On the subject of CROs...
Feature Analysis - 'Do pharmas need a scare-CRO?'
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They helped create the monster. Will it now turn against them? Thanks to pharmaceutical companies, contract research
organizations have grown, with resources at every stage in the drug lifecycle. Could they fight their masters and develop drugs of their own? John Band weighs up the evidence.
There are four 'monsters' that pharmaceutical companies might have to watch. Their names are Quintiles, Covance, Parexel and PPDI. They rival some of the smaller pharmas in size and scope of operations. And between them a drug could be taken right through the development process, from discovery to marketing.
Why should these contract research organizations (CROs) stay
dependent on pharma's whims, always the first to be cut back when there is oversupply? Going it alone could provide an alternative income stream - possibly a large one. But is it in the nature - or best interests - of a CRO to bite the hand that feeds it?
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If it looks like a pharma...
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At first glance, it certainly looks dangerous for pharma. The CROs are taking on more risk in a bid for more lucrative returns. Quintiles' sales arm Innovex, for example, will market CV Therapeutics' (CVT's) chronic stable angina drug, ranolazine, once it has gained FDA approval. Quintiles is investing $15 million of its own money in the marketing process; in return CVT will pay Innovex a portion of its revenues instead of a fee. This
isn't a one-off strategy either. "We currently have several
similar relationships with other companies being discussed," says Innovex product manager, Randy Charles.
Indeed, their size and clout and this new thirst for risk-taking have led many in the industry to make little distinction between the big four CROs and the pharmaceutical companies. Now the divide is between niche firms and huge corporations with resources to cover the whole drug lifecycle. Andrew McNally, Chief Executive of the clinical data management-focused niche player Cardinal Systems, notes that the CRO market is increasingly divided into two camps. On one side, there are the "one-stop-shops". On the other, with just under half the market
between them, there are hundreds of small CROs concentrating on market niches. "Quintiles is bigger than a lot of pharmaceuticals," he says. "They're really no different." And this divide will broaden. While there is room in the market for niche players, "medium-sized firms will end up getting bought by the integrated CROs - or by the pharmaceutical companies themselves."
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Capacity constraints
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It may seem, then, that the largest CROs have the capacity and a good incentive to take the pharma track. Some already look like they have started. But this isn't the whole story. For a start, there are divides between the big four too. Covance and Parexel are much weaker at marketing and sales than Quintiles, whilst PPDI has virtually no downstream operations at all. "Quintiles," says Datamonitor analyst Jenny Coe, "is the only CRO with the necessary level of vertical integration."
But Ms Coe suggests that even Quintiles may not have the
necessary resources to rebel. "The CROs are all extremely
unfocused, and they aren't very good at marketing their services. Most pharmaceuticals don't even have a clue what they're offering outside their core research business. I don't think any of them has the potential to make it as a rival to the pharmas." Quintiles would have to change its marketing and management procedures substantially before it could consider moving into the pharmaceutical market.
Even the Quintiles/CVT deal isn't the milestone it may appear. "We will retain 90 percent of the profits. We control the product," notes CVT CEO, Dr Louis Lange, who suggests that the risk sharing is CVT's innovation, not Quintiles' strategy. "Small biotech companies often give up the rights and most of the profits to pharma, so this is a great deal for us from a standing start." Although the deal makes sense for Quintiles too, it's definitely not a move towards an integrated pharma. Randy Charles is happy to confirm it. "CVT approached us," he says.
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Are CROs too scared of pharmas?
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But even if CROs had the required management and marketing
resources, it is still unlikely that they would turn against
their patrons. Remember that when Dr Frankenstein's monster
destroyed its creator, it also destroyed itself. Similarly, a CRO rebellion would be self destructive - pharmaceutical companies would do all they could to prevent CROs competing directly against them.
History certainly shows that CROs are rapidly put back in their place when they have thoughts above their station. For example, Covance and Parexel considered merging in 1999 to gain market power and economies of scale. But it became evident that the pharmaceutical companies were hostile and the merger was called off. "The pharmaceuticals didn't want too big a CRO controlling the whole market. For the CROs, going pharma would mean losing their core client base," says Jenny Berg, analyst at Datamonitor. Pat Grebe, Quintiles' head of media relations, adds, "We consider
ourselves a strategic partner with pharmaceutical companies. Our goal is to help our customers succeed, not to compete with them."
Undoubtedly the CRO business model is changing. The four
dominating companies are getting bigger and braver and the trend towards "one-stop-shops" will continue with more risk sharing deals. But they are certainly not planning to gamble their revenue streams by developing drugs of their own. Afraid that rebellion will lead to demise, the CROs won't take the ultimate risk of all: fighting pharmas in their own field.
From UVentures Life Sciences Weekly.
--Wilder |
