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Europe trails US in contract research organisation market

1st April 2013


The $2.60 billion European contract research organisations (CRO) market trails its $4.18 billion US counterpart.

Overall reductions in R&D expenditures due to the soft global economy and continuing price control are set to stifle preclinical research in Western Europe. However, strong annual growth is still forecast as Eastern Europe offers a beneficial climate to conduct low-cost clinical trials.

Stricter price control measures by governments in Western Europe have reduced revenue flows to pharmaceutical companies, compelling them to cut back on R&D expenditures. At the same time, tighter reimbursement policies have discouraged the use of expensive, new drugs while lowering the quality of patient care.

Efforts to remedy this situation are unlikely to succeed due to the ongoing cocktail of soft economies, dwindling government funds, and spiralling drug costs. In this scenario, preclinical research has been negatively impacted.

"As this phase of the drug development process is cost-intensive, relying on sophisticated science and expensive testing equipment and facilities, developers are reluctant to commit to high capital expenditures when revenues are relatively stagnant,“ explains Frost & Sullivan research analyst Alison Sahoo.

Also, since preclinical testing needs to be located in proximity to central development efforts, US pharmaceuticals are unlikely to outsource such work to Western European CROs. Instead, only European pharmaceuticals and biotechnology companies are expected to employ local CROs for preclinical projects to support their R&D teams. This is in contrast to the trend of outsourcing clinical work to Eastern European CROs.

Ms Sahoo states: "Clinical trials, the bulk of whose cost is related to patient compensation, have increasingly grown more expensive in Western Europe. This is pushing clinical development that would otherwise be conducted in Western Europe into Eastern Europe. Compensation of Western European volunteers and medical personnel is now similar to US rates.

"Additionally, trial centres in the region routinely charge for all expenses incurred while their Eastern European counterparts bill only for costs incurred over and above standard operating expenses,“ Ms Sahoo comments.

Despite this, clinical development is likely to persist in Western Europe. Linguistic and cultural similarities with the U.S., qualified physicians and proven quality of trial centres are likely to underpin Western Europe's continued relevance in the market for outsourced clinical research.

In comparison, Eastern European clinical CROs are becoming an increasingly attractive proposition for drug developers in both the US and Western Europe. Among the obvious, advantages of the region are low costs of patient reimbursement and the presence of highly skilled medical staff.

This has been reinforced by centralised healthcare systems. Sizeable, homogenous populations having similar racial characteristics to the United States, have, in addition, facilitated patient recruitment drives. This has been aided by traditionally high compliance with study protocols. Patients in this region tend to be relatively under medicated, thus reducing the risk of patients using competing medications and compromising the integrity of the final data. The high-quality data obtained has helped accelerate the process of securing regulatory approval.

The first wave of east European countries that profited from the trend toward outsourcing clinical work includes Poland, Hungary, Russia, and the Czech Republic. Now, lured by the prospect of even greater savings, CROs are looking to establish facilities in Russia, Bulgaria, Romania, and Serbia as well. Russia, in particular, represents an untapped market with vast potential.

However, entry barriers in Eastern Europe are relatively high. Many CROs, mainly the smaller firms, have chosen to partner with established providers in these regions rather than install their own facilities.

The European CRO market is forecast to grow at a CAGR of 10.4 per cent to an estimated $4.26 billion in 2007.

For more information, visit www.frost.com





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