Modest outlook for 2014
Figure 6: How will your contract services spend change next year?
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
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
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.
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.
Figure 7: How have you managed the number of contractors you work with?
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, firstname.lastname@example.org, www.pharmsource.com.