Tuesday, August 5, 2008

Growth of CRO’s

We have posted some articles recently on the growth of the CRO industry. This article from The Motley Fool confirms what others have been saying and provides some more insight into this development. As can be seen by the chart featured, over the past year, CRO’s have seen their revenues increase. The article makes a point of stating that much of this growth is a result of the drug companies looking for ways to cut costs, with the current state of the economy, by outsourcing their research. Also, considering that their revenue is not tied to the success of a particular drug, their risk is minimal.

1- Year Return

TTM Diluted EPS Growth

Covance (NYSE: CVD)

25.5%

24.1%

Paraxel International (Nasdaq: PRXL

39.2%

38.3%

ICON (Nasdaq: ICLR

73.8%

37.8%

Charles River Laboratories International (NYSE: CRL)

29.2%

22.1%

WuXI PharmaTech (NYSE: WX)

24.4%

N/A

Some important points the article makes are:

“It doesn't look like the growth that CROs have experienced over the last few years is likely to go away any time soon, either. A recent report by Turner Investment Partners estimates that in the next few years CROs will be involved in half of all drugs at some point during development.”

“What's interesting though is that the CROs may be shifting who their source of revenue . Many smaller biotech companies are now using CROs' expertise to get early drug development done. That same report estimates that biotech now accounts for 30% of CROs revenue globally, up from 21% five years ago.”

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