Contract research market eyes growth

WELLESLEY, Mass.—Economic uncertainty, increased genericcompetition, declining R&D productivity, rising drug development costs,patent concerns—these current challenges plaguing pharmaceutical andbiopharmaceutical companies are driving them to contract with outside companiesfor various research-related services, according to two recent market researchreports.

According to one report, "Contract PharmaceuticalsManufacturing, Research and Packaging," from BCC Research, the global market forcontract pharmaceuticals was worth an estimated $177 billion in 2009, and isexpected to increase to $299 billion in 2014, for a five-year compound annualgrowth rate of 11.1 percent.

"Many pharmaceutical companies choose outsourcing as anoption, or choice, to better market their products without spending time indrug discovery and the manufacturing process," the BCC Research report states."These pharmaceutical companies rely on contract manufacturers andresearchers."

Shalini Shahani, the analyst responsible for the report,says that reliance comes from cost pressures, globalization, complex pricingand regulatory environments that are forcing pharmaceutical andbiopharmaceutical companies to focus on improving operational efficiency.

"The costs of developing a new drug have reached recordlevels in the pharmaceutical industry," Shahani says. "As any failure of a newdrug candidate can lead to significant losses, many pharmaceutical companiesare looking for new approaches to reduce their exposure to R&D risks.Pharmaceutical companies have long recognized the need to leverage in-houseresources with specialized, competent partners. In many cases, mastering theentire skill range within the industry is no longer a viable option for smallercompanies. Even large, well-established manufacturers may lack the flexibilityneeded to implement and perform critical projects timely. Outsourcing has alsobecome a strategy of choice for moving multiple projects forwardsimultaneously."

But while most companies recognize the strategic importanceof outsourcing, few are reaping its potential benefits, Shahani points out.

"Manufacturers can maximize productivity and focus internalresources on core competencies with a well-designed outsourcing strategy," shesays. "Where once only routine manufacturing-related tasks were outsourced,today drug and biopharmaceutical companies use outsourcing partners for highlyproprietary operations, such as lead development and even many businessprocesses."

Contract manufacturing arrangements offer several benefitsfor pharma and biotech companies, such as eliminating the need to purchase orrent production facilities, buy equipment, purchase raw materials or hire laborand train employees for production—all functions which can give a company theagility it needs to stay competitive in a turbulent market, Shahani says.

"In the pharmaceutical industry, contract manufacturers actsas a stress-relieving medication that help to reduce the market pressures suchas patent expiration and the demand for generics, discovering off-label usesfor current formulas, pressure to speed up clinical trials, or keeping abreaston the development of new processes," Shahani says. "Outsourcing for theapplication of new technologies to the existing products is also a valuablesource to extend the product life cycle because new technologies in drugdelivery systems allow for reformulations of existing products. With new demandfrom new markets and new diseases comes new regulation, as governments step into monitor and control the development and manufacturing process.Pharmaceutical contract manufacturers who specialize in clinical trials canalleviate that concern."

The BCC Research report also found that the U.S. has thelargest market for contract services, and the companies most actively engagingin outsourcing are Abbott, Elan, Boehringer Ingelheim, Baxter, Mallinckrodt/Covidien, King Pharmaceuticals, Norwich and Ranbaxy.

Another firm, the International Association of OutsourcingProfessionals (IAOP), finds outsourcing to be an equally viable industry, butthe Poughkeepsie, N.Y.-based association predicts that global economicuncertainty will continue to impact the industry.

"Coming off a year of tremendous pressure, the outsourcingindustry is expected to enter the next decade with positive signs ofrebounding," says IAOP Chairman Michael Corbett. "As companies recover fromthese tough economic times, outsourcing will enable them to emerge as leadersin the new global economy."

Global economic uncertainty, currency fluctuations and othermarket forces will encourage increasing levels of mergers and acquisitions on aglobal 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; companiesmaking use of advanced management practices, tools and technologies such as ORMand cloud computing to provide operational flexibility; and increasedenvironmental awareness and social responsibility.

Finally, the IAOP says it expects to see growth in newgraduate hiring in emerging outsourcing locations as well as wage increases of8 to 10 percent in India and many other Asia Pacific locations, while the U.Sand Western Europe will see much smaller raises.