pharma respondents plan on reducing outsourcing in 2018 – and only 6% plan to increase outsourcing. This, compared to the 2017 survey which found 20% of large pharma respondents expecting to decrease outsourcing and 20% expecting to increase.
“One of the themes that I see is a move by big pharma toward functional service provider (FSP) structures,” Windley told us, “and in some cases, some insourcing of activities.”
While he said these trends aren’t really showing up in the bookings, Windley is more convinced that large pharma companies are trending toward taking more control over the execution of their trials.
“That manifests either in an FSP type of structure where they bring the strategic management back in-house, or, in some cases, companies are deciding to bring studies back in-house to run “soup to nuts,” he said.
“Those themes among large pharma companies are things that we heard about a year ago, and I’m now continuing to hear those types of things in more detail,” Windley explained.
However, while large pharma may be driving more FSP work, small to mid-sized companies are driving more full-service work, said Windley.
“The small- and mid-biopharma customer segment of the market has seen really robust funding now for a little over a year,” he said. “The dollars of which get turned around into outsourcing fairly quickly.”
As Windley explained, because funding is so robust – and because smaller companies have less internal infrastructure – they are therefore more likely to lean on CROs to do full-service work.
“The growth out of the small- and mid-sector is driving more full-service work,” he said.
Overall, the CRO industry compound annual growth rate (CAGR) is expected to be 5-6% over 5 years, according to the report, with strong growth expected after strong bookings in 2017.
Other key takeaways:
81% of respondents said they more likely to work with a CRO that offers innovative patient recruitment. In 2017, 68% said the same.
65% of respondents were satisfied with the performance of strategic partners, compared to 79% in 2017.
Down from 50% in 2017, and 76% in 2016, this year’s survey revealed only 35% of sponsors rely on CROs for big data and analytics for feasibility and trial efficiency.