While optimists have labelled the early 2000s as the dawn of the ‘Biomedical Century’ (1), a little more than 10 years into it many are bearish when thinking about the sector’s prospects. Among other factors, this viewpoint is guided by the declining R&D productivity in the pharmaceutical industry (as measured in number of approved new molecular entities per annum) and the reluctance of relevant stakeholders (including regulators, industry, and payers) to innovate or change in face of industry dynamics (2, 3, 4, 5, 6).

The big question concerned stakeholders are pondering is how humankind will be able to produce and afford the medicines required to battle pressing diseases while maintaining high levels of quality of life for its ageing populations. Therefore, the industry is under increasing pressure to develop products that are effective without putting exploding health care budgets under greater strain. As a consequence, the industry is consolidating on a large-scale while trying to find viable new business models in support of cost-effective pharmaceutical innovation (7, 8, 9).

In an attempt to manage the complexities inherent to the drug development process, pharmaceutical companies are increasingly relying on support by external contract-research organisations (CROs). To put this into context, the global R&D outsourcing market in 2010 was 25.3% of the total pharmaceutical R&D expenditure. This expenditure is estimated to increase at the rate of 5% annually and is expected to reach 37.1% of the total R&D expenditure by 2018 (1).

In view of the sea changes in the pharmaceutical industry, the CRO sector has started to consolidate as well (10, 11). The CRO market can be stratified roughly into 3 types of players: small companies with a boutique kind of offering, often concentrated on a particular type of disease, (ii) mid-tier players (annual turnover ≤ USD 100M) and (iii) large integrated CROs that can support increasingly large and complex projects through the entire drug development cycle.

At present, a few big players are dominating the field (such as QuintilesParexel, or Icon) based on inherent economies of scale, while many mid-tier companies are squeezed to the periphery. As a consequence, small (boutique) and mid-tier CROs are either forced out of the market or into consolidation (12).

Emergent CRO strategies

In response to these pressures, small and mid-tier CROs have basically 2 strategic options (over and above of becoming extinct or being absorbed by another player): (a) they capture viable market niches with a unique offering or (b) they create a more integrated type of creating network-based partnerships with other players that complement what they already have.

Option (a) is attractive in mature environments with a relatively high degree of stability and continuity, providing the boutique CRO with a reliable stream of projects and income. A company with such an offering is Aptiv Solutions. Aptiv has positioned itself as a specialist provider of solutions for adaptive clinical trials, with operations now spanning across the globe. Other examples that come to mind are CROs with specialist cell culture model systems and players that employ sophisticated bio-computational tools.

Option (b) is the right response in less mature environments (such as in an emerging economy) and for CROs that find themselves situated somewhat outside the ‘more stable’ hot-spots of pharmaceutical research in Europe or the US. Next IND is an example of such a network-based strategy. It is an agglomerate of 4 independent CROs, each with its own bespoke offering, formed in the interest of providing more comprehensive services to clients. In fact, based on the high-level client relationship and project management process outlined on next IND’s website, it actually looks like an online store with multiple entry-points for clients who’d eventually be guided through a tailored study design and project planning process, employing individual partners’ resources as needed (Figure 1).


Figure 1: Next IND’s process flow

The benefits of this approach are manifold:

  1. Through cross-marketing activities more visibility can be generated for individual partners’ offerings, to the benefit of one or more individual partner, and the network.
  2. Each partner can focus on existing core competencies while leveraging alliance resources to deliver better value to customers.
  3. The alliance, if based on a unique combination of offerings, has potential to create opportunities for business model innovation.
  4. Depending on relations between partners, demand fluctuations can be buffered by distributing project load.
  5. For customers, the model – if executed well – provides flexibility in projects at lower cost (owing to the fact that the relatively smaller CROs will operate in a moderate price tier in comparison to the larger peers), something that can be attractive to small to mid-tier drug companies.


Overall, a network-based strategy lends itself to creating contract research value chains in emerging economies, such as South Africa, in particular when access to capital and/or infant demand limit the creation of capital-intensive vertically integrated CROs (13).

Rather, incumbent as well as upstart CROs can build more complete offerings by way of assembling disparate resources into seamless value chains for clients. Where capacity doesn’t yet exist it can be sourced from other geographical regions and established locally once demand warrants the investment. As a consequence, supply is generated without the need of massive capital layouts and CROs can concentrate on finding viable business models instead of servicing debt by selling ‘me-too’ services in competition with much larger competitors. South Africa does have a vibrant clinical trials sector, and this creates an opportunity for local CROs to enhance their offering through network-based alliances.

In the pre-clinical arena, where South Africa lacks capacity, a network-based model could be employed to build and develop R&D value chains, in the interest of carrying out early-stage drug development projects. This can be achieved by way of organising local and international entities into network-based, virtual organisations, which in turn can be used to assemble seamless service offerings. Against the backdrop of successful project delivery, a greater portion of the pre-clinical R&D value chain could eventually be created locally, which in turn could stimulate the creation of new drug and biotech start-ups and/or attract investment by pharmaceutical companies; not least when these companies come with an appetite to grow their businesses by way of creating a presence in the rapidly growing economies on the African continent.


  1. ‘The Biomedical Century’ (November 2011). Retrieved from The Wall Street Journal
  2. Scannell, J. W., Blanckley, A., Boldon, H., & Warrington, B. (2012). Diagnosing the decline in pharmaceutical R&D efficiency. Nature reviews Drug discovery11 (3), 191-200.
  3. Peakman, T., Franks, S., White, C., & Beggs, M. (2003). Delivering the power of discovery in large pharmaceutical organizations. Drug discovery today(5), 203-211.
  4. Bradfield, R., & El-Sayed, H. (2009). Four scenarios for the future of the pharmaceutical industry. Technology Analysis & Strategic Management21 (2), 195-212.
  5. FDA new drug approvals hit 16-year high in 2012 (December 2012). Retrieved from Reuters
  6. The Decline Of Pharmaceutical Research, Measured In New Drugs And Dollars (June 2011). Retrieved from Forbes
  7. Hornke, M., & Mandewirth, S. (2010). Mergers & acquisitions (M&A) in the pharmaceutical industry: the wheel keeps on turning. Journal of Business Chemistry, 7 (2), 67-68.
  8. What’s Really Driving The Pharma M&A Frenzy (April 2012). Retrieved from Forbes
  9. LaMattina, J. L. (2011). The impact of mergers on pharmaceutical R&D. Nature Reviews Drug Discovery, 10 (8), 559-560.
  10. CRO industry could see more consolidation, experts say (June 2013). Retrieved from Outsourcing-Pharma
  11. CRO consolidation to slow in 2012, Icon CEO says (January 2012). Retrieved from Outsourcing-Pharma
  12. Mid-tier CROs face pressures staying independent as consolidation wave intensifies, bankers say (May 2013). Retrieved from Financial Times
  13. What the Vienna Philharmonic Orchestra and biotech innovation have in common… (March 2013). Retrieved from CPGR