Outsourcing: Robust Market Testing CROs' Ability to Deliver - Many service providers admit that their systems and management are inadequate to handle current growth—and more demand is coming in

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Outsourcing: Robust Market Testing CROs' Ability to Deliver
Many service providers admit that their systems and management are inadequate to handle current growth—and more demand is coming in 2008


BioPharm International
Volume 21, Issue 9


Figure 2
When asked how they think their clients would rate the quality of their customer service, 36% of suppliers say customers would rate them as "excellent" (Figure 2). However, when customers are asked how they rate their service providers' customer service, only 6% rate them as "excellent," and vendor performance on project management and technical/operational dimensions got similar marks. Although customer ratings of their service providers are not dire—most rate their vendors as "good" or "satisfactory" and less than 20% rate them as "fair or "poor"—the survey results suggest that there is a big gap between customer and service provider definitions of service excellence.

In fact, meeting service levels is a major challenge for pharmaceutical services providers because the requirements of their client base vary widely. While major bio/pharmaceutical companies will judge service providers on the basis of technical and operational performance, small bio/pharmaceutical companies expect help in navigating the drug development process and may not appreciate technical and operational excellence. Further, service providers have yet to find an effective way of demonstrating superior customer service and project management capabilities, and if they can't put a value on it, they can't justify a price premium for it.

ANOTHER BIG YEAR IN 2008?

Service quality issues might intensify next year if our respondents' expectations for 2008 come to pass. Among bio/pharmaceutical company respondents, 43% expect spending for contract services to grow by 10% or more next year (versus 36% in last year's survey), and only 7% expect spending to decrease. Service providers are very optimistic as well: 80% expect 2008 to be better or much better than 2007. In 2006, only 55% had such expectations for the following year.

Further growth threatens to intensify the pharmaceutical services industry's capacity and service challenges. The industry continues to be dominated by small companies whose technically inclined owner–operators may lack the inclination and executive skills to deal with the business issues of their rapidly growing enterprises. An accelerating process of consolidation promises increased scale and greater management sophistication, but for now even the largest players seem to be struggling to meet the mounting expectations of customers. Still, it's unlikely that anyone is going to say "no" to new business while they work out their capacity issues.

Of course, the market situation could change quickly. Venture capital—a major source of the funds that ultimately flow to CROs—can dry up quite suddenly and whole therapeutic classes can be discredited. With major pharmaceutical companies undergoing rounds of cost-cutting and unfavorable reimbursement and patent trends, a darkening outlook could alter the landscape for service providers in very short order.

Jim Miller is president of PharmSource Information Services, Inc., Springfield, VA , 703.383.4903,


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