Coming to terms
The contract services industry needs to come to terms with the fact that the new product gravy train is coming to an end.
The number of candidates in development is shrinking and the amount spent on them is falling. R&D spending by small bio/pharma
companies dropped 20% in the first half of 2009 and the large and midsize companies have also slowed their spending. We may
get an upturn in the second half of the year as some delayed programmes are accelerated, but the trend seems pretty clear.
A decline in R&D spending will hurt smaller CROs and CMOs the most because it will be concentrated in the discovery, preclinical
and Phase I segments of the pipeline. Those are the segments of the pipeline that will feel the greatest effects of the venture
capital pullback, and the venture-backed bio/pharmas are the most dependent on contractors.
Large public CROs and CMOs will also feel the heat. Their stock prices were driven up to record levels during the middecade,
as high doubledigit revenue and profit growth rates became the norm. Those growth rates have slowed dramatically and aren't
likely to reach their pre2008 levels. The Phase II and Phase III research programmes have been well supported thus far, but
the efforts to kill likely failures more quickly will ultimately shrink the latestage pipeline.
Contract services will benefit from the increased willingness of the major bio/pharma companies to outsource more of their
development activities. However, much of that benefit will accrue to large CROs and CMOs, and to service providers with operations
in the emerging markets. Owners and investors of contract service providers must come to terms with this new reality. The
venture capitalists and executives of the major bio/pharma companies are not insane; they have already turned away from the
practices that fuelled the great pipeline explosion this decade. CROs and CMOs will now need to find other ways to fuel their
growth.
Jim Miller is President of PharmSource and a member of Pharmaceutical Technology Europe's Editorial Advisory Board.
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