Over the last three decades, CROs have evolved from a nascent industry to become strategic partners to the biopharmaceutical industry. First used by pharmaceutical companies as spillover capacity for tactical projects when internal resources were limited. Sporadic demand for CRO services for specific projects defined the tactical outsourcing typical during the 1980s to 1990s.
By the turn of the century, the biotech industry experienced a sudden and rapid growth. New companies emerged with plenty of funding and promising molecules to develop, but limited internal capacity to carry drugs through the development process. As a result, the biotech industry turned to CROs to handle drug development which reduced the need for various fixed costs. The resulting infusion of capital from more consistent demand fueled the growth of CROs, allowing them to invest in global infrastructure, scientific expertise and technologies.
Around 2005, pharmaceutical companies began to rely more heavily on full-service CROs, motivated largely by the need for capacity, complex clinical trial support and to contain rising R&D costs. Partnership models began to emerge as both Pharma and biotech required strategic outsourcing solutions. By August 2008, Eli Lilly & Co. signed a landmark strategic partnership that included a broad-range of drug development services for a ten year period with a contract value of $1.6 billion, the transfer of a 450-acre Lilly R&D campus to Covance, and more than 240 employees -- a new era had begun.
Early Days – Academia and Industry collaboration: The history of drug development outsourcing dates back as far as the 19th century when the ethical drug industry took form. Collaborations between scientists in academia and industry were commonplace, and pharmaceutical companies consistently tapped the expertise of academics at prestigious schools such as the Philadelphia College of Pharmacy. Alliances between industry and academia continued well into the 20th century, and escalated following the passage of the first Food and Drugs Act in 1906 and subsequent amendments beginning in the 1930s.
Tactical or “Transactional” Outsourcing: Pharmaceutical companies soon began outsourcing contract services to independent laboratories when internal capacity was strained, driven in part by increased demand to meet regulatory safety requirements while improving existing productivity levels. This trend escalated after the 1962 amendments to the Act, which placed more stringent regulations on drug development. By the 1970s, several small private firms had formed to provide contract pathology, biochemistry, statistics, toxicology, and other services to pharmaceutical companies. Sponsors established similar relationships with academics and private firms to assist with various aspects of conducting clinical trials – giving birth to what we know today as “transactional” or “tactical” outsourcing.
Preferred Providers: Throughout the 80s and 90s the CRO industry grew and large CROs emerged by acquiring facilities, technology and human resources to better serve its clients. Many pharma companies rationalized that transactional outsourcing, particularly with a long list of vendors, was not the most efficient way to manage the drug development process. Therefore, as an alternative or supplement to transactional outsourcing, many firms developed a “preferred provider list” approach to outsourcing. Preferred provider relationships allowed sponsors to pre-screen vendors based on audits, RFPs, and other mechanisms; systematically compare them, and place only the top performers on lists for future contracts.
Biotech Boom: From 2000-2005, large and small biotechs took advantage of scientific and technological advances, and filled their preclinical and clinical pipelines with new drug candidates. Unlike their large pharmaceutical counterparts, biotech companies lacked the internal resources needed to develop their newly burgeoning pipelines, and began to rely on CROs. This new demand helped the CRO industry thrive by creating a balanced mix of clients including large and mid-sized pharmas, as well as small and emerging firms.
Early Strategic Partnerships: Beyond fueling growth for CROs, the emergence of well-funded biotechs also provided the industry with more innovative business models for drug development. Unlike large pharmaceutical companies, biotechs have historically not invested in R&D internal capacity and facilities. Instead, biotechs have employed a virtual/networked business model that involves an assessment of core competencies prior to forming strategic alliances and outsourcing relationships with external organizations to conduct non-core activities.
More Strategic Partnering: Today, this model is being adopted in various configurations by firms of all sizes, from small and emerging firms to the largest pharmaceutical companies. Large pharma’s adoption of biotech outsourcing behavior has accelerated the phenomenon of strategic outsourcing. Today CROs and sponsors are working together assess core competencies and partner to streamline drug development.
