Rise of the CRO

More and more drugmakers are outsourcing their drug trials to contract research organizations, says Pharmalot's Ed Silverman. So it should come as no surprise that CROs are the latest sector to see some large acquisitions and interest from investors. One reason, Silverman says, is that drug prices are rising, and both drugmakers and biotechs are projecting 3.6 percent to 8 percent growth, on average, in their R&D budgets on average, according to a survey conducted by Eric Coldwell, a RW Baird analyst. "Meanwhile, the 388 drugmakers and biotechs that were surveyed also reported that that CRO clients expect a 9 percent increase in the R&D budget that is outsourced, with total market penetration by CROs increasing from 35 percent last year to 38 percent in 2011," Silverman says. "Among large drugmakers, 27 percent expect to outsource, while 47 percent of the smallest companies expect to do likewise." The survey found that CROs are mostly busy conducting oncology trials. And, Silverman adds, as most CROs are privately-owned, they offer publicly-traded companies a break from the "microscopic scrutiny" of the public.