Outsourcing for Biotechs: The Need for a New Model?

The CRO industry was formed in the 1980s to meet the resourcing needs of multinational pharmaceutical companies. This model, generally based on relatively rigid contracts focused on the provision of services to established, sophisticated purchasers has been very successful for both pharmaceutical sponsors and CROs, some of which have grown to rival their customers in geographical reach and revenue.

The past decade has seen the growth of a scientifically sophisticated biotech industry. The innovation productivity of these companies has rivalled, if not exceeded, that of more established companies, many of whom now see partnership with biotech as a more cost-effective source of new products.

In addition, the investment community has withdrawn from early biotech euphoria and now takes a harder look not only at the biotech IP in which it is investing, but also at the ability of the biotech to add value in a timely and cost-effective route towards IPO or, more often, partnership with pharma. With some notable exceptions, the CRO industry has been slow to respond to this new market reality and it is time to consider the need for a new partnership between CROs, investors and biotechs.

THE NEED FOR A NEW MODEL

Contract research organisations (CROs) emerged as a significant role player in the pharmaceutical sector in the early 1980s. They now comprise a heterogeneous group of companies ranging from small local providers to international corporations employing many thousands of people and with a global presence.

Publicly traded pharmaceutical and biotechnology companies reported R&D expenditures of over $80 billion in 2006, of which Frost & Sullivan estimates approximately $30 billion is spent conducting Phase I-IV clinical studies with $12 billion outsourced. By any standards, the emergence of this industry over the past 30 years has been spectacular, and the leading CROs have drug development experience, expertise and geographical reach which frequently matches or exceeds that of their sponsors.