Pharma restructuring. Cost-cutting efforts by major pharmaceutical companies, especially Pfizer (New York, NY,
http://www.pfizer.com/) and Merck (Whitehouse Station, NJ,
http://www.merck.com/), were big news in 2005, and their impact will really be felt in 2006. Because the two companies account for 30% of industry
revenues and spending, these cuts will have a big effect on the market, even as companies such as Novartis (Basel, Switzerland,
http://www.novartis.com/),
Amgen (Thousand Oaks, CA,
http://www.amgen.com/), and Genentech (South San Francisco, CA,
http://www.gene.com/) accelerate their R&D spending. Several discovery services companies that relied heavily on Pfizer contracts already have
had to face the music (see "Pfizer drops DPI, Tripos").
Sourcing practices. Supplier consolidation is a priority among major pharmaceutical companies. These efforts have benefited major CROs such as
PPD, Quintiles, and Covance because of their global capabilities and economies of scale. But, it has been at the expense of
small and mid-size companies. We expect more intense competition for the "leftovers"(i.e., the spending by early-stage and mid-size pharmaceutical companies).
Low-cost competition. Indian and Chinese CROs and CMOs are gaining a bigger share of the market, and Western companies are feeling the pressure.
Asian competitors have made significant inroads into the medicinal chemistry, process development, and early-stage chemical
intermediates markets. Western CMOs are making a belated effort to establish their own operations in Asia. Major pharmaceutical
companies and clinical CROs are rapidly moving data management and other clinical trial services into India.
Pipeline bottlenecks. Development candidates are piling up at Phase II, but only a trickle are making it into Phase III. No one is clear about why
this is happening. Hypotheses include a shortage of funding for early-stage companies and more candidates being killed over
cardiac safety concerns. If the bottleneck is broken, it could be a bonanza for CMOs and large CROs. If candidates continue
to die in Phase II, the promise of the early-stage pipeline won't be realized.
Funding for early-stage companies. Although private venture capital funding is available for early-stage companies, the public markets have dried up as new sources
of funding. Biopharma companies are more dependent than ever on Big Pharma licensing deals, which is fortunate because Big
Pharma is more dependent than ever on licensing deals to bolster anemic pipelines.
Pfizer drops DPI, Tripos
Discovery Partners International (DPI, San Diego, CA,
http://www.discoverypartners.com/) and Tripos Inc. (St. Louis, MO,
http://www.tripos.com/), providers of discovery-related services, are some of the first CRO casualties of Pfizer's restructuring efforts. Both companies
are facing major changing themselves following the decision by Pfizer not to renew four-year-old services agreements. For
DPI, the Pfizer relationship generated $92 million in revenues between 2002 and 2005 and accounted for as much as half of
its total revenues in recent years. Tripos received $90 million from Pfizer during the life of its agreement.
Pfizer's decision has set off a chain of restructuring activities at DPI. The company said it will close its South San Francisco
facility and consolidate operations in San Diego. DPI sold its discovery systems business, and its chairman and CEO Riccardo
Pigliucci resigned after what was termed "a mutual difference of opinion" over the company's strategic plans.
Tripos did not announce immediate restructuring moves but said that it was evaluating the resources it would require for its
discovery research activities and expected that a "reorganization of Tripos Discovery Research may be necessary."
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