A strong five-year run by companies that specialize in pharmaceutical testing shows no sign of slowing as struggling drug makers farm out even more business to them in a trend that should drive consolidation.

Drug companies stand to save millions of dollars by outsourcing clinical trials to contract research organizations, or CROs, because that lets them avoid hiring researchers and building laboratory space of their own.

Some 25 percent of all preclinical drug testing is already outsourced to CROs. Faced with stringent regulations, mounting patent expirations and sinking sales and profits, drug makers are expected to rely on them more heavily in years to come.

"We will get to 50 percent in three years," said Isaac Ro, an analyst at Leerink Swann. "We're in the first two, three innings of significant outsourcing."

Outsourcing of clinical trials is also expected to double within five years, Ro said. In 2007, late-stage development accounted for about $9 billion in CRO revenue, and early-stage trials represented about $4.5 billion.

The strong outlook has helped lift shares of CROs like Covance and Parexel International despite the turmoil in the stock market this year.

In the next three years, analysts expect to see a wave of consolidation as larger CROs absorb more specialized companies to boost their capacity to run trials and test drugs. Larger and more diversified CROs will likely see drug companies divest portions of their business to them.

"Drug companies' budgets are under quite a bit of pressure," said David Windley, an analyst with Jefferies. "That pressure contributes to strong outsourcing."

CROs have proved a rare growth area in health care. From 2003 to 2007, the stock prices of the clinical testing firms Pharmaceutical Product Development and Covance nearly tripled or quadrupled, while the stock of Charles River Laboratories International, a preclinical drug-testing company, almost doubled.

CROs have also far outperformed the S&P 500 and the AMEX pharmaceutical index since January 2007. The market rakes in about $17 billion in annual revenue, Windley said, and is growing at an annual rate of 15 percent.

Outsourcing drug development not only eliminates the need to spend on labs and researchers; it is also more efficient. In 2006, the Tufts Center for the Study of Drug Development found that drug makers who outsource tend to complete projects faster without sacrificing quality. Projects that rely on CROs tend to be submitted to regulators more than 30 days sooner.

As long as drug makers "keep trying to develop new drugs, then you have to do a lot of work," Windley said. "What they're then doing, they're turning to outsourcing in a more cost-efficient way."

Of the eight high-profile publicly traded CROs, three U.S. companies loom large in the sector: Covance, with a $5.5 billion market value; Pharmaceutical Product Development, worth $4.9 billion; and Charles River, worth $4.3 billion. The rest of the market is splintered into highly specialized or private companies.

Analysts see Covance and Charles River as consolidators in the industry over the next three years as they add lab space and expertise. Consolidation would make them more attractive to drug makers that are outsourcing big parts of their businesses.

"Guys like Covance and Charles River have the trust of these companies to execute," Ro said. "I think you'll see the strong get stronger."

Still, not everyone is bullish. Some analysts are wary about the long-term outlook for CROs, arguing that outsourcing on the order of 50 percent is unrealistic and without precedent.

"I find it very hard to believe that big pharma companies are going to farm out" their "life blood to a contract company," said Jon Wood, analyst for Banc of America Securities.