Does it Matter if Your CRO is Big or Small?
[Posted on: Thursday, September 1, 2016]
A common question asked when choosing a suitable contract research organization (CRO) is if one should go with a big CRO or a small CRO. There are 751 CROs in the World with about half of them or 332 in the US. Of these, the top 10 CROs account for about 57% of the total revenue in the industry; 9 of these top 10 CROs are based in the US. About 15 CROs are considered mid-size; all of which are located in the US or Western Europe. Most of the about 300 other CROs in the US, are considered as small entities. So, in terms of numbers most of the CROs (about 93%) are small CROs. In terms of revenue, the total revenue of the CROs is about $38 billion which is only about 6% of the total expenses (about $650 billion) of the biopharmaceutical industry. So, while the top CROs may boast of about $21.6 billion in revenue, it is only about 3% of the total money spent by the industry. In comparison, the drug industry spends about $160 billion for marketing, $195 billion for the cost of good, and $130 billion for R&D. The CRO budget most likely comes from within the R&D budget, which means that the industry outsources about 30% of its R&D work and does about 70% work with internal resources. Most of the CRO work is in running clinical trials, with contract manufacturing and non-clinical work accounting for about 20% of the revenue. An interesting observation is that big attracts big; the top 25-50 biopharmaceutical companies account for more than 90% of the business of the top 10 CROs. Most smaller companies tend to take their business to small CROs due to the higher attention, better quality teams, and niche expertise available at small CROs. The CRO marketplace is highly saturated with about 700 companies each vying for about $20-50 million business per year on an average. In a recent report by KPMG, the best growth area for the CRO business is in the marketing space. The report which was clearly written with big CRO perspective, suggested that CROs can provide services such as market research, brand management, product launch, sales force operations, and data management. However, small CROs need to find a niche and flourish within it. There is no accurate credible count of the number of companies in the biopharmaceutical sector, but it is easily in tens of thousands, which means that there are a lot of opportunities to grow for the smaller CROs as well. There is also still a significant portion of the R&D work that is internalized and could and should be outsourced for optimum resource management. It does not matter if the CRO is big or small, rather it matter if a vendor is capable to providing the desired quality of service and timely completion of tasks. In the CRO industry, we can say with confidence, size does not matter.