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 mid-size companies slowed their spending. We may get a
bounce up in the second half of the year as some delayed programs are accelerated, but the trend seems pretty clear.
A decline in R&D spending will hurt smaller contract research and manufacturing organizations (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 that will
feel the greatest effects of the venture capital pullback, and the venture-backed biopharmaceutical and pharmaceutical companies
are the most dependent on contractors.
The large public CROs and CMOs will also feel the heat, however. Their stock prices were driven up to record levels during
mid-decade, as high double-digit revenue and profit growth rates became the norm. Those growth rates have slowed dramatically,
and aren't likely to reach their pre-2008 levels. Phase II and Phase III research programs have been well-supported thus far,
but efforts to kill likely failures more quickly will ultimately shrink the late-stage pipeline.
CROs and CMOs benefit from the increased willingness of the major biopharmaceutical and pharmaceutical 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 companies are not insane, and they have already turned away from the practices that fueled the great pipeline
explosion of this decade. CROs and CMOs will need to find other ways to fuel their growth.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, firstname.lastname@example.org