The past six months have seen a spate of large acquisitions in the pharmaceutical services industry intended to create giant-scale
service providers with global reach. Noteworthy deals are INC Research's acquisition of Kendle International, which boosted
INC to $700 million in revenues; inVentiv's purchase of i3 and PharmaNet Development, which created a $900-million CRO; and
Catalent Pharma Solutions' $400-million acquisition of Aptuit's clinical supplies business, which pushed Catalent into the
number two slot in clinical packaging.
The rationale cited for these megadeals is that global bio/pharmaceutical companies favor large CROs with broad capabilities
in their selection of preferred service providers. These "strategic partnership" deals are the cornerstone of global bio/pharmaceutical
companies' current sourcing strategies, which seek to leverage their massive buying power while reducing sourcing overhead
expense and improving coordination with the CRO.
The list of publicly announced preferred provider deals (see Table I) shows that global bio/pharmaceutical companies have
clearly embraced the large multiservice provider, at least for now. However, there is a substantial probability that sourcing
models will change significantly in coming years and threaten the business model upon which the recent megadeals are based.
Table I: Publicly announced preferred-provider deals.
FROM FUNCTIONAL SERVICE PROVIDER TO INTEGRATED SERVICE PROVIDER
We have already seen a major shift in sourcing strategies at one of the largest bio/pharmaceutical companies. Pfizer was an
early proponent of the functional service provider (FSP) sourcing model but has now shifted to the integrated service provider
(ISP) model. In the FSP model, Pfizer sought to engage the best-in-class service provider in each clinical research activity
(e.g., site monitoring, data management, or central laboratory services) and to have those best-in-class providers support
all of their trials. However, Pfizer executives found the FSP model too costly because too much internal overhead was required
to coordinate the activities of the various FSPs.
In its most recently announced strategic CRO deals with Icon and Parexel, Pfizer has moved to the ISP model in hopes of eliminating
the high internal overhead costs. Now, Icon and Parexel will provide a broad range of services to each of the clinical trials
they will manage on behalf of Pfizer.