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Fundamentals Stay Strong for Pharma Contract Services Industry
The market for contract services serving the pharmaceutical industry is expectedto remain strong in 2006. This growth is marked by the continuing trends by BigPharma to consolidate its spending with preferred providers, the increased roleof procurement in service buy, and a gradual movement to outsourcing to Asia.
These were the key points outlined by Jim Miller, president of PharmSourceInformationServices Inc. (Fairfax, VA, www.pharmsource.com). Miller spoke at the Drug,Chemicaland Associated Technologies Association’s (DCAT, Robbinsville, NJ, www.dcat.org)International Business Development Forum, which was held as part of DCAT Weekin New York City this week.
“We expect to see continued growth for outsourced services by pharma, whichislargely driven by cost,” said Miller, which continues a trend outlinedin PharmSource—Pharmaceutical Technology’s 2005 Outsourcing Survey(see “Good Times and Expanding Horizons in Pharmaceutical Manufacturing,” Pharm.Technol. Outsourcing Resources supplement, www.pharmtech.com). “Three importantfactors are contributing to this trend: an expanding new product pipeline inearly-stage development, more outsourcing by Big Pharma to address the need tocut costs, and more complex studies, particularly in the proof-of-concept stageleading to outsourcing of formulation services earlier in the process,” saidMiller.
Big Pharma is leading the way in favoring preferred providers, with more than50% of spending on outsourced services going to preferred providers. “Althoughthe trend may be leveling off, not much change is expected by 2007,” saidMiller.
The increasing role of central procurement is another key trend. “Thisreflects the growing importance of cost,” said Miller, who pointed outthat the size of a company typically dictates the role that procurement plays. “Particularly,among Big Pharma, where many companies have announced cost-reduction programs,the survey shows procurement is more involved in the decision-making processfor outsourcing, and procurement departments have added technical staff as thatinvolvement has increased. We see procurement having the largest influence amongBig Pharma, then mid-sized pharma companies. Small Pharma companies have fewertransactions and controls,” he said.
Meanwhile, sourcing from Asia is still in its early stages. “The chemistrysupply base is most developed, but sourcing from Asia of non-chemistry contractmanufacturing services is moving very slowly,” said Miller.
As would be expected, generic drug companies lead actual sourcing or plans forsourcing from Asia. Roughly 30% of generic drug companies surveyed source fromAsia and nearly 30% say they are developing a plan to do so. Another 10% indicatethat they are committed to developing a sourcing strategy for Asia.
Roughly 15% of Big Pharma companies are either actively sourcing from Asia, another15% say they are committed to sourcing in Asia, and 12% are developing a strategyfor Asia based on the survey results, said Miller. Among mid-sized pharmaceuticalcompanies, roughly 30% are developing a strategy for sourcing in Asia, 12% arecommitted to sourcing in Asia, and just over 5% are actively sourcing from Asia.
For small companies, plans for sourcing from Asia, commitments to source fromAsia or active sourcing from Asia is only at roughly 10%. “Small Pharmalacks the pipeline to justify the sourcing overhead,” said Miller.