Reports from the annual meeting of the Society for Toxicology (SOT), held in March, indicate the problem. Analysts covering
the meeting estimate that the preclinical services market is growing at the rate of 15 –20% per year, the fastest of any contract
services sector. The growth is driven by the many candidates in early development and the increased willingness of major pharmaceutical
companies to outsource their toxicology testing. Analyst reports note that increased demand from several major pharmaceutical
companies (including Pfizer, which is closing several sites where preclinical testing is conducted) could overwhelm the market
this year.
Preclinical CROs are adding capacity, but this may not be fast enough to absorb growing demand. One analyst estimates that
announced new facilities and expansion plans will increase capacity by 15–20%, but it will take another two to four years
for that capacity to come on stream. Biopharmaceutical companies are investigating new sources of supply in Asia, but are
finding that compliance with good laboratory practices (GLPs) and animal welfare practices are still not up to Western requirements.
The capacity shortages are taking a toll on biopharmaceutical development efforts. Companies are being forced to reserve toxicology
testing slots up to six months in advance, a long lead time for acute toxicology testing. Development budgets are being impacted
by price increases of up to 5% annually.
CROs are using the supply and demand imbalance as leverage in negotiating long-term dedicated capacity deals with the major
pharmaceutical companies. These deals are seldom good for the client, as they usually result in their paying for capacity
they aren't using, but many companies are anxious to avoid the risk of not having access to preclinical capacity.
Clinical research service providers are also enjoying strong demand for their services. Exhibitors at April's "Partnerships
with CROs" conference expressed considerable satisfaction with the current state of their market. While the large, publicly-traded
CROs are reporting record backlogs (expected future revenues based on signed contracts), the smaller CROs are reporting strong
growth thanks to the early-stage companies and overflow from the large CROs. One indicator of the good times for the smaller
CROs is the intense interest in the sector being shown by private equity investors, who are actively looking for acquisitions
in the industry.
For biopharmaceutical companies, however, the strong clinical CRO business has its costs. While there is no indication of
an upward spiral in prices as yet, competition for key staff like site monitors is intense and costly. Further, patient recruitment
has become very difficult, such that prolonged efforts to enroll patients are delaying the completion of trials. Another problem
to watch out for: rapid growth at smaller CROs may outstrip their project management capabilities and the executive talents
of their founders.
The bottom line: good times for biopharma are translating into good times for the CRO industry. But if there is such a thing
as "too much of a good thing," the CRO industry may soon experience it.
Jim Miller is president of PharmSource Information Services, Springfield, VA, 703.383.4903, Jim.Miller@pharmsource.com
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