I have posted a number of previous notes about Covance, a contract research organization (CRO) with special expertise in clinical lab testing. In a recent note (see: CROs Favored by Investors Due to Growth in Phase IV Studies), I also discussed how Big Pharma seems to be ailing due to a lack of potential blockbuster drugs in the pipeline and an aging business model. However, the pharmaceutical industry is still generating business for the CROs because of the new emphasis on Phase IV studies and also the trend to outsource its non-core operations. Now comes news that another flourishing CRO, Charles River Labs, is expanding its lab operations in Northwest Ohio (see: Drug-testing firm to double size of northwest Ohio lab). Below is an excerpt from the article (bold face emphasis mine):
Charles River Laboratories will double the size of a medication testing laboratory in Spencerville [Ohio] and boost its 240-member work force by 80. The 58,000-square-foot addition is to be completed in mid-2009 at a cost of $16 million, company officials said...."A key driver of this growth is the continued investment by pharmaceutical and biotechnology companies in basic research and their increased use of outsourced drug development services, [said a company official]" Spencerville is near Lima, 85 miles southwest of Toledo....Charles River is among the largest firms pharmaceutical companies turn to for testing services.It has 8,300 employees worldwide and takes in $1.1 billion annually.
Charles River also announced last August that it was building a new facility in Sherbrooke, Quebec:
Charles River Laboratories ...intends to build a new facility in Sherbrooke, Quebec, to support the company's expanding Preclinical Services business. This facility will provide essential drug discovery and development services to the international pharmaceutical and biopharmaceutical industries. When completed, the new facility will be approximately 300,000 square feet. Approximately 25 percent will be constructed in the first phase and is expected to be dedicated to one or two clients.
It seems to me, using this multifaceted Charles River Labs expansion as evidence, that a key element in the emerging turnaround story for Big Pharma is to turf increasing amounts of business to CROs. A 2006 story (see: CRO Industry Update: Growth, Expansion and New Opportunities) described the CRO market size as $10B and growing at 14-16% a year. This same report make reference to an increased emphasis on the CRO full-service model, the bundling of CRO services, and global mega drug trials. All of these factors would seem to portend a rosy future for CROs despite the ambiguity about the "health" of the pharmaceutical companies that are actually generating the business for the CROs.
Despite the emphasis on the increased number and size of Phase IV studies mentioned in my previous note, this is only a part of the picture. It seems that the larger issue is that Big Pharma is outsourcing its non-core competencies and the CROs are now offering, in response, a full-service model, which is to say a total solution for managing large controlled clinical trials on a global basis.
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