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 6: How will your contract services spend change next year?
Modest outlook for 2014
Responses from bio/pharma company professionals suggest that 2014 should be another year of modest growth for contract service providers (see Figure 6). A full third (33%) of respondents expect their contract services spend to grow by 10% or more in 2014, which is promising but well below the 47% in last year’s survey that foresaw 10+% growth for 2013. Further, 37% don’t expect their spending to grow at all in 2014, which is up sharply from the 15% projecting no growth in 2012.

What it means
In our minds, 2013 represents a return to normalcy for contract services. The bio/pharmaceutical industry seems to have worked through the adjustments and uncertainties caused by the patent cliff, big mergers among the global bio/pharma companies, and the global financial crisis. If 2012 looked to deliver more upside surprises for contract services, that was mainly because the industry was finally benefiting from a general recovery in drug-development activity that many CDMOs didn’t dare budget for.

Still, there are some warning signs in the data that shouldn’t be overlooked. The dependence of the contract services industry on the overall level of development activity is hardly surprising, but experience has shown that development activity is cyclical. Big mergers, global financial market conditions, or waves of clinical candidate failures can abruptly disrupt development activity.

Today, preclinical and Phase 1 clinical research service providers are suffering from the dearth of early-development candidates brought on by funding constraints on early-stage companies and the restructuring of the R&D model at global bio/pharma companies. The paucity of preclinical and Phase 1 candidates will soon be felt by CMC (chemistry, manufacturing, and controls) service providers as the inventory of development candidates shelved during the financial crisis is worked off. Recent financial market developments, notably the reopening of the window for initial public offerings, may attract new capital to the industry, but it will be some time before the impact of that new money is felt.

Figure 7: How have you managed the number of contractors you work with?
Another danger for contract service providers is that in good times like these, they can become complacent in service delivery and the acquisition of new business. The 2013 survey confirmed what we have seen in past years, namely that there is a wide gulf between clients and CDMOs in how they perceive the quality of their services. While the gap in expectations and perception will never be fully closed, the fact that it hasn’t narrowed over the five plus years since we started asking the question suggests that service providers have not done enough to improve service or set reasonable expectations.

The survey data also suggest that complacency is an issue in new business development. The level of new client prospecting seems to have gone down dramatically: in 2013, only 22% of CDMO respondents indicated that more than half of their proposals were going to new clients; in 2012, 39% indicated that most of their proposals were going to new clients. This is especially unfortunate because bio/pharma company respondents indicated some increased willingness to consider new service providers (see Figure 7).

Results from this year’s PharmSource--Pharmaceutical Technology Outsourcing Survey confirm the industry is experiencing a robust market for contract services. Whether it stays that way will partly depend on external developments, but also on the efforts of contract services providers themselves.

Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905,,


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