EVENTS | VIEW CALENDAR
Contract research market eyes growth
WELLESLEY, Mass.—Economic uncertainty, increased generic competition, declining R&D productivity, rising drug development costs, patent concerns—these current challenges plaguing pharmaceutical and biopharmaceutical companies are driving them to contract with outside companies for various research-related services, according to two recent market research reports.
According to one report, "Contract Pharmaceuticals Manufacturing, Research and Packaging," from BCC Research, the global market for contract pharmaceuticals was worth an estimated $177 billion in 2009, and is expected to increase to $299 billion in 2014, for a five-year compound annual growth rate of 11.1 percent.
"Many pharmaceutical companies choose outsourcing as an option, or choice, to better market their products without spending time in drug discovery and the manufacturing process," the BCC Research report states. "These pharmaceutical companies rely on contract manufacturers and researchers."
Shalini Shahani, the analyst responsible for the report, says that reliance comes from cost pressures, globalization, complex pricing and regulatory environments that are forcing pharmaceutical and biopharmaceutical companies to focus on improving operational efficiency.
"The costs of developing a new drug have reached record levels in the pharmaceutical industry," Shahani says. "As any failure of a new drug candidate can lead to significant losses, many pharmaceutical companies are looking for new approaches to reduce their exposure to R&D risks. Pharmaceutical companies have long recognized the need to leverage in-house resources with specialized, competent partners. In many cases, mastering the entire skill range within the industry is no longer a viable option for smaller companies. Even large, well-established manufacturers may lack the flexibility needed to implement and perform critical projects timely. Outsourcing has also become a strategy of choice for moving multiple projects forward simultaneously."
But while most companies recognize the strategic importance of outsourcing, few are reaping its potential benefits, Shahani points out.
"Manufacturers can maximize productivity and focus internal resources on core competencies with a well-designed outsourcing strategy," she says. "Where once only routine manufacturing-related tasks were outsourced, today drug and biopharmaceutical companies use outsourcing partners for highly proprietary operations, such as lead development and even many business processes."
Contract manufacturing arrangements offer several benefits for pharma and biotech companies, such as eliminating the need to purchase or rent production facilities, buy equipment, purchase raw materials or hire labor and train employees for production—all functions which can give a company the agility it needs to stay competitive in a turbulent market, Shahani says.
"In the pharmaceutical industry, contract manufacturers acts as a stress-relieving medication that help to reduce the market pressures such as patent expiration and the demand for generics, discovering off-label uses for current formulas, pressure to speed up clinical trials, or keeping abreast on the development of new processes," Shahani says. "Outsourcing for the application of new technologies to the existing products is also a valuable source to extend the product life cycle because new technologies in drug delivery systems allow for reformulations of existing products. With new demand from new markets and new diseases comes new regulation, as governments step in to monitor and control the development and manufacturing process. Pharmaceutical contract manufacturers who specialize in clinical trials can alleviate that concern."
The BCC Research report also found that the U.S. has the largest market for contract services, and the companies most actively engaging in outsourcing are Abbott, Elan, Boehringer Ingelheim, Baxter, Mallinckrodt/Covidien, King Pharmaceuticals, Norwich and Ranbaxy.
Another firm, the International Association of Outsourcing Professionals (IAOP), finds outsourcing to be an equally viable industry, but the Poughkeepsie, N.Y.-based association predicts that global economic uncertainty will continue to impact the industry.
"Coming off a year of tremendous pressure, the outsourcing industry is expected to enter the next decade with positive signs of rebounding," says IAOP Chairman Michael Corbett. "As companies recover from these tough economic times, outsourcing will enable them to emerge as leaders in the new global economy."
Global economic uncertainty, currency fluctuations and other market forces will encourage increasing levels of mergers and acquisitions on a global basis, particularly among service providers, according to the IAOP. Other factors leading companies to outsourcing, according to the association, will be increased government regulations and the resulting need for compliance; growth in new graduate hiring in emerging outsourcing locations; companies making use of advanced management practices, tools and technologies such as ORM and cloud computing to provide operational flexibility; and increased environmental awareness and social responsibility.
Finally, the IAOP says it expects to see growth in new graduate hiring in emerging outsourcing locations as well as wage increases of 8 to 10 percent in India and many other Asia Pacific locations, while the U.S and Western Europe will see much smaller raises.