In April 17th and 19th, the medicine magic cube &GLG Geli group held the “China contract research organisations (CRO) market and the Chinese pharmaceutical CRO industry atlas conference” in Beijing and Shanghai respectively. Zhou Liyun, the founder of the medicine magic cube, combed the scale of the CRO industry, the competition pattern and the investment and financing at the meeting, and disclosed some CRO industry data that had never been known before. Several other CRO companies’ founders or senior executives have combed and analyzed the current situation and development trend of their niche industries.
The question raised by an investor listener at the meeting aroused great interest: “as far as foreign CRO companies are concerned, because the market value seems to be very easy to see the ceiling, is it more imaginable for CRO to make its own innovation?”
This is indeed a relatively sharp and difficult question to answer. The author, as one of the participants, today also talks about the evolution of the CRO business model with his superficial understanding of CRO, which is “how CRO used to make money in the past and how to make money in the future”.
First of all, back to the nature of CRO industry, since the gradual establishment of CRO enterprises in 1970s, the business model of CRO enterprises is mainly to provide professional R & D services for pharmaceutical enterprises through contract forms, thus obtaining service commission. Most of the primary CRO mainly adopts the “common mode”, which is the loose cooperative model of “one hand hand in hand”. The CRO enterprise and the pharmaceutical R & D enterprise are the one-off order transactions, and the risks and the corresponding benefits of the CRO enterprises are low.
With the development of the market, the pharmaceutical research and development institutions in order to better control the risk, and CRO enterprises to further improve the benefit of the service, CRO enterprises and medical research and development institutions to further deepen the cooperation, some strong CRO enterprises began to take “milestone model”, the Pharmaceutical Research Institute in accordance with the progress of the contract to the CRO enterprise order Paragraph payment costs, CRO enterprises each completed a project node, pharmaceutical research and development institutions to pay the cost of the progress of the project. At the same time, some pharmaceutical R & D institutions have begun to explore the “result oriented model” between the CRO enterprises in order to reduce the risk of R & D more and better stimulate the R & D enthusiasm of CRO enterprises. The CRO enterprises and the pharmaceutical R & D institutions pay the corresponding cost according to the contract agreement according to the contract, if the CRO enterprise completes the project on time or ahead of time. It can get excess bonus. If it is postponed or completed, the profit will be reduced. These are large CRO enterprises with strong strength. Under these cooperation modes, the income of CRO enterprises still comes from the Commission of R & D services.
After decades of development, the status and role of CRO enterprises have been more recognized by the industry. In order to expand the scale advantages, better meet customer resources and reduce the homogenization of industry service, some strong CRO enterprises gradually realize vertical industrial integration and strengthen the industry horizontal unit service ability through self construction / acquisition. In the longitudinal expansion of CRO enterprises, self or merger related CMO and CSO enterprises, through R & D, production and sales, and the establishment of laboratory service to real world research and commercial consulting services are the main ways for most CRO enterprises to become bigger and stronger.
At the same time, in this process, through more comprehensive and in-depth contact with pharmaceutical companies, CRO enterprises have a more profound and sensitive understanding of drugs in laboratory R & D, clinical development and future commercial sales. Some CRO enterprises are gradually involved in new drug research and development, and obtain R & D, R & D / sales / consulting services from a single process. Commission is directly involved in R & D activities to obtain product rights and interests. In general, CRO enterprises begin to directly intervene in new drug research and development through four different ways, enjoying different product rights and taking corresponding risks.
One, the strategic cooperation of the variety level
At present, CRO enterprises and pharmaceutical enterprises set up the strategic cooperation of variety level. The two sides jointly develop varieties and share risks, and share the sales income of some products after the product is listed. It is the mainstream way of CRO enterprises to intervene new drug research and development, and is also a more recognized and adopted model. In this way, CRO enterprises generally do not directly hold the rights and interests of the variety assets, but enjoy the return of the products after listing, and most of them are in the leading CRO enterprises.
Two, share / share or invest in pharmaceutical companies
In the process of providing services to the clients, CRO enterprises will have a deep understanding of the R & D, production and sales capabilities of the clients. For some pharmaceutical factories with better potential for development, the CRO organization will take direct investment to share / hold the pharmaceutical factory, or through the establishment of an independent industrial M & A fund, a strategic investment pharmaceutical factory. In the form of closer strategic alliance with pharmaceutical factories, CRO enterprises will enjoy product rights and interests according to their shareholding ratio or prior agreement.
