Pharma consolidation and the downstream impact on CROs
Consolidation in the biopharm sector and the industry trend towards preferred provider partnerships has reduced the number of solution providers that will be required to support the clinical needs of the industry.
Cognizance of this reality is necessary to review the facts and be prepared to deal with these changes in a pragmatic and structured manner.
Industry activity
Over the last 18 months to 24 months, significant consolidation activity has occurred in the biopharm sector. There are various contributing factors for this including reduced drug development pipelines, patent expirations, an outdated “blockbuster drug” model, excess manufacturing capacity and a sales model which can benefit from an assessment and design standpoint to more efficiently and effectively service the realities of today’s healthcare environment.
As major pharmaceutical organizations are consolidating, so are their respective organization’s drug development pipelines. Many organizations are realizing that consolidating and combining pipelines will not necessarily result in a more effective and efficient drug development strategy and are utilizing this opportunity to “lean” out their portfolios from a strategic vantage.
An organic output of this decreased number of development compounds is that less support is required from the CROs and central labs to support the industry’s clinical development needs.
Preferred provider relationships
Many pharmaceutical and biotech organizations are also no longer subscribing to a traditional request for proposal (RFP) process to select solution providers to support their clinical development programs.
In an effort to support a Lean corporate infrastructure and process, the current model involves selecting one or two solution providers through a rigorous selection process and securing the development programs for the next five to seven years with this select group of preferred providers.
The benefit is several fold, mainly driven by the underlying principles of Lean and Quality: a “true” partnership with a clear sense of client needs, culture and dedicated resources; efficiencies gained through portfolio vs project management; and secured revenue stream for the CRO/central lab.
An acknowledged but often overlooked component of this selection process is the human capital perspective – evaluating through a structured process the organization and specific talent that will be chosen as a preferred partner.
In addition, organizational symmetry and integration need to be deliberately considered as part of this selection process to avoid time consuming pitfalls during the execution phase of the project. This will enable the partner to function in a synchronized manner as an extension of the sponsor organization.
What does this mean?
With a reduced number of vendors securing a larger percentage of the development work, the expectation and steady state for quality and timely results as well as competitive pricing will be increasingly pronounced. Based on this, the entire industry, but especially small to mid-tier organizations, will need to carefully evaluate their strategy and value proposition to remain competitive in an extremely dynamic environment.
All vendors will no longer play on the same field which will create opportunities for M&A activity as well as the creation of niche and premium solution providers. In order to secure future success and growth, all providers in this sector should conduct a careful review of the marketplace as well as their own organizational strategy to ensure alignment of service and client needs.
Viq Pervaaz is senior vice president, corporate transactions at Aon Consulting.
