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TOP 10 New CRO Companies in China

2020-12-21
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“China’s new CRO enterprise innovation technology application index evaluation and TOP10 ranking”, in-depth analysis of China’s new CRO enterprise TOP10 innovative technology application and results.

CRO (Contract Research Organization), a contract research organization, is an academic or commercial scientific organization that provides professional services for pharmaceutical companies and research institutions in the drug development process through contracts.

The new CRO referred to in this article is compared with traditional CRO. It mainly refers to accelerating the process of clinical trials through innovative technologies such as big data, AI, cloud computing, shortening the drug R&D cycle, reducing R&D costs, or innovating through business models to be more precise , CRO companies that provide preclinical and clinical trial services more efficiently and leaner.

1. China’s CRO Industry Started Late, But It is Developing Fast and Has Huge Market Potential

CRO, also known as “medical R&D outsourcing enterprise“, emerged in the United States in the 1970s. China’s CRO industry started more than ten years later than European and American countries. From 2000 to 2004, local CRO companies such as WuXi AppTec, Wise Chemicals, Tigermed, etc. were established one after another, and China’s CRO industry gradually emerged.

With the decline in the R&D success rate of global pharmaceutical companies, the prolonged R&D cycle, and the increase in R&D expenses, the rate of return on investment in new drug R&D continues to decline. In order to reduce their own R&D expenses and control risks, pharmaceutical companies have resorted to outsourcing part or all of their new drug R&D business.

According to data released by Deloitte, since 2010, the global TOP12 pharmaceutical giants’ new drug R&D investment return rate has continued to decline. By 2018, the new drug R&D investment return rate has dropped to 1.9%, a record low.

2010-2018 Global TOP12 Pharmaceutical Giants New Drug R&D Investment Return Rate
Chart 1 2010-2018 Global TOP12 Pharmaceutical Giants New Drug R&D Investment Return Rate

In addition, with the expiration of multiple blockbuster patented drugs around the world, pharmaceutical companies are facing a patent cliff. In order to compete for market share and monopoly, international pharmaceutical giants set off a new wave of drug research and development. In order to improve efficiency and reduce R&D costs, more and more pharmaceutical companies have adopted the CRO model. The penetration rate of CRO continues to increase, and the development prospects of the industry continue to improve.

As a key link in the pharmaceutical R&D industry chain, CRO plays an increasingly significant role in shortening the pharmaceutical R&D cycle and reducing R&D costs. In terms of shortening the R&D cycle, for the same R&D project, generally speaking, the time required by the CRO company is about 20% to 30% shorter than the time required by the pharmaceutical company itself. In addition, labor costs accounted for more than one-third of the cost of new drug research and development. The salary of R&D personnel in CRO companies is 20% to 30% lower than the average salary of R&D personnel in large pharmaceutical companies. This can greatly reduce the R&D costs of pharmaceutical companies. .

CRO penetration rate continues to increase. According to Frost&Sullivan’s forecast, the global pharmaceutical market’s CRO industry penetration rate is in a stage of rapid growth, from 18% in 2006 to 44% in 2017. It is estimated that by 2020, the global CRO industry penetration rate will reach 54%.

2006-2020 Global CRO Industry Penetration Rate
Chart 2 2006-2020 Global CRO Industry Penetration Rate  (Data source: Frost & Sullivan)

The global pharmaceutical R&D investment continues to increase. Judging from the R&D investment of global pharmaceutical companies in recent years, the overall R&D investment has continued to increase. In 2018, R&D investment was as high as 171.5 billion U.S. dollars. It is estimated that by 2020, global pharmaceutical R&D investment will reach about 182 billion U.S. dollars.

2015-2020 Total Global Pharmaceutical R&D Expenditures
Figure 3 2015-2020 Total Global Pharmaceutical R&D Expenditures ( Data source: EvaluatePharma World Preview 2018 )

Driven by the continuous increase in CRO industry penetration and pharmaceutical R&D investment, the global CRO industry is developing rapidly and the market prospects are promising. According to Frost&Sullivan statistics, in 2015, the global CRO market size was US$31.85 billion. By 2018, the global CRO market size will reach US$44.58 billion. The CAGR for the three years from 2015 to 2018 is 11.9%. Frost&Sullivan predicts that the next 2~3 In 2010, the global CRO market will maintain a current growth rate of about 12%. It is estimated that by 2020, the global CRO market will reach approximately US$56 billion.

