New Report Helps Forecast Next 5 Years Of Outsourcing

By Louis Garguilo, Chief Editor, Outsourced Pharma

Discerning growth opportunities (or business contractions) in the drug development and manufacturing outsourcing space – we’re talking such things as supply-chain capacity, service-provider profitability, new capabilities and technologies – is a challenging exercise.

Among other things, it requires reading between the lines of various industry reports ostensibly concentrating otherwise, for example on measuring specific therapeutic or international markets, comparing commercial product sales, and sizing up R&D pipelines.

This isn’t dissimilar to other industries. For example, take a look sometime at the gyrating gymnastics IT-industry analysts go through to forecast semiconductor supply-chain suppleness for the production of mobile devices, or the full IoT (internet of things).

An “otherwise” focused report worth our attention is the EvaluatePharma World Preview 2017, Outlook to 2022. This is a five-year forensic focused mainly on prescription drug sales and markets, but one that Outsourced Pharma readers may want to apply to your contract drug development and manufacturing arena.

Something Has To Give

The Evaluate Pharma report is based on coverage of the world’s leading 6,500 pharmaceutical and biotech companies. It includes analysis on pharma innovation and “insights into pipeline value creation through 2022.”

First, the big picture: Although minimal, still very much notable is a downgrade to the long-term overall pharma sales projection, the first decrease in the report’s ten-year history.

This year’s report forecasts prescription drug sales to grow to $1.06 trillion worldwide by the time we reach 2022. That’s an anticipated annual compound growth of 6.5%, and slightly below last year’s “consensus forecasts” of $1.12 trillion.

Most poignant to Outsourced Pharma readers is one of the reasons cited for the decline: the rising cost of R&D. The report pins the average spend per NME at $4 billion over the last 10 years. The emphasis is mine: that number registers high on the sticker-shock scale.

The report points to other reasons for diminished sales expectations, such as political uncertainty, and a forecasted “$194 billion worth of sales at risk, as products come to the end of their patent life.” This prompts a warning of the potential for the industry’s second major “patent cliff,” with the report noting particularly the “rate and level of erosion of sales of some of the industry’s biggest biologics, many of which are facing multiple incursions on their revenues from biosimilars.”

And of course there’s the intense societal pressures continuing to build over the cost of prescription drugs (and all healthcare), particularly in the U.S. So while the costs of bringing a new drug to market continues to escalate for drug companies, consumers match that growth with an equally rising displeasure that drug prices are too high.  

Something, as they say, has to give.

Focus On Costs … Or Maybe Not

Will it be the outsourcing segment of the industry that has to “give”? That’s our specific concern, precisely because the external development and manufacturing services and products offered to drug owners, as practical application or at least in the long run, form today’s supply chains with an objective to cut down on drug development and manufacturing costs.

Perhaps, then, there are three main ways this can go: Either drug sponsors decide to outsource more to double down on their attempts to reduce costs for bringing drugs to market, or they decide the outsourcing model doesn’t provide the anticipated relief and begin to pull back, or they continue to try out new outsourcing models.

Considering the third option, what are the current models being employed? Interestingly, the prevalent thinking is outsourcing must be less wrapped around the initial costs of services, and more around partnerships for the creation (or co-creation) of ultimate value.

So at the same time price tags for drug development move appreciatively to the north, we hear both sponsors and providers say the industry needs to move away from a penny-wise, pound-foolish contracting of services, and towards collaborative supplier partnerships that they say will in the end bring overall cost benefits.

Now those are results we’d all like to find a way to measure directly. 

Otherwise, Still Important To Us

Elsewhere in the report, and unsurprisingly, we are informed most growth in pharma sales is set to come from the industry’s “hottest therapy areas,” including new cancer immunotherapies, such as Opdivo and Keytruda, “as well as much higher-risk assets like Biogen’s Alzheimer’s project aducanumab.”

Orphan drugs are expected to be responsible for a third of this rise in sales – “an uptick that is forecast to come even as these niche medicines are coming under increasing scrutiny over pricing.” Of course the influence of the outsourcing industry on this trajectory of orphan drugs should not be underestimated. Without the outsourcing model, how many of these small-market drugs could have made it to market with any chance of profitability, or offering any good business arguments for companies or stockholders?

Another subject we’ve discussed in these pages and in great detail at our Outsourced Pharma Conferences, the role of technology, is explained in the report as “outpacing pharma innovation.” That is, technologies are emerging but not finding their way into innovative solutions yet. This sentiment in the report is applied to such areas as remote monitoring and patient care, but to an extent can also be said of our development and manufacturing supply chain. Perhaps of all areas, here is one where appreciable advancement is waiting to happen, and could lead to equally appreciable returns.

Let’s end with four summary highlights from the report. Make of them what you will; apply them as you can. Little today notable in our overall industry isn’t also important to some of us somewhere within the outsourcing arena, and somehow an influence on our evolving sponsor-partner relationships.

• Biologics will contribute 52% of the top 100 product sales by 2022. (For more background on this, see the Outsourced Pharma article: Biologics Staying Home, CMOs Destination For Small Molecules.)
• Oncology remains the largest therapy area in sales (+12.7% CAGR), 2016-22.
• Worldwide pharmaceutical R&D spend is expected to grow by 2.4% (CAGR) to $181 billion in 2022.
• New drug approvals in 2016 dropped to 27 NMEs, down 50% vs. the record high of 56 in 2015; however, there’s a positive trend in the first 5 months of 2017, with 21 NMEs already approved.