Global CRO Industry
Clinical and Contract Research Organizations (CRO are organizations that provide assistance and services to pharmaceutical, biotechnology and medical devices companies in the form of data research, drug tests, clinical trials, post development marketing, and related services for the development of both drugs and devices. CROs have a wide range in terms of their scale and scope – from large, international, full service organizations to small, niche, specialty groups. CROs support their clients move a new drug or device from commencement to FDA marketing approval without the drug sponsor having to maintain their own staff for these services.
The Global CRO industry is growing at a CAGR of 12.4% and is slated to reach USD 57 billion by 2020. The growth in this industry is encouraging and is attributed to the following reasons:
- Cost Containment: Life sciences organizations often divert their R&D costs towards outsourcing to maximize efficiencies and optimize their fixed overhead costs. This increased research outsourcing positively impacts the CRO industry growth.
- Complexity of Research & Capability: With increasing complexity of drug development and the focus on new molecules, rare diseases and personalized devices, life sciences organizations are looking towards CROs to help them with more efficient and flexible solutions through specialized capabilities that may not be present internally.
- Recent M&As: Over the last two years, large mergers and acquisitions have brought about significant consolidation in the industry. These mergers and acquisitions have not only reduced operational costs but have also led to extension of the value chain and geographical scope of organizations.
- Increasing Use of Data & Analytics: As the world moves towards harnessing data-driven insights, CROs see their life sciences clients come to them with big opportunities on predictive modeling and analytics to help them with strategies for development and commercialization.
APAC’s CRO industry, which is the fastest growing in the world, has a CAGR of 19.5% which is significantly higher than that of other regions. India specifically is a beneficiary of increased outsourcing of clinical services such as clinical data management, biostatistics, pharmacovigilance, etc., which will further drive increases in revenue in the Asia Pacific region in the future.
The India CRO Story
Over the last few years, we see many CROs either expand their geographical operations to India or scale up their existing operations in India. The sentiment amongst the industry leaders is to leverage the demographic advantage that India offers. Considering that leading organizations in the industry in India have grown by 36% in headcount on an average between 2016 & 2017, it is evident that India is the preferred destination for conducting clinical trials. The reasons for this preference to India could be attributed to the below:
a. Availability of Investigators:
- Large number of specialists in different therapies
- Medical training in English
- 600,000 English speaking physicians
- Treatment protocols in line with the U.S.
- Large number of GCP sites
b. Patient Population:
- Large, diverse patients pool
- Presence of 6 out of 7 genetic variations
- Large pool with acute/chronic diseases
- Increasing number of patients in lifestyle, oncology therapies
- Large number of GCP sites
- Over 200 medical colleges
- Over 22,000 medical graduates per year
- . Around 900,000 hospital beds in over 15,000 hospitals
- 14,000 diagnostic labs
- Computer-savvy biomedical workforce
d. Cost Advantage:
- Lower operational cost
- Lower skilled manpower cost
While the industry in India is poised to grow at an accelerated pace there are few challenges faced by the industry such as:
1. Increasing Competition from Low-cost Countries: Some companies are looking towards setting their operations in countries such as Vietnam and Indonesia as these countries provide a cost advantage.
2. The Spillover Effect: The pharmaceutical industry is going through a phase of cautious optimism and this is seen to impact the CRO industry as well.
3. Quality Concerns and Regulatory Delays in Clinical Trials: Over the last two years, some organizations have come under the scanner due to quality and regulatory violations.
Unlike the pharmaceutical industry with high manufacturing costs, the CRO industry’s costs are mostly from the human capital they employ. Hence, managing these costs by hiring and investing in the right talent, and keeping the workforce productive and engaged, is the key imperative for these organizations.
To clearly understand the human capital trends in the CRO industry in India, we will deep dive into a few themes.
Salary Increase Trends
The salary increase for the industry has certainly changed over the years. Pharmaceutical industry along with the CRO industry had been witnessing salary increases which were higher than 12%, but today there has been significant erosion in this number. Pharmaceutical industry’s projected salary increase for the year 2018 is at its all-time low of 10.3% whereas the CRO industry is only slightly better off than pharmaceutical industry with a projected salary increase for the year 2018 at 10.6%.
There are two key reasons for this downturn. The first is the slowdown of the pharmaceutical industry that effects the CRO industry. The second is the historically high salary increases that were given in order to align compensation to India Inc. With these industries maturing, they too are mirroring the India Inc. of muted increases.
When we analyze the organization pyramids of the leading organizations in the industry, it is interesting to note that 82% of the headcount is clustered between entry and junior management indicating that this is a bottom heavy industry. Being bottom heavy keeps the payroll cost in check and hence, there is a lot of focus on hiring and grooming entry level and junior management talent.