2015-2020 global CRO Industry Market Size
Chart 4 2015-2020 global CRO Industry Market Size ( Data source: Frost & Sullivan )

Despite the rapid development of the global CRO industry and the continuous expansion of the market scale, subject to expensive R&D costs, the industry has gradually shifted to emerging countries with relatively mature CRO industries such as China and India and low labor costs. According to statistics from the Southern Institute, in 2015, China’s CRO market was only 37.9 billion yuan. By 2018, China’s CRO market reached 67.8 billion yuan. The CAGR for the three years from 2015 to 2018 was 21%. It is conservatively estimated that the next 2 years In ~3 years, the growth rate of China’s CRO industry market will be around 20%. By 2020, China’s CRO market will be close to 100 billion yuan.

Figure 5 2015-2020 China’s CRO Industry Market Size

Compared with the development speed of the global CRO industry, the growth rate of China’s CRO industry is significantly higher than that of the global market. Analyzing the reasons for the rapid development of China’s CRO industry is inseparable from two key factors: favorable policies and capital pursuit.

Policies are introduced intensively to optimize the policy environment for pharmaceutical innovation and development. Consistency evaluation of generic drugs, drug marketing authorizer system, 4+7 volume procurement, implementation of new GMP certification, etc. The Chinese government has increased the supervision of the pharmaceutical industry, which has improved the domestic drug research and development environment, which has accelerated to a large extent The development of the CRO industry.

In addition, for the “consistency evaluation” of generic drugs, 4+7 centralized purchases and other measures have greatly squeezed the profit margin of generic drugs. In this context, some traditional pharmaceutical companies have begun to develop innovative drugs and difficult-to-generate drugs. Taking into account the time cost of drug development, research and development costs, and the risk of drug development failure, pharmaceutical companies have shifted part or all of their drug research and development work to CRO companies, China’s CRO industry is facing unprecedented development opportunities.

Capital pursuit ushered in the golden development period of my country’s CRO industry. Since 2017, the domestic CRO industry has ushered in a climax of listing and financing. Among them, 7 domestic CRO companies were listed, 1 acquired, and a large amount of funds poured in, accelerating the rapid development of my country’s CRO industry.

2. While Ushering in the Rapid Development of the Industry, China’s CRO Industry is Also Facing a Series of Challenges and Problems

1. Increased concentration of CRO industry and intensified competition

On the one hand, the MAH system catalyzes the formation of a “one-stop” service CRO, and the concentration of the CRO industry has further increased

On October 23, 2017, the State Food and Drug Administration (hereinafter referred to as CFDA) announced the “Amendments to the Drug Administration Law of the People’s Republic of China (Draft for Solicitation of Comments)”. The first amendment is to add a section after the General Provisions. Article 5 stipulates: “The state implements a drug marketing authorization holder system, referred to as the MAH system.”

The MAH system realizes the separation of ownership and production. The MAH system allows CRO companies with drug R&D advantages to apply to become holders, entrust CMO companies to produce drugs, or supplement production shortcomings through mergers and reorganizations, extend upstream and downstream, and provide customers with one-stop services for the entire industry chain. Improve their own service capabilities, thereby increasing customer stickiness.

This has greatly promoted the increase in the concentration of the CRO industry, and is conducive to optimizing the CRO industrial structure and resource allocation. Comprehensively integrated CRO companies will be more competitive in the industry.

On the other hand, large CROs accelerate “one-stop” services through mergers and acquisitions integration and strategic cooperation, and industry competition has intensified

Mergers and reorganizations and strategic cooperation have become important means for CRO companies to achieve rapid development. First of all, as a giant in the traditional CRO industry, one of WuXi AppTec’s development paths to become bigger and stronger is through mergers and acquisitions. For example, through the acquisition of Pharmapace, it will improve its data statistical analysis capabilities in the clinical research process; through the acquisition of ResearchPointGlobal, it will improve its clinical research service capabilities; through its investment in EngineBiosciences, it will improve its innovative technology AI and big data in clinical applications. As a typical representative of a new CRO company, HLT, through strategic cooperation with the international CRO giant PPD, realizes the perfect combination of HLT’s big data technology, AI technology and technological strength in the medical field with PPD’s global leading clinical research capabilities. Both are strong. Strong cooperation, comprehensive empowerment of IND registration, clinical trial plan design, clinical trial quality management, clinical trial enrollment efficiency and other key nodes.