At present, it is a common way for large CRO enterprises to intervene in new drug development through investment funds. It is commonly seen in CRO enterprises with high recognition and strong financial strength. This kind of CRO enterprise has rich experience in R & D, and has the real world data accumulation, some enterprises have the experience reference of product commercialization, the investment in new drug research and development is more accurate and professional, it is possible to get more rich investment returns, and the investment partners favor. In the way of share / holding / investment, the CRO enterprise has a relatively higher product interest, and the risk of production and sales is also increased accordingly, and the product gains in the future are also improved.
Three. Joint establishment of R & D Enterprises
The mode of cooperation between CRO enterprises and pharmaceutical enterprises is very diverse. CRO enterprises and pharmaceutical enterprises jointly establish joint ventures and focus on the development of new drug varieties. At this time, the rights and interests of the products are enjoyed by the joint venture, and CRO company will enjoy the rights and interests of the products in accordance with the joint stock or prior agreement in the joint venture. In this way, it is mainly the CRO enterprises with strong ability in early research and pre clinical research. It is rich in the early screening and development of new drugs, indirectly involved in the research and development through joint venture form, sharing the risk of new drug development with the pharmaceutical enterprises and sharing the rights and interests of the products.
Four. Hold varieties through MAH
MAH (drug listing permit holder system) is a heavy pound policy to encourage research and development of pharmaceutical innovation. Because CRO is very familiar with the whole process of drug research and development, approval and listing, it is possible to obtain product approval through independent research and development, and then use the MAH system to entrust CMO Enterprises to produce and sell with the aid of CSO enterprises to achieve CRO CMO and CSO were organically connected. In this way, CRO companies involved in drug research and development are more likely to turn to pharmaceutical factories and transform from service providers to professional pharmaceutical R & D institutions / pharmaceutical companies. There are some CRO enterprises that have been engaged in the transfer of the old third class batch, which has accumulated a great deal of experience in drug development. Since the old three types of drugs have lost the policy bonus of new drugs, they are gradually turning to the CRO pharmaceutical factory. At the same time, there are some companies that are initially determined to develop new drugs. Before new products are not listed in the market, it is mainly through the provision of CRO services to make up some of the income to make up for the cost of the enterprise. Under the MAH mode, CRO enterprises will fully own their own rights and interests, and also undertake the risk of larger product development, production and sale.
The above is the main model for CRO enterprises to gain income. Generally speaking, service commission is still the core source of current CRO enterprise income, and it seems more stable than the high risk, high investment and uncertainty of sales income after the market. However, in the pharmaceutical market, rich interests always coexist with risk, so the new drug R & D in the past is a taboo to CRO, and now the attitude of all parties seems to be gradually open.
Because of more investment in new drug research and development, the international CRO tycoon is not approved by investors, so it is going the way to privatization, and the investment business is stripped from the listed plate, and the new drug R & D enterprise is directly invested through the independent investment business sector. In fact, for the pharmaceutical enterprises, the CRO enterprise can improve the enthusiasm of the CRO enterprise, improve the success rate and the speed of the new drug development to some extent, especially for some small and medium R & D institutions with weak R & D ability and incomplete R & D team, and the professional CRO organization can push it quickly. In the process of product research and development, speeding up the approval and listing of new drugs and promoting the development and growth of enterprises are self-evident for the positive development of the pharmaceutical industry. For CRO institutions, using their own rich experience in the project, involved in the development of new drugs, developing potential projects, and enjoying the rights and interests of the products, because the global market of innovative drugs has a high premium, the future development of imagination is indeed greater, or this is the reason why the CRO institutions have been greatly sought after by investors since 2017.
Throughout the history of the growth of international CRO giants, more or less their development has been involved in the development of new drugs. Therefore, whether the new drug research and development is more powerful for CRO, or the Achilles’ heel, is really hard to decide at the moment. However, as a close partner of pharmaceutical enterprises, CRO enterprises will be able to master the core R & D secrets of a large number of clients in the process of providing R & D services. Therefore, it is the long-term development of CRO enterprises to strictly abide by the professional requirements and fulfill the contract commitments.