Outsourcing of research and development and efficiency: a DEA non-parametric analysis of the contract research organisations industry

Outsourcing to Contract Research Organisations (CROs) has become a widespread practice by bio-pharmaceutical firms seeking to reduce the costs associated with the development of new products. This study empirically analyses the efficiency of the CROs industry by looking at a sample of firms operating internationally over 2012-2020. We compute Data Envelopment Analysis (DEA) efficiency scores for each firm and year. The average bootstrap efficiency in the sample is 0.665, robust across specifications and increasing over 2012-2020. The best performing firms are PPD Australia, Centre Recherches Biologiques and Oy Medfiles. Our results suggest that very large and very small companies outperform the rest in terms of efficiency, which points to the co-existence of increasing returns to scale and niche competitive advantages in the industry.