The outlook for the industry that helps pharmaceutical companies test experimental drugs, a mainstay of the Triangle economy, is more promising than it's been since the recession slowed demand for such services.
Global revenue for contract research organizations is projected to climb 8.3 percent next year, up from an estimated 5 percent this year and 1.3 percent in 2010, according to William Blair & Co.
"There is no doubt that the industry is making a rebound," said Jeff Williams, CEO of Clinipace Worldwide, a CRO with 175 employees, including 35 at its headquarters in Morrisville.
The Triangle sits at the epicenter of the industry, led by privately held Quintiles, which generated about $3 billion in revenue last year and is the world's largest pharmaceutical services company. The company has more than 24,000 workers worldwide, including about 1,600 in the Triangle.
"We feel the clinical trials industry is very strong and is going to exhibit strong growth over the next several years," Quintiles spokesman Phil Bridges said.
Other major local players include Wilmington-based PPD, one of the world's largest CROs, which has about 1,400 workers in the Triangle and recently agreed to be acquired by two private equity firms for $3.9 billion; Raleigh-based INC Research, which has about 5,000 workers, including about 700 locally; and PRA International, which posted about $400 million in revenue last year and employs more than 400 in Raleigh.
A number of smaller CROs also call the Triangle home.
Business research and consulting firm Frost & Sullivan expects the industry to benefit on two fronts next year. Biotechnology companies don't have the infrastructure needed for clinical trials, while large pharmaceutical companies are stepping up efforts to outsource work in an effort to lower fixed costs.
Still, the industry isn't likely to experience the rapid growth that it enjoyed pre-recession.
The premise that pharmaceutical and biotechnology companies can save money by outsourcing work to CROs is as compelling as it was before the downturn, William Blair analyst John Kreger said.
"But the underlying size of the pie - how much money is spent on R&D, how many drugs are being discovered and then move into testing - is under real pressure," he said. "That is not growing the way it was before the recession."
Kreger said companies are under pressure to reduce their R&D budgets because so many blockbuster drugs are about to lose patent protection and come under assault from cheaper generic drugs. That will wipe out billions of dollars in revenue.
"The recession has proven to be a catalyst for virtually every leading drug company to finally get serious about restructuring their drug-development model," Kreger said.
Analyst David Windley of Jefferies & Co. is projecting more modest industry revenue growth next year - in the neighborhood of 5 percent - and also questions how lucrative that growth will be. CROs chasing customers will keep profit margins lower than they were before the recession hit, he said.
A number of Triangle CROs have been growing both organically and through acquisitions.
INC Research more than doubled in size with its acquisition of Cincinnati-based Kendle International for $232 million. Clinipace made three acquisitions in 18 months and is looking for more deals. So is Quintiles, which last month acquired three companies in a week.
Jamie Macdonald, chief operating officer at INC Research, said the volume of requests for new business proposals from drug companies that the company is receiving suggests that demand remains strong.
"Obviously, the challenge for us is to convert that into awarded business," he said. "We're happy to be in the CRO business. Given where the overall economy is, it's a good business to be in."