Survey Reports Increased Biopharma, Pharma Contract Services Spending In 2014

The 2014 edition of the PharmSource-Pharmaceutical Technology Outsourcing Survey conducted in June, confirms industry expectations for growth in outsourcing, quells fears about low-cost international competition, and forecasts another year of growth for the contract service industry in 2015.

The PharmSource data confirms expectations outlined by Kate Hammeke, director of marketing intelligence at Nice Insight (NI) at the end of 2013. NI predicted that outsourcing spending would “continue to rise modestly in 2014, chiefly because it translates to reduced internal costs.”

Hammeke went on to say that increased regulatory scrutiny would likely make bio/pharma companies more choosy when selecting and forming partnerships with Contract Development and Manufacturing Organizations. This caution is reflected in the PharmSource data.

Though international low-cost competition is still named as the chief fear of CDMOs, data suggest that these fears are based on diminishing evidence. Fifty percent of bio/pharma respondents reported they had no plans to source from low-cost outsourcing alternatives in India or China, which is a substantial increase from 33 percent two years ago.

CDMO business has been so good that many have not felt the need to be as aggressive in soliciting new business than they have been in the past. Over a quarter of respondents indicated they were not seeking new business at all. Of the remaining percentage who were seeking new business, 34 percent were not willing to negotiate on the price.

According to Jim Miller, president of PharmSource, the primary beneficiaries of overall industry growth have been mid-size and early stage bio/pharma companies, who have passed on their “embarrassment of riches” to CDMOs.  

Contractors respondents indicated that small bio/pharma companies comprised 23 percent of their customer base versus five percent in 2013. Miller attributes this growth to “improved VC and partnering funding, …and public equity markets.”

However, Miller warns that the influx of comfortable and stable business is not likely to last.

The substantial growth in small bio/pharma customer base is likely to fluctuate and CMOs and CDMOs should not rely exclusively on business from this customer base. Funding is not always consistent, and since the goal of most early-stage developers is to out-license their drug candidates to big pharma companies (still shown to prefer in-house manufacturing), these smaller companies can’t be depended upon for long-term business.

Still, the data reflects a growing favorable opinion of CDMOs and CMOs overall in terms of technical and operational performance.  One-third of bio/pharma companies expect their contract service spending to increase by another 10 percent in 2015.