Stability Reigns in Contract Services - Pharmaceutical Technology

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Stability Reigns in Contract Services
The PharmTech/PharmSource annual outsourcing survey results suggest that CDMOs may be getting complacent.

Pharmaceutical Technology
pp. s8-s14

Figure 3: Which client segment has been the best performing in your company this year?
Changing customer mix
The most striking result in this year’s survey is the shift in where CDMOs say their business is coming from (see Figure 3). In this year’s survey, only 5% of sell-side respondents indicated that small bio/pharma companies have been their best-performing clients. That is a big drop from previous years.In the four years before 2013, the share of respondents indicating that small bio/pharma companies have been their best-performing segment averaged 22%. The drop undoubtedly reflects the difficult funding conditions that early-stage companies have faced in recent years.

Mid-sized and specialty pharma companies are again viewed as the best performing customer segments, with 30% of respondents citing them as their best performers. The perception of mid-sized companies as top performers has increased steadily over the past five years, and probably reflects the fact that those companies have steadily grown their R&D spending while activity in other customer segments has been more volatile.

The share of respondents citing generic-drug companies as their best-performing customers has also grown steadily; 28% of CMO respondents cited them this year. The reasons for this development need to be explored more. They may relate to the cost and quality advantages of contract service providers, but the trend may also reflect the growing number of new drug applications being filed by generic-drug companies.

Only 15% of CDMO respondents cited global bio/pharma companies as their best performers this year. That’s down from 20% in 2012 and continues a downward trend since 2009. This reflects the tepid growth in R&D spending at global bio/pharma companies and the reduced opportunities resulting from efforts to reduce the number of vendors that companies work with.

Figure 4: What is the single biggest risk to your business in the next two to three years?
Concern over competitive threats
As the market for contract services has stabilized, service providers have moved from worrying about demand-related factors to concerns about the competitive environment (see Figure 4). Our 2013 survey saw a big decline in the share of sell-side respondents concerned about R&D spending cuts and supplier consolidation initiatives at global bio/pharma companies as well as a decline in those worried about funding for early-stage companies. Service provider concerns now appear to be focused on competitive issues, especially competition from suppliers in emerging markets and the implications of too much industry capacity.

Figure 5: Plans for sourcing in India and China
Results from buy-side respondents suggest those concerns may be misplaced. The 2013 survey found a slight decline in the share of bio/pharma company respondents actively sourcing from India and China, and a significant increase in respondents indicating they have no plans to source from suppliers in those countries (see Figure 5). Those responses are consistent with a general sense in the market that interest in sourcing from emerging-market supplies is waning due to eroding cost advantages, concerns about quality, and the complexity of overseeing suppliers halfway around the world.

While competition from emerging markets may be waning, the market overall continues to be competitive and service providers remain willing to deal. In this year’s survey, 52% of bio/pharma company respondents indicated that vendors are willing to cut price to get their business; this is the same percentage in the four previous surveys.


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