Drug testing - testing drugs, that is - scores.

• Position: Pharmaceutical industry in North Carolina - Industry Overview

Drug manufacturers are increasingly turning to outsiders for clinical testing, data management and marketing of the drugs they produce. The flow of drug research-and-development money to contract research organizations, CROs, reached an estimated $2 billion in 1996. And it's likely to go higher as drug companies - jockeying for position in a consolidating industry - look for new ways to reduce fixed costs.

Two North Carolina CROs made the boldest grabs for market share in 1996. Durham-based Quintiles Transnational Corp. completed two small acquisitions and then two bigger ones that made it the largest in the industry. Quintiles' purchase of British CRO Innovex is expected to more than double its revenue, to about $500 million. Quintiles is betting that drug companies will continue their cost-cutting efforts by contracting out more sales and marketing, Innovex's specialty. Digesting big acquisitions will be a challenge, says John Kreger, an analyst with Vector Securities International in Deerfield, Ill. "But they've proven they can handle growth in the past."

The merger of Wilmington-based Pharmaceutical Product Development Inc. and Arlington, Va.-based Pharmaco International drew more skepticism. PPD jumped from seventh- to third-largest CRO, but to do that, it swallowed a slow-growing company three times its size.

British-based drug giant Glaxo Wellcome spent part of 1996 in court trying to hang onto its patent for the ulcer drug Zantac and another part trying to convince the industry that it could get along fine without exclusive rights to the world's best-selling drug. A federal judge ruled in July that Canada-based Novopharm Ltd. can make a cheaper, generic version when Glaxo's patent expires in 1997. Glaxo has appealed, but Zantac's sales are already falling - first-half 1996 sales were 16% below the previous year's - because of competition from more-effective later-generation ulcer drugs. Glaxo hopes to offset the loss of its monopoly with a batch of new drugs, led by a new ulcer drug, AIDS treatments and respiratory medications. During the first half of 1996, sales of Glaxo drugs launched this decade grew 51% over the previous year and accounted for 22% of sales.

Glaxo, which has U.S. headquarters in Research Triangle Park, makes Zantac at manufacturing plants in Zebulon and Greenville. The Greenville plant is scheduled to close by 1999 as part of the 1995 merger of Glaxo and Burroughs Wellcome. After the patent ruling, the fate of...