The Rich Get Richer
The seven largest clinical CROs, six of which are public companies today, accounted for 52% of bio/pharmaceutical industry spending on CRO services in 2014, up from 45% in 2010 (Figure 1). Over that period, the market for clinical CRO services grew almost 40%, to $23 billion, but the top 7 CROs collectively grew nearly 60%. They occupy a very enviable position: an increasingly dominant position in a rapidly growing market.
The big CROs have extended their market share lead thanks in large part to their ability to secure preferred provider status with the 25 largest bio/pharmaceutical companies. Most large bio/pharma companies have embraced “strategic” relationships that involve transferring substantial portions of their clinical research operations to just two clinical CROs. These relationships typically incorporate trial monitoring and data management activities, both of which are both labor- and information technology-intensive; and may extend to other activities like medical writing and medical affairs.
The global bio/pharma companies entrust the largest CROs with those critical operations primarily because of the operate global networks that enable them to run multinational clinical trials with sites in dozens of countries; and they have the financial strength and infrastructure to absorb hundreds of staff transferred to their payrolls from the bio/pharmaceutical companies.
The scale of these strategic relationships can be massive: Parexel generated over $300 million in 2014 from its relationship with Pfizer, and several other CROs receive nearly 50% of their billions in revenues from just five strategic clients. Such dependence on a few clients can be risky of course, but the tight integration with the client means that the switching costs for the client can be very high.
The preference for working with a small number of strategic suppliers appears to extend into the contract dose manufacturing market as well. In our recently-published Trend Report CMO Scorecard: Outsourcing of NDA Approvals and CMO Performance we showed that global bio/pharma companies have favorites when they outsource the drug product manufacture for their new molecular entities (NMEs).
Over the 2010-2014 period, of the NMEs approved by FDA for global bio/pharma companies whose dose form was contract manufactured, 80% went to just 5 CMOs. The same five CMOs also got the lion’s share of opportunities for all global bio/pharma NDA approvals for which drug product manufacture was outsourced.
The concentration of CMOs serving global bio/pharma companies stands in contrast to the industry overall, as our analysis shows that at least 146 CMOs have benefitted from at least one NDA approval in the past 10 years. However, the deeper dive we take in CMO Scorecard: Outsourcing of NDA Approvals and CMO Performance shows that the CMO industry is actually more consolidated than it may appear from the outside.
Global bio/pharma companies have shown themselves willing to embrace strategic supplier relationships with service organizations that have the scale and scope to meet a broad range of their requirements. However, only a very few CMOs and CDMOs have demonstrated the willingness to invest in the vision of a world class development and manufacturing services provider. The evidence suggests that the opportunities may be out there if the industry is willing to step up to them.