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?
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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?
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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
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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
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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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