2. The lack of qualified professionals restricts the development process of my country’s CRO industry

As a knowledge and human capital intensive industry, the lack of qualified professionals has become an important factor restricting the rapid development of my country’s CRO industry. It is undeniable that the CRO industry has high professional and technical requirements for human resources, which also causes labor costs to account for 60% to 70% of the total cost of service outsourcing companies. In other words, the company’s success is closely related to the company’s talents. According to our visits to some major CRO companies, more than 30% of companies face the problem of a shortage of qualified professionals. The lack of qualified talents is currently one of the main obstacles to the rapid development of China’s CRO industry. The serious misalignment of talent provision and enterprise demand is a serious problem facing China’s CRO industry.

3. There are some conflicts between clinical research and clinical practice, and there is a lack of accurate data management

As a clinical research professional, Professor Lin Shen from the Oncology Drug Clinical Research Committee of the Chinese Anti-Cancer Association analyzed the key problems encountered in the clinical research and development of anti-cancer drugs. She said that domestic clinical research mainly has some conflicts with clinical practice. There is no flexibility, a lot of manpower and material resources, complicated workloads, affairs, and high error rates. The current effective way to solve this dilemma is to implement accurate data management for clinical research and development of new drugs. She believes that in the future, it is expected that the long and costly clinical research cycle can be digitized, and the clinical research process, CRC, supervision, and management can be digitized, freeing clinicians from busy work and improving the quality and efficiency of clinical research.

3. Big Data, AI, Cloud Computing and Other Technologies Empower the Development of the CRO Industry, and Innovative Technology Applications Have Become an Effective Way to Break Through the Bottleneck of Industry Development

According to the US SBI research, for drug discovery, an average of 10 compounds must be screened for each new target, and the hit rate of traditional drug design is only 0.01-0.1%, while through computer-aided drug design (CADD), the hit rate can be improved 5%-20% can reduce costs by 99.9%.

As for pre-clinical and clinical CRO companies, they are facing increasingly strict industry supervision and increasingly complex clinical trial execution environment. Traditional CRO has low clinical trial management efficiency, including low completion rate of patient recruitment and high cost; lack of scientific and effective clinical data management Tools, lack of intervention programs designed for unreasonable clinical trials, etc.

Innovative and transformative technologies such as AI, big data, and CADD have achieved remarkable results in improving the success rate of new drug development, shortening the development cycle of new drugs, and reducing research and development costs.

Based on this, we sorted out the new types of enterprises in my country’s CRO industry, established a CRO innovation technology application index model to quantitatively evaluate the application level of CRO enterprises’ innovative technology, and finally gave the top 10 ranking of China’s new CRO enterprises in 2019.

1. 2019 China’s new CRO Enterprise Innovation Technology Application Index Evaluation and TOP10 Ranking

The ranking model of this list includes 5 evaluation criteria and 16 subdivision indicators, which are assigned different weights according to importance, which are:

    X1 new technical talent reserve and R&D investment (30%), including the proportion of R&D personnel, the proportion of innovative technical personnel such as big data/AI, the proportion of innovative technical personnel in the management team, and the per capita annual R&D investment cost;

    X2 Medical resources and cooperative innovation results (20%), including the number of top medical institutions, cooperative projects, and cooperation results with medical industry experts;

    X3 technology and service innovation (35%), including innovative technology application, innovative technology application research and development products, service innovation, and business model innovation;

    X4 Internationalization level (10%), including the proportion of foreign R&D personnel, globalization of new drug R&D, and cooperation with international advanced pharmaceutical R&D companies or big data/AI companies;

    X5 business scope and anti-risk ability (5%), the company’s business scope and future development prospects.

The scores are calculated according to the performance of the above-mentioned secondary and tertiary indicators, and then the final score of each company is calculated on the basis of various scores, that is, the CRO Innovative Technology Application Index, with a full score of 100, and sorted according to the final score of each company. The statistical results represent each company’s new technical talent reserve, R&D and innovation investment, medical resources and cooperation in the CRO field, the application of new technologies such as big data/AI in the CRO field, the innovation of services and business models, and the company’s international The degree of globalization and the company’s future development potential and ability to resist risks. Relevant data comes from research data from the health sector, company annual reports and public data.

Judging from the recent strategic layout of new CRO representative companies such as HLT&PPD, WuXi AppTec, Quintiles (IQVIA), Tigermed, etc., AI, big data, cloud computing and other innovative and transformative technologies are applied to the CRO field and can be registered in the IND , Comprehensive empowerment on key nodes such as clinical trial program design, clinical trial quality management, patient recruitment efficiency, etc., improve the efficiency of clinical trials, reduce costs, and help pharmaceutical companies accelerate the pace of new product launches.

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