Recovery signs, but outsourcing gets more competitive
pharmafile | April 26, 2010 | News story | Manufacturing and Production, Research and Development | Interphex, contract manufacturing, contract research, contract research organisation
The first green shoots of recovery in the global economy – assuming of course they are not going to be killed off by a late frost – are also being seen among the pharmaceutical contract services sector, according to Jim Miller of outsourcing consultancy PharmSource.
In his annual address to the Interphex convention last week, Miller said that improving performance was recorded in the fourth quarter of 2009 by contractors across a number of outsourcing sectors – including chemistry, manufacturing and controls (CMC), active pharmaceutical ingredient (API) manufacturing, clinical research and early-stage development services.
Contract research organisations (CROs) benefited from an up-tick in R&D spending by biopharmaceutical companies after several quarters of declines.
This was helped by a recovery in financing for smaller drug developers from venture capital, public offerings and partnerships, although this is “still volatile”, according to Miller, with investors favouring companies with late-stage products.
The cash injection is being followed by increased demand for late-stage CRO services.
While this boost in R&D spending will continue through 2011, according to Miller, it will not reach pre-economic crisis levels because of the negative impact of pharmaceutical companies merging and restructuring their R&D departments, although the share of outsourced R&D is expected to grow.
For contract development and manufacturing organisations (CDMOs) the picture is a bit more complex, according to Miller.
He described the ‘Hotel California’ effect observed in biopharmaceutical manufacturing – once capacity enters the sector it does not leave. While bigger companies are shedding facilities in pursuit of efficiencies, smaller players are buying them up as well as building their own plants.
“That is creating excess capacity … and price competition is now a reality,” according to Miller.
The trend in recent years towards niche offerings to reduce competition is now looking a bit stale, as there are few proprietary niches left in the business.
Contract manufacturers need to alter their business model away from one which encourages high fixed costs, low utilisation of resources and overcapacity, towards one which delivers high-volume, high-utilisation.
One possibility would be to direct capacity towards emerging pharmaceutical markets, he suggested. However, while CROs have made strides into India, China, Latin America and Eastern Europe, “CDMOs have largely avoided the opportunity,” according to Miller.
In summary, Miller said it is time for contractors servicing the pharmaceutical industry to get aggressive.
“Don’t expect a rising tide to lift all boats,” he told the Interphex delegates. Competition is going to intensify, so sales and marketing skills are going to matter a lot, as will a strong track record and financial stability.
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