Jim Miller
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If there really can be "too much of a good thing," providers of contract development services may be experiencing it. Contractors
are having to admit that the robust demand for services arising from the surging new drug pipeline may be pushing them to
the limits of their ability to deliver.
That's a key insight gleaned from the 2007 survey of market conditions conducted by PharmSource in conjunction with BioPharm International and its sister publications Pharmaceutical Technology and Pharmaceutical Technology Europe. The survey was conducted in May and received 544 responses, including 432 from biopharmaceutical companies and 112 from
service providers. All respondents were involved in buying or providing chemistry, manufacturing, and controls (CMC) services,
including analytical chemistry and microbiology, formulation, process development, packaging, and API and dose manufacturing
Service providers themselves report that rapid growth is causing strains. Nearly 55% of CROs admit that lack of capacity is
constraining their ability to take on new business; that's up from 43% in 2006. Customers have noticed how busy their suppliers
are: in this year's survey, 30% say that contractors appear to have all the work they can handle; up from just 13% in 2006.
Figure 1
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Interestingly, staffing is not the biggest problem facing service providers; rather, it's their ability to manage the growth.
The biggest single constraint cited by service providers is organizational processes, with inadequate capital to fund growth
a close second. When asked whether their management and systems were adequate to handle growth of 20% or more, only one-third
indicated that their systems and management are up to the task (Figure 1). A quarter of contractor respondents admit that
neither their systems nor management are adequate to handle current growth, while the rest concede that one or the other is
lacking.
ROBUST DEMAND
The capacity problems reflect an unprecedented level of activity in the development services industry. More than a quarter
of service providers expect revenues to grow by 20% or more this year; only 15% of contractor respondents expected such robust
results in last year's survey. The growth is coming from all customer segments, with mid-size and generic bio/pharmaceutical
companies showing particularly big jumps.
The contractors' success is mirrored in the responses from bio/pharmaceutical company professionals, 94% of whom report an
increase in spending on outsourced activity for the year. The survey results indicate that the growth reflects a fundamental
move in favor of outsourcing rather than doing things in-house. Among bio/pharmaceutical company respondents, 27% reported
that their spending on contract services is growing faster than their overall spending, up from just 18% of respondents in
last year's survey. Over 20% of respondents report that half or more of the spending in their particular area is outsourced;
that's more than double the response from 2006.
The increase in spending is remarkably consistent across company size, and rates of growth for spending on commercial and
development services are also about the same.
The growth in spending has created a more fluid contract services market that offers more opportunