Impact of marcoeconomic conditions on outsourcing
» What impact has the global economic downturn had on drug-development and manufacturing services overall, and specifically
for contract services from Asia? Can you characterize the near- and long-term prospects?
There has been a slowdown in the pharmaceutical services sector in general, which has affected all parts of the world, including
Asia. However, we believe that the future growth potential continues to be significant as innovation remains the leading driver
of pharmaceutical company value, and also that continued consolidation will increase the need and demand for professional,
capable contract services. I believe that the five-year growth outlook continues to be in the double digits and that the demand
will continue to increase.
There has been a decline or slowdown in the number of drugs in development globally, and everyone has had to operate within
this reality. The prospects both near and longer term look very healthy for contract research organizations (CROs) and CMOs
based in Asia. As Asian companies mature, they become more experienced and capable of fulfilling their pharmaceutical customers'
needs with less support; this in itself will open up more opportunities.
There has been a definite slowdown, especially for CRO services, and we would expect the current state to hold until late
2009. There will always be an outsourcing market within Asia. The size and rate of growth will depend on the way in which
large pharma develops their research and development programs (most are under significant scrutiny). Asia's capacity to deliver
to quality expectations and long-term sustainability will be a second determining factor.
»Mukherjee (Dr. Reddy's):
The global economic downturn has impacted the drug-development services arena. Drug-development programs have been severely
scrutinized by the pharmaceutical companies themselves, having either cut or reprioritized many molecules in development simply
because of budget cuts. However, when a molecule is supported, the drug-development process remains well supported. With respect
to manufacturing, the economic downturn has many pharmaceutical companies scrutinizing their working capital, and as a result,
are holding less stock and ordering less materials from their supply base. The reduction of stock and working capital is short-term
and a stopgap and has had a visible effect on the CMOs around the globe, including Asia. As Asian sources continue to become
more competitive from a development- and manufacturing- sophistication point of view, the cost competitiveness should continue
to support sourcing from Asia.
The economic downturn has made low-cost sourcing for late life-cycle products an urgent imperative for pharma companies. A
number of assets in the West are being divested or liquidated, and the need to outsource solid dose, syrups, liquids as well
as APIs and intermediates is very high. A number of pharma companies are also looking long term for Asia for their development
drug-sourcing. [They] are closely evaluating CMOs that have a reasonable strategic, operational, and investment fit, and that
can be worked with to upgrade their skills to the pharma companies' levels.
Long term, a lot of outsourcing related to patented products' process development, drug development, packaging, and labeling
services is foreseen. Late life-cycle products, difficult-to-do products (such as steriles) will also be increasingly outsourced
from Asia as the current wave is focusing on the easy-wins only.
The economic downturn has had an impact as many companies have postponed, reprioritized, or placed development projects on
hold in an effort to conserve cash. On the manufacturing-services front, those companies that have manufacturing capabilities
are evaluating how they can optimize their own in-house capabilities before looking to outsource. For those without manufacturing
capabilities, the economic downturn has not impacted their outsourcing.
I think the near-term prospects for outsourcing will be the same as we see now, but the long-term prospects should be very
positive, especially in the parenteral area as there are many biologic products in the pipeline awaiting approval that will
be, and have been, outsourced. In the solid-dose area, pricing will continue to be a critical factor for basic tablets and
capsules as there remains a lot of available capacity, but long-term prospects should be positive as large pharma completes
site rationalizations following recent merger and acquisition activities. Specialty manufacturing such as DEA-scheduled [Drug
Enforcement Administration], controlled release, and high potency, will continue to be in demand and show solid growth.