NEW YORK (AP) - Outsourcing by big pharma and biotech companies helped fuel
a jump in first-quarter profit for most clinical research organizations, and the
trend is expected to continue as drug developers farm out more of their needs to
cut costs.
Charles River Laboratories Inc., Covance Inc. and Pharmaceutical Product
Development Inc. are among several such organizations boasting an uptick in
business as companies such as Pfizer Inc. and Bristol-Myers Squibb Co. trim
staff and facilities, opting to send early-stage laboratory work and more
expensive late-stage development out of house.
"We haven't, to date, seen any major cutbacks in research area funding,"
said Terri Cooper, a life sciences consultant with Deloitte Consulting. "They
(pharma companies) recognize that somehow they've got to fuel their research and
development pipelines."
Cooper says drug developers are cutting clinical costs by contracting out
for those services.
"That's certainly the trend right now," she said, "and the main driver for
that is from a cost perspective."
Wilmington, Mass.-based Charles River got a 23 percent boost in its
first-quarter profit from higher preclinical revenue. Business has been good
enough to prompt the addition of 1,000 employees last year, with expectations
for an equal amount this year.
"It's clear that the big drug companies, in addition to facing a significant
amount of financial pressure, have come to realize that the work can be
certainly done as well if not better (by CROs)," said Charles River Chief
Executive Jim Foster in an interview.
Right now, he said, the drug industry contracts about 25 percent of its
preclinical, or laboratory-stage, development work, which makes up most of
Charles River's business. That figure will likely double to 50 percent in the
next few years, he said, and could even reach 75 percent.
Privately-held competitor Quintiles also has seen a boost from the
globalization of clinical trials, according to the company's chief operating
officer, John Ratliff, and is investing more in infrastructure and staff.
The sector seems to be a relatively safe play for investors as economic
concerns weigh on the broader markets. As of Monday, Charles River, Covance and
PPDI shares all are up more than 20 percent over the last 12 months, in contrast
to a 3.8 percent decline in the Dow and a 2.4 percent drop in the Nasdaq
composite.
Goldman Sachs analyst Randall Stanicky said Tuesday R&D spending by the
pharma industry is growing at about 7 percent each year, and biotech demand also
shows no sign of slowdown.
While the overall bookings environment is proving stronger than anticipated,
Stanicky did warn that growing business means CROs are competing more fiercely
for qualified workers.
"Competitive turnover (attrition), wage inflation (increasing costs), and
training needs (ramp up time) all represent headwinds to late-stage margins that
have us more cautious as companies look to hire aggressively over the
near-term," he wrote in a note to clients.
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