Industry Outlook: Mixed Signals Lead to a New Outsourcing Equation - Pharmaceutical Technology

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Industry Outlook: Mixed Signals Lead to a New Outsourcing Equation
Survey results indicate a healthy market, but increasing competition.

Pharmaceutical Technology

Figure 4
The results suggest more companies are looking for new vendors than in past years. In the 2008 survey, nearly 45% of respondents said their company is actively looking for new vendors; that number is up sharply from the 30% that were looking for new vendors in 2007 (see Figure 5). In last year's survey, it was more common for respondents to be looking for new contractors just to replace those they were already working with, or for special needs.

Service providers seem to be aggressive about responding to these new opportunities. Nearly 30% of respondents from contract research and contract manufacturing organizations (CMOs and CROs) say proposals to new clients account for half or more of their new proposal activity, and just under half say that 25–50% of new bids are going to prospective new clients (see Figure 6). Competition for new business seems to be intense. Nearly 85% of bio/pharma respondents say vendors are actively looking for new business, up from 70% in 2007 (see Figure 7). Further, half of those 85% say they see vendors as willing to cut prices to get new business.

Figure 5
In another sign of intense competition, both bio/pharma and contractor respondents say there are typically three to five bids submitted per new request for proposal. One more sign of intensifying competition: Half of respondents indicated that their sales and marketing expenditures will increase by 10% or more in 2009. That's the biggest jump we have seen in several years.

Performance perceptions

Figure 6
The big jump in openness to new vendor relationships is no doubt related to growth in spending on outsourced projects. At the same time, however, it may reflect issues with the vendor base itself, especially concerning capacity and performance.

Figure 7
As in past years, service providers are equally divided on whether limited capacity is impeding their ability to take on new business. Among the half that feel capacity-constrained, the biggest factors holding back growth are access to investment capital, recruiting new staff, and organizations' ability to manage growth. This is the first time in the history of the survey that investment capital has been identified as a significant problem for contractors, and undoubtedly reflects the reduced availability of investment capital in the general economy. The limited management capacity to support growth, which also came up in last year's survey, probably reflects the high percentage of responses coming from small CMOs and CROs, where management ranks are usually thin.

Figure 8
Performance expectations could be another reason that bio/pharma companies are actively looking for new vendors. This is the second year we have asked respondents to rate contractor performance in three key areas: technical and operational expertise, project management, and customer service. Once again, there are big differences in the way customers rate contractor performance and how service providers rate themselves.


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