Healthy Outlook for Pharma Services - Pharmaceutical Technology

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PharmTech Europe

Healthy Outlook for Pharma Services
Respondents to the 2011 PharmSource-Pharmaceutical Technology Outsourcing Survey paint a positive picture, but concerns linger under the surface. This article is part of a special issue on Outsourcing.

Pharmaceutical Technology
Volume 35, pp. s8-s17

Intensifying competition

Although the overall level of outsourced development and manufacturing activity may be growing, competition for available business is increasingly intense. Service providers therefore must work harder for new business opportunities. Bio/pharmaceutical company sourcing practices and the rise of service providers in emerging markets, especially in India and China, are key challenges for contract-service providers.

Figure 5 How have you managed the number of contractors you work with?
It has become increasingly difficult for service providers to get new clients. More than half of bio/pharmaceutical companies reported that less than 25% of their bids have come from new service providers. In addition, bio/pharma ceutical companies continue to limit the size of their vendor base, with 47% of survey respondents indicating that they have reduced or plan to reduce the number of service providers they work with and only 22% indicating plans to increase the number of vendors they work with (see Figure 5).

Even when service providers can get their foot in a new client's door, competition for the new business remains intense. Bio/pharmaceutical companies are not reluctant to pit service providers against each other: more than half of respondents from bio/pharmaceutical companies reported that they get three or more bids for each project they advertise.

Figure 6 How badly do contractors want your business?
The competitive market is taking a toll on pricing. More than half of respondents from bio/pharmaceutical companies reported that services providers are actively seeking their business and are willing to cut price to get it (see Figure 6). In 2006 and 2007, when investment capital was flowing easily to bio/pharmaceutical companies, only 34% of respondents indicated that service providers were willing to cut price.

However, as new funding dwindled during the global financial crisis, price competition increased, and the number of respondents indicating contractors' willingness to cut prices jumped above 50% in 2009, where it remains today.

Figure 7 Plans for sourcing in India and China
Interest in sourcing from service providers in emerging markets, especially China and India, continues to grow at a slow but steady pace (see Figure 7). The share of respondents from bio/pharmaceutical companies who indicated they are actively sourcing in India or China rose to 32%, up from 31% in 2010, and from just 20% in 2006. Companies with no plans to source in India and China dropped to 36% in 2011, compared with 41% in 2110, and 51% in 2009.

Business risks

Figure 8 Biggest risks to contractor businesses
Not surprisingly, contract-service providers are concerned about competition from India and China. Among respondents, 29% identified competition from India and China as the biggest single risk their companies will face in the next two to three years (see Figure 8). In our 2010 survey, only 18% were most concerned about offshore competition, and in 2009, that figure was only 11%.

Funding for early-stage companies remains a top concern for service providers, with 16% citing it as the biggest single risk facing their companies in 2011, versus 12% in 2011. The increase in concern over funding is a bit surprising because industry data show that investments into early-stage companies have improved this year, but the experience of the 2008–2010 period has made service providers aware that the funding environment can change quickly.

Service-provider concerns over cuts in R&D spending at global bio/pharmaceutical companies declined in 2011 compared with 2010. This change is somewhat surprising because global bio/pharmaceutical companies continue to trim their spending and portfolios. The decline probably reflects the fact that fewer service providers have exposure to the global bio/pharmaceutical companies because those companies are reducing the number of vendors they work with.


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