Struggling Pharma Companies to Outsource Clinical Trial Research

Falling revenue in some healthcare sectors means companies are making huge efforts to reduce R&D expenditure and increase profitability, and are outsourcing clinical trial activities to Contract Research Organizations (CROs) in order to achieve this, according to a new report by healthcare intelligence company GBI Research.



The new report suggests that the R&D productivity of top pharmaceutical companies has declined over recent years, as a result of increasingly stringent Food and Drug Administration (FDA) regulations concerning the approval of new drugs. This will significantly affect pharmaceutical companies' revenue generation, and will only encourage further use of CROs in future.

R&D expenditure for the 10 largest pharmaceutical companies increased at a compound annual growth rate (CAGR) of 8.3% throughout 2004-2010, while revenue turnover during this time came to only 6.5%. A slower growth rate in turnover against growth in R&D expenditure indicates that many companies struggled to maintain their level of returns on R&D expenditure. In addition, many patents are set to expire in 2012-2018, which will further reduce revenue and erode profits.

As a result, companies are making huge efforts to reduce R&D expenditure and increase profitability. Outsourcing clinical trial activities to Contract Research Organizations (CROs), particularly in the developing nations, is rapidly gaining acceptance in the industry. According to clinicaltrials.gov, by November 2011, 43.9% of clinical trials had been carried out in the US, while 22.9% had been carried out in Europe, and 11.6% had been carried out in Asia. The rest had been carried out in Canada, Mexico, Australia, Middle East and Africa, accounting for a total of 21.4%.

In 2009, the CRO industry recorded revenue of $19.1 billion, showing an estimated increase of only 6% from 2008 due to the global economic crisis, which caused many pharmaceutical companies to reduce their R&D expenditure. However, funds have begun flowing back into R&D, and the expected expiry of several patents may force financially struggling pharmaceutical companies to outsource clinical trials. GBI Research therefore estimates that the CRO industry will grow at a CAGR of 12.8% to $56 billion by 2018.
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