CROs Can Be Indispensable As Pharma Companies Focus On Value

By Paul Saias, principal, KPMG, and Anuj Kapadia, director, strategy, KPMG

The healthcare industry’s transition to value-based care is putting a lot of pressure on pharmaceutical companies in terms of margins and the need to demonstrate improved outcomes at lower costs. In attempting to create breakthrough therapies and “beyond the pill” solutions with fewer resources, companies are demonstrating an increased appetite for outsourcing functions – and Contract Research Organizations (CROs) could be the beneficiaries. As drug makers look to get products to market faster and recoup their development costs, CROs are ideal partners to help aid this process. The resource-constrained environment has made it critical for drug makers to focus on functions that drive the most value, and find more natural, external owners for assets and activities that were previously handled in-house, much as the airline industry did during the 2000s.

In fact, there are many lessons to be learned from the airline industry. In the years leading up to the global financial crisis, the airlines realized they had to make dramatic changes to their cost structures. They contracted out to service providers such non-core competencies as maintenance and repair of aircraft and internal sales and promotions. Although the skills and governing regulations related to clinical trials vary dramatically from activities such as ticketing and moving baggage, the mindset for an organization to focus on core operations and look outside where greater value can be obtained is no different for life sciences companies, airlines, or just about any sector. In the case of the airlines industry, the complete deconstruction of the value chains allowed carriers to focus on innovation and achieving the next strategic advantage – two ideals that the pharmaceutical industry must currently strive toward.

Pharmaceutical firms are looking for more than traditional clinical trial outsourcing. They want “next generation” services, including advanced analytics and predictive modeling that can help them evaluate and segment the market for new products. For example, analytics would allow CROs to identify trial sites that can help shorten the development process by delivering faster, more thorough and less costly studies. These same analytics capabilities can also be applied to drug discovery, market research, product launch, brand management, and pharmacoeconomics.

We are entering a period where life sciences product pipelines are regaining strength, FDA approvals are rebounding and new products are launching in key therapeutic areas. CROs that can help pharmaceutical companies continue to advance innovation while reducing operating costs will be positioned for dramatic growth over the next five years.

The overall CRO sector is expected to realize topline growth of 6-7 percent by 2021, with double-digit gains occurring in emerging countries, according to KPMG’s research. While the top ten CROs will likely see the majority of the growth, smaller niche firms can position themselves to attract the business of small- to mid-sized pharmaceutical companies, or they risk becoming acquisition targets. Along with the trend of industry consolidation, the last few months have witnessed inorganic growth in “non-traditional” areas, such as commercial services (e.g., PAREXEL’s acquisition of Health Advances, a life sciences consulting firm focused on the commercialization of new medical innovations).

On average, R&D represents about 20 percent of the estimated $650 billion of total biopharmaceutical spend annually. CROs would do well to expand into other areas of spend, specifically commercial (sales and marketing), which represents almost 25 percent, or $160 billion, annually. Some potential high-revenue areas for CROs include:

• Market planning & development: Expertise in drug development, healthcare delivery and global platforms give CROs an advantage to aid pharma with market strategy.
• Brand management and multi-channel marketing: Deep understanding of healthcare systems, stakeholders and regulatory knowledge across markets put CROs in a strong position to augment their clients’ existing provider/patient engagement strategies.
• Launch planning and execution: CROs existing technology infrastructures and extensive data assets can be tapped to support product and portfolio planning and launch implementation at a lower cost than in-house functions.
• Market research and strategic analytics: CROs can offer drug and device makers advisory services around pricing and market research, based on real-world insights they glean from electronic health records. Analytics can also be used to gauge the effectiveness and return on investment of commercial programs.
• Data management: Significant investments have been made by CROs in data science. Analysis of large patient claims datasets, for example, can drive pre-clinical and clinical R&D decisions.
• Sales force operations: With deep firsthand knowledge of a multitude of therapeutic areas and extensive physician relationships across the globe, CROs are poised to offer drug makers counsel in relation to sales force operations, the size and design of sales teams, targeting strategies, and effectiveness tracking.
• Market access and value-based contracting: As payers take a harder look at the value being delivered from drug spending, CROs can offer market access services to help pharma companies target their messages, gain adoption on formularies and negotiate better pricing and reimbursement.

For pharmaceutical organizations, the ideal CRO partnerships allow them to focus on drug innovation and get more strategic value out of non-core functions. CROs’ expertise in conducting clinical trials will continue to help drug makers recoup their development costs more quickly, be first to market and even extend a medication’s patent exclusivity. At the same time, we believe CROs can benefit by creating new lines of business that are profitable and sustainable in this midst of change in the life sciences industry. Ideally, this transformation will position CROs as strategic partners that can deliver commercial value.