Covance Weathers the CRO Storm
The CRO faces some long-term challenges. The most important of these may be that of adapting to a changing pharmaceutical landscape, in which the shrinking of the customer base caused by consolidation increases the importance of establishing solid relationships with the large pharma companies remaining. Covance has taken several significant steps to prepare itself for the future, including streamlining its organizational structure and adding to its technology platform. Indeed, Covance's management believes that creating a broad portfolio of service offerings will help it to build long-lasting relationships with its drug company clients. There is, however, a tension between Covance's desire for breadth in its offerings and establishing the specialization that can assure quality. In fact, many believe that a major barrier to building strategic CRO/Pharma partnerships is a perception that CROs can't be depended upon to produce high caliber work.One approach to addressing those concerns is through risk-sharing arrangements that offer CROs larger margins for a job well-done and penalizes them for poor performance. If the only way for CROs to ensure long-term stability is through long-term risk-sharing alliances with drug companies, Covance and its competitors will need to decide whether they can best win these deals with a one-stop shopping mall or with a high end boutique.
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Quintiles is investing heavily in building a platform of web-enabled technology tools for clinical development that it hopes will nudge Big Pharma towards wider adoption of that technology and foster the kind of strategic partnerships that many see as crucial to the future health of the CRO industry.However, despite a consensus that the Internet will eventually revolutionize the way that clinical trials are done, there's also agreement that wide-spread adoption of web-based studies is a ways off.One likely reason that drug companies have moved slowly in this area is that they've been bombarded with pitches from start-up technology companies, promising to transform the clinical study process, but seemingly lacking the infrastructure and financial strength to assure that they can follow through on those promises.Quintiles is looking to use the critical mass of its own resources, and those of its partner, WebMD, to develop the scaleable, supportable, and enterprise-wide solution that it believes Pharma is waiting for. But even for Quintiles, pouring money into web-enabled processes that are unlikely to yield any near-term rewards won't rekindle interest among investors already disappointed by the continuing industry slump.Nonetheless, Quintiles will need to bear the short-term stock hit if it is to reap the possible long-term benefit of moving away from the increasingly low-margin fee-for-service model to one based on more lucrative partnering agreements in which it works with Pharma to re-tool clinical development.
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