On a global scale, the pharmaceutical industry is under tremendous pressure of cost control. Therefore, nearly all large pharmaceutical companies are currently reducing their internal investment in manufacturing, R&D and marketing. The saved costs are shifted to outsourcing. CROs have become an integral part of every pharmaceutical company because they often rely heavily on outsourced services to perform their basic tasks and increase their productivity. The growth in CRO revenues even exceeds R&D spending.

Market environment
A wide range of business needs require a better market environment, from finding new service providers to outsourcing activities to finding candidates for specific investment opportunities. Hence, a strong and reliable market research is necessary, which can reduce risk and also offer certain insights for the industry.

Pharmaceutical companies, large or small, realize that they are in a dilemma: drug development costs are growing day by day, while the output of R&D is still low. Only a very limited number of new drugs are approved each year. To solve this problem, all major pharmaceutical companies respond differently, either by restructuring internal R&D systems, changing R&D strategies and priorities, or by increasingly looking for available external resources. All of these initiatives lead to two outcomes: the pursuit of more externalized resources and more advanced technologies. As part of the long process of drug discovery and development, preclinical development, including extensive in vitro pharmacological characterization and toxicology studies, is playing an increasingly important role in reducing the rate of clinical development and overall drug development costs.

In order to achieve their goals, pharmaceutical companies are increasingly looking for new technologies that can detect toxicity as early as possible in the early stages of development. This move may eliminate undevelopable candidates at an early stage and shorten the time for verification testing. Perhaps because of the strong desire of pharmaceutical companies, preclinical development has changed drastically in recent years. New technologies and research and development methods are constantly evolving, catering to the also changing strategy and focus of pharmaceutical companies. New outsourcing models emerge now and then. For example, the IND enabled discovery research service has become a trend. This new model combining comprehensive discovery research with preclinical development is now well-received by pharmaceutical companies.

Development trend of CRO

CRO companies should build sufficient capacity to meet growing drug discovery needs as well as in-house R&D demands. Organizations that are specifically set up for clinical trials at each particular stage will certainly yield higher success rates.

The evolving business model has promoted better cooperation between pharmaceutical companies and CRO companies. Some CRO organizations have established a new business model called insourcing, which is a new type of pharmaceutical procurement, where CRO team work at the customer's site in an integrated manner. This new model delivers outstanding performance more efficiently and saves time and cost.

With a large pool of skilled human resources, low costs, a favorable regulatory environment and high quality data, Asia is becoming the preferred destination for outsourced drug discovery activities. In addition, local governments are working to push forward the healthcare and pharmaceutical industries, ensuring high quality and compliance in advanced regulatory and training programs. Japan is the second largest pharmaceutical market in the world, providing a huge opportunity for the chief risk officer in the Asia Pacific region. The pharmaceutical markets in China and India are among the fastest growing and are viewed as the preferred location for drug discovery outsourcing, primarily because of the technological capabilities developed over the years.

Early clinical trial services will be in greater need as they save R&D costs. Demand for functional services such as data management, logistics, translation, regulation and consulting is also growing strongly. The joint drug development model will be a preferred choice in the drug development industry, and CRO organizations will work with pharmaceutical companies to develop drugs. With the advent of personalized medicine, the joint development of drugs and diagnostic markers will also go hand in hand.

An observation of market size
The current strategy is focused on the concept of “greater equals better”, and the company is preparing to expand the range of services offered. In May 2019, WuXi AppTech, based in China, announced the acquisition of Pharmapace, a US clinical CRO company, which provides data analysis services for all phases of clinical trials as well as registration and post-marketing support. As the largest CRO company, Quintiles has expanded its clinical scope and cut into new business areas such as market sales through large and small M&As. According to incomplete statistics, Quintiles has completed more than 50 mergers and acquisitions. For instance, in 2013 and 2014 respectively, it acquired Novella and Encore to expand the company's business in medical device CRO and electronic health records management.

From this point of view, no matter which model is chosen to tap external expertise and resources, we can look at what factors are driving pharmaceutical companies to expand their participation in external technology vendors rather than performing tasks internally. The domestic preclinical CRO market accounts for about 43% of the CRO's overall market, and the clinical research market share is 57%. Globally, the growth rate of preclinical outsourcing has soared, leading to capacity constraints. The company has invested heavily in expanding production capacity, and one of the areas where the pre-clinical outsourcing market is leading the growth is preclinical toxicology. Early preclinical outsourcing was mainly carried out internally by pharmaceutical companies, but it has been observed that sponsors have become more open to outsourcing to CROs to reduce the price burden. Although this area is likely to be driven by sales growth, the market has stabilized due to pricing issues.

To sum up

To further increase R&D productivity, it is expected that all pharmaceutical companies will continue to change their R&D strategies in the future, including outsourcing strategies, especially in the areas of discovery research and preclinical development. On the positive side, the industry is currently focused on proof-of-concept research, the development of biomarkers and the inclusion of early development, and the development of biopharmaceuticals including biosimilars. Research in these areas is expected to result in a strong demand for preclinical development services for the foreseeable future. On the negative side, the R&D budget for preclinical research has not increased as in other phases, which is expected to remain tight throughout the industry over the next few years. In addition, pharmaceutical companies may still want to leave some of their preclinical development work internally, as some institutional knowledge in preclinical research is still needed. Overall, although the demand for preclinical development of outsourcing services may still fluctuate, all of the above conditions together determine that this market may still experience positive growth in the near future.

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BOC Sciences