03/09/2007 - A recent survey reveals that Western pharma companies are still shying away from outsourcing preclinical work to Asia. Meanwhile, Covance and Charles River clearly dominate this niche industry sector.
Lehman Brothers carried out the survey, its first on the contract research organisation (CRO) industry, with the aim of gaining a better understanding of the dynamics affecting this market, including the factors that drive outsourcing decisions, and to identify areas of heightened opportunity and risk.
Only 32 per cent of those interviewed said their companies were planning to outsource preclinical studies to Asia, and even then, nobody said they planned to do this "immediately".
For those planning to shy away from Asia for the indefinite future, the biggest hurdles cited in the survey were distance, intellectual property risks, and lack of quality control in how studies are carried out.
"While most respondents did not plan on outsourcing preclinical studies to Asia, there was interest, although it still remains off the horizon", said Lehman Brothers Equity Research analysts Douglas Tsao and Lawrence Marsh.
For the majority of companies, it appears to be more of a long-term plan, with 30 per cent stating they would wait five years or longer; 26 per cent said 4 years; 20 per cent indicated they would wait 3 years; while only 14 per cent intended to do so in 2 years; and 11 per cent within the next 12 months.
"Almost half indicated they expected to begin outsourcing studies to Asia within the next three years", said the analysts.
"Interestingly, we suspect this roughly matches the timeline that the major US preclinical services providers are expected to begin offering [good laboratory practice] GLP- compliant testing services in China".
Charles River Laboratories is scheduled to begin GLP-testing in the country in 2009 and Covance is expected to soon follow suit, the analysts said.
Meanwhile, the investment bank's survey, which was based on the responses of a number of R&D managers at a mix of pharmaceutical and biotech companies, singled out Covance and Charles River as the clear market leaders in the world's growing toxicology segment.
"Given the significant markets share advantage that these two companies possess, these results come as no surprise", the analysts commented.
In a ranking of overall perceived quality of clinical research services, the world's second largest CRO, Covance, only just edged Charles River out of the top spot in the survey poll, with scores of 1.75 and 1.79 respectively, where a score of one indicated "excellent" and five signalled "unacceptable".
Of the global CROs, the survey placed WIL Research in third spot, Huntingdon Life Sciences in fourth, followed by MPI Research and SNBL, with scores of 2.50, 2.62, 3.00 and 3.00 respectively.
In terms of the biggest determinants when selecting a preclinical services provider, respondents indicated that the quality of the facility, past experience and expertise were the three most important considerations.
Cost being seen as the least important factor, although the analysts pointed out that price was nevertheless still seen as important, "so we are not suggesting that clients are not attentive to costs".