The pharmaceutical industry underwent a profound transformation in 2004 as global prescription sales crossed the $ 500 billion mark. The top 10 pharma companies had sales in excess of $13 billion each and together grossed around $ 240 billion. A combined total of 65 products marketed generated more than $1 billion in sales with 31 new chemical entities launched during 2004.
The R & D investment of PhRMA members was $38.8 billion and grew by around 12.6 per cent when compared to the previous year. The top 10 pharma companies spent around $48.9 billion on R&D and most of this is being spent on drug development. The relatively mature clinical research outsourcing (CRO) market in the US is around $9 billion and growing at around 10-15 per cent. The Indian CRO market had a revenue of around $100 million during 2003-04 and is expected to grow at 55-60% .
The core at this outsourcing business opportunity is developing and improving relationships with sponsors, expanding foot prints and service offerings and most important - to be as flexible as an ever-changing new drug development or R & D programme.
A typical pattern followed in classical outsourcing integration is initially a master-slave relationship exemplified by transactional work with minimal value addition between the vendor and the sponsor. This sort of a relationship is always tilted towards the sponsor in the sense that they can pull the plug on a project at any point in time thereby making investment in technology and process by the vendor an uncertainty. To overcome this uncertainty the relationship proceeds to the next stage after an amount of trust is built in the sponsor vendor relationship. The vendor and the sponsor relationship attains a "preferred provider relationship" which typically guarantees a specific business to the vendor for a said amount of time so that he can recuperate the investments made in technology and process.
The third step in this pattern is "risk sharing opportunities" which typically happens between mid-sized pharma companies, virtual companies, biotechnology companies etc., who do not have CRO capabilities in-house and the external CRO. Both the CRO and the sponsor are equally prone to the risk / benefit of the drug development process. This increases "value add" of the CRO to the drug development process.
The final stage in this pattern is characterized by strategic alliances between the sponsor and the vendor which involves bringing partnered companies closer together to achieve shared endpoints and goals through strategic planning and open ended agreements. The CRO acts as one of the team members in the sponsors internal drug development team.
The CRO industry seems to be following the above said pattern, so much so, that in the very near future we can expect some of the more enlightened companies to handover their complete drug development work to a CRO and focus only on their core competency.
A recent online poll of Pharma/Biopharma outsourcers confirmed that outsourcing is mainly due to strategic reasons (so that they can focus only on their core competency) or tactical reasons (temporary lack of capacity, no specialized competency etc.). More than half of the outsourcing would go to preferred vendors (around 1 to 10 preferred vendor per sponsor). The survey also proved that quality was the most important factor (GCP, GLP, GMP) with "relationship" coming in second and "cost coming" in third. Further, the companies preferred working with "partners" rather than vendors. What all this means to the CROs in India is, to become "partners" from "vendors" we need to invest in the required technology, build world class process, develop and maintain relationships with sponsors, increase our footprint and service offering (through collaborations even with our competitors, if required), be very flexible and hence meet the sponsor's every, ever changing needs by adding as much value as possible to the whole relationship.
We would then be in a position to secure future business and possibly stronger long term preferred partner status, which may ultimately lead us to become strategic partners with the sponsor, thereby bringing in a much required continuity for the CRO opportunity in India.
The author is manager, Regulatory & Data management, Clinigene International Pvt Ltd., Biocon Limited, Bangalore