Changing customer mix
Figure 3: Which client segment has been the best performing in your company this year?
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.
Concern over competitive threats
Figure 4: What is the single biggest risk to your business in the next two to three years?
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.
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
Figure 5: Plans for sourcing in India and China
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.