Why Contract Research Organizations are Altering the Pharmaceutical...

Pharma Tech Outlook: Pharma Tech Magazine

Why Contract Research Organizations are Altering the Pharmaceutical Value Chain

Stacey Smith, Pharma Tech Outlook | Thursday, January 07, 2021

Contract Research and manufacturing over the last couple of decades altered the way how Pharma industries have been functioning.

FREMONT, CA: The pharmaceutical industry has numerous unusual characteristics that make it very different from the way people think of it as an industry. It is, without question, among the riskiest businesses. From the genesis, Contract Research Organizations (CROs) have always faced two primary challenges like low-profit margin and limited market capitalization. At present, the CRO industry is witnessing a supply chain disruption, moving it to hunt the upstream element of the pharmaceutical value chain. Therefore, a 3P (past, present, prospect) decision-tree model is formulated, bringing out the future of the CRO industry. The outlook on the potential transformation of the CRO industry will help the real-world practice and innovation of this business model.

Being a subdivision of the pharmaceutical industry, the Contract Research Organization (CRO) has a background that dates back to the development of Huntingdon Life Sciences and Charles River Laboratories in the last 1940s. Since then, it has been facing two core challenges, low-profit margin, and limited market capitalization. In the industry’s early days, the development of CROs has slowly increased due to the rising profitability of upstream pharmaceutical companies. Moreover, pharma’s return of R&D investment has significantly decreased the cost pressure. As a result, CROs are inclined towards chasing the upstream part of the pharmaceutical value chain, paving a way to supply chain disruption.Top Contract Research Organization Companies

There are three different ways for CROs to chase the upstream value chain according to the real-world business practices.

1. CROs, while competing with pharmaceutical companies, can lose their cost advantage after entering the business change, unless it turns into a pharma enterprise itself.

2. A diverse way is by cooperating with pharmaceutical companies, and the CROs will shift from the fee-for-service agreements to a much broader risk-sharing and complementary collaboration.

3. The traditional path is to compromise with pharmaceutical companies, and CROs can derive profits if they provide R&D services that surpass the expectation.

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