There has been an atmosphere of doom and gloom over much of the contract services industry this year. Early development outsourcing
has been hit hard by funding cuts to small biopharmaceutical and pharmaceutical companies and restructuring at the major companies.
Late-stage development has maintained some momentum, but a feeling of uncertainty has overtaken the confident swagger of contract
ILLUSTRATION BY M. MCEVOY. IMAGES: DON FARRALL, CREATIV STUDIO HEINEMANN/GETTY IMAGES
The 2009 PharmSource–Pharmaceutical Technology Outsourcing Survey suggests that the sense of gloom is overblown. Although the positive responses are somewhat fewer and
the negative responses somewhat greater compared with previous surveys, the overall picture is still one of a healthy level
of activity at contract manufacturing, contract development and manufacturing, and contract research organizations (CMOs,
CDMOs, and CROs). Competition has intensified at the margins, but there is a core level of activity sustaining the industry.
Current level of activity
The healthy image of the industry is reflected in the spending patterns reported by respondents from biopharmaceutical and
pharmaceutical companies (i.e., the "buy side" of the outsourcing equation). The number of respondents reporting double-digit
increases in outsourcing spend dropped sharply, while the number reporting an absolute decrease in spending more than doubled
(see Figure 1). Responses from contractors mirrored these results, with a sharp drop in those expecting 2009 to be "very good"
and a quadrupling of those expecting the year to be "not very good" (see Figure 2).
Still, more than 50% of biopharmaceutical and pharmaceutical respondents expect at least some growth in their spending this
year, and another 28% expect it to remain level. Among contractors, nearly 75% expect business to be "good" or "very good"
in 2009. These responses indicate a slow growth year, but certainly not a disaster.
Other survey questions illustrated just how different the current market is from the recent past. The number of contractors
pointing to large biopharmaceutical and pharmaceutical companies as their best-performing customer segment has jumped sharply,
while the number singling out small firms fell sharply (see Figure 3). This change reflects the reduced means of early-stage
companies that depend on the crippled financial markets for capital to fund their development activities. It suggests that
companies that have been disproportionately dependent on small biopharmaceutical and pharmaceutical companies have been disproportionately
hurt by the downturn.
Another big difference in this year's survey is that, for the first time in three years, more respondents report that outsourced
spending is growing more slowly than total spending (see Figure 4). Con-tractor respondents also noticed this development.
This may reflect efforts by major pharmaceutical companies to use internal capacity freed by the cancellation of many development
programs, as well as the reduced funding available at many small companies.