Slowing Growth, Accelerating Changes Mark Contract Services Industry - Pharmaceutical Technology

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Slowing Growth, Accelerating Changes Mark Contract Services Industry
Revenue and spending growth rates are declining, but adoption of new sourcing practices and strategies is accelerating.


Pharmaceutical Technology


The principal objective of the annual PharmSource–Pharmaceutical Technology outsourcing survey is to gauge overall business trends in the contract manufacturing and research businesses. This year's edition documents an industry that is in good health but facing a new set of dynamics.

A strong, but leveling-off market


Figure 1
This year's survey results indicate that the market remains strong, but signs suggest that demand may be leveling off. Buyers of contract services at bio/pharmaceutical companies report that their spending will be higher in 2006 than it was in 2005, but not as robustly as it was in 2005 (Figure 1). Only 16% of respondents expect their spending on contract services to decline, but just 38% expect spending to increase by 10% or more. This figure is down from nearly 50% in last year's survey. The spending slowdown reflects, in part, a reduction in the growth of spending overall (Figure 2): 43% of respondents report that spending on contract services is growing at the same rate as overall spending in their area of responsibility. Nonetheless, 39% report that their outsourcing spending is growing more slowly than their total spending.


Figure 2
View from the contractors. Contract service providers view the market very much like their bio/pharmaceutical clients (Figure 3). Some 51% expect their revenues to grow by 10% or more in 2006—still a strong showing, but down from 62% in the 2005 survey. More vendors expect to grow by less than 10% this year (39% in 2006 versus 27% in 2005), but only 10% expect revenues to decline.


Figure 3
Contractor optimism over new contract signings also is down somewhat this year. Only 48% of contractors expect new contract signings to increase by 10% or more this year, which is down markedly from 62% in last year's survey. Slightly more contractors expect a net decline in new contract signings this year versus last year.


Figure 4
Somewhat surprisingly, contractors don't seem to be alarmed by the slower pace of new contract signings, which should be a bellwether for revenue in the coming months and years. Fifty-five percent of contractors expect business opportunities in 2007 to be "somewhat better" or "much better" than they have been in 2006 (Figure 4). Nonetheless, bio/pharmaceutical respondents indicate that contractors shouldn't be too sure: 48% expect contract spending to grow by less than 10% next year, and only 10% expect spending to grow by 20%, which is almost half as many as those who predicted a 20% spending increase last year (Figure 5).


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