Covance Weathers the CRO Storm

Executive Summary

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.