Life Science Leader CRO Leadership Awards Supplement Issue, March 2014

As strategic partnerships become a greater focus for both sponsors and CROs, there are some concerns that these types of relationships will negatively impact the industry by causing a greater imbalance in an already perceived-to-be unbalanced  playing field.

These worries tend to come from and impact the smaller players in the market. Smaller clients of big CROs worry their projects will receive significantly less attention than the CRO’s strategic partnerships. Small CROs worry there won’t be a place for them in the industry, as they do not have as broad of an offering and are unable to provide support across the entire development cycle.

The first concern comes in the form of long-term contracts from Big Pharma committing hundreds of millions of dollars and requiring significant labor investments on behalf of the CRO. These deals may cause alarm to midsized and emerging companies with a single study or smaller commitment. Yet, Nice Insight data continues to illustrate that CROs with a solid customer perception score from Big Pharma or Big Biotech have similarly strong scores across the other, smaller buyer groups. Having reviewed the scores for several of the well-known CRO giants involved in multiple strategic partnerships (ICON, PPD and Quintiles), it is clear that the larger the percentage of respondents who have worked with the company, the higher the customer perception score — from emerging to midsized to big sponsor companies. Which means, this concern comes more from speculation from businesses that merely know the company rather than actual client dissatisfaction.

The research also shows there is both value and need for three types of outsourcing relationships: tactical, preferred providers, and strategic partnerships. Looking at the data from respondents who work with CROs, we find projects are allocated to each type of relationship, but with some variation by company type. In light of the big contracts just mentioned, it is no surprise that Big Pharma has the lowest percentage of projects going to tactical providers at 23%. However, the difference goes toward preferred providers (47%) rather than strategic partnerships (30%). Big Biotech’s have  the most even allocation of projects, with approximately one-third of their business going to each type of relationship. Biotechs also exhibited the strongest interest in forming strategic partnerships, with 50% of respondents affirming interest.  

Emerging and midsized companies currently allocate the smallest percentage of projects to strategic partnerships (27%), but revealed similar interest levels to Big Pharma in forming strategic partnerships — 43% are interested, as compared to 46% of Big Pharma. There are key advantages to emerging and midsized biopharma companies forming strategic partnerships, especially with global CROs.  These businesses can quickly and easily expand expertise and grow their reach by partnering with a CRO. And since they tend to be smaller and less rigid than the industry giants, the advantages of a strategic partnership may come to fruition more quickly. 
 
The second concern has been fueled by a handful of high-profile mergers between CROs. Consolidation is nothing new to the outsourcing landscape, but as big companies grow even bigger, will they begin to crowd smaller CROs from the market entirely? Nice Insight research suggests this is unlikely. With only one-in-ten sponsors agreeing with the statement “my company’s pipeline is strong,” it makes sense that over half are increasing their discovery efforts, and roughly one-third of discovery phase spending is on outsourced work, which is good news for small CROs focused on discovery services.
 
While these fears have legitimate reasons for surfacing, it is important to recognize that a global, full service CRO has the capability to successfully handle projects of different scales simultaneously. And that just because they are in a strategic partnership with a large pharmaceutical company, it is still within the company’s best interest to perform tactical jobs to the same high standards that made the company an ideal strategic partner.  Further, it should be recognized that many tactical projects do not require the same level or focus as long-term, multifaceted projects. This knowledge can set emerging and midsized companies at ease with the knowledge that their project will still receive the attention it deserves — and may be reaffirmed by checking the CRO’s quality score as perceived by buyers from various categories.