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Pharma outsourcing recovering, but tough times are ahead

Published on 26/11/10 at 09:13am

There are signs that outsourcing in the pharmaceutical sector is staging a comeback after a couple of tough operating years, according to a presentation by sector specialist Jim Miller at the American Association of Pharmaceutical Sciences (AAPS) annual meeting in New Orleans last week.

Contract research organisations and contract manufacturers are experiencing a "gradual but choppy" improvement in their businesses, he said, while consolidation continues to feature strongly - particularly in the clinical research segment - and as a general rule the sector is becoming increasingly competitive.

Miller, who heads up the PharmSource consultancy business, told delegates at AAPS that one exception to this guardedly optimistic appraisal is the early-stage development services segment, which is suffering from overcapacity and price cuts of 30% or more.

The problem lies mainly in delays by clients starting studies but perhaps more tellingly a 20% decline in new compounds entering development. "R&D spending is flat," said Miller, and while big pharma is investing more, smaller companies which are dependent on external financing do not have the funds to start new programmes.

At the moment the R&D spend seems to be going towards late-stage development services, although fewer preclinical compounds in the pipeline will mean that later-stage development services companies and CMOs could face lean times down the line.

Meanwhile, a continuing low rate of new molecular entity (NME) approvals because of high safety and efficacy barriers erected by regulatory authorities is hurting the CMO sector, claims Miller.

So far in 2010 a high proportion of approvals for active pharmaceutical ingredients (APIs) have been for older compounds and, because generic manufacturers tend to manufacture products in-house, the CMO share of manufacturing is being squeezed.

Miller estimates that around 57% of new FDA approvals in 2010 so far are made internally by the developer, with 28% outsourced. Last year the percentages were 45% and 36%, respectively.

Looking ahead, he believes the general economic recovery and positive pharmaceutical industry growth will help buoy the outsourcing sector, particularly if multinational pharmaceutical companies continue to invest in early-stage companies.

On the downside there are a number of variables that could check growth, including the continuing restructuring of pharmaceutical pipelines resulting from merger activity and cost-cutting, a difficult approval environment and downward pressure by governments in the US and Europe on healthcare spending.

Phil Taylor

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