Variable Pay Analysis
In terms of the compensation trends prevalent in the industry, our analysis shows that CRO industry’s total compensation levels across the cadres of management go hand-in-hand with those of the pharmaceutical industry. There are two reasons for this – one is the talent mobility between these industries, and the second is that when pharmaceutical organizations build their captive clinical research arm, we see the parent pharma company’s rewards philosophy being adopted by the CRO arm as well.
When the short-term variable pay component of the total compensation is analyzed to understand how CROs are driving performance through this lever we see that the CRO industry does provide a healthy mix of variable pay to fixed pay. The variable pay in the CRO industry is more aggressive when compared with the variable pay for R&D function of the pharmaceutical industry. At senior management level, the variable pay as a percentage of total cost to company varies between 4.9% to 15.8% with a median of 12.9% whereas the variable pay for the R&D function of pharmaceutical industry ranges between 0.4% to 14.7% with a median of 9.5%. At the entry level, while the median variable pay as percentage of total cost to company is 4.3%, we also see a few organizations go as high as 10.2% at this level.
The industry clearly differentiates its talent in terms of compensation based on skills and functions. Job families such as biostatistics, statistical programming, clinical monitoring and project management command significant premium in terms of compensation. Organizations face challenges while they hire for functions such as biostatisticians and statistical programmers since the demand for these roles in the market is way ahead of the supply of this niche talent. The premium varies between 15% and 19% with respect to the median compensation at any given level of management.
The functions which are aligned to the median salaries are quality assurance medical writing, regulatory and application development. While medical writing is characterized as a job family which does not command a premium at an overall level, we do see a different trend when we look at a specific qualification of doctors within this group. Medical practitioners or doctors that lead teams command a significantly higher compensation. Again, the demand-supply gap is the reason organizations face challenges while hiring doctors with medical writing experience and this in turn leads to a higher compensation to this group within medical writing.
The job families such as pharmacovigilance, and clinical data management are seen to be discounted in terms of compensation since they form a part of the backend operations.
When we come to the headcount spread across the functions, 67% of the industry’s workforce in India comes from pharmacovigilance and clinical data management (36% and 30% respectively). In the early years of this industry when India was looked at as a low-cost talent market by the world, many players in the industry built their businesses on operational excellence. As an outcome of this business strategy, majority of the headcount employed in the CRO industry are seen in the “high volume” job families. This reality ties well with the fact that these job families are discounted in terms of compensation. However, in the recent years, it is worth noting that the headcount in functions such as statistical programming, biostatistics have significantly risen. Organizations are moving up the value chain in terms of the services they provide to their clients and hence, acquire and groom capabilities on these premium functions too now.
Locational Availability of Talent
Talent pool in the CRO industry in India is spread across cities. However, it is interesting to note that 81% of the headcount of leading CROs are between Bangalore, Hyderabad and Chennai which clearly suggests that Southern India is the CRO hub. Bangalore with 51% of the headcount is the most preferred location for CROs to ramp up their operations and for organizations to set up their shop. The other location where organizations are looking towards expanding their operations is
Chandigarh. In order to keep a check on cost, organizations are looking towards Tier 2 cities to set up their operations and locations such as Chandigarh, Thiruvananthapuram, and Ahmedabad figure in the list of locations where organizations have increased their presence.
Aggressive growth in an industry leads to unforeseen people challenges which the CRO industry seems to be facing today, especially due to their high dependence on human capital.
The first indicator of a growing industry is attrition. When the industry grows, there are more opportunities for talent to move from one organization to another. Currently, the overall attrition in the industry is at 14.8%. To retain talent, organizations are now looking to provide employees with “Total Rewards” that include developmental opportunities and differentiated benefits and not just cash as a lever for engagement. Organizations must focus on growing their talent organically than acquiring talent from their competition.
The next indicator seen by an industry in growth phase is challenges in managerial capability. Due to the significant rise in headcount, organizations are facing difficulty in managing the ever increasing span of control and lack of managerial capability to deal with the increased team size and complexity associated with it. Many organizations feel they haven’t equipped their managers to lead teams, since the focus earlier was towards building their technical capabilities. Organizations should focus on programs and interventions to develop managerial effectiveness.
In addition to these two issues, HR teams are also facing some heat to adapt to more effective HR systems and processes to manage the headcount growth in organizations. Organizations must constantly work towards aligning their HR strategies and systems with the changing dynamics of the industry to keep up with the fast paced change that the industry is witnessing now.
As long as organizations in the CRO industry prepare themselves to resolve the challenges they face, and consciously align their HR strategies to their changing business strategy, they are all set to keep the flag of “Destination India” flying high.
1. Aon India CRO Forum
2. Aon India Salary Increase Survey
3. Aon India Pharmaceutical Forum
4. Frost & Sullivan: Asia – Preferred Destination for Clinical Trials
Industry Lead, Life Sciences,
Consultant, Life Sciences,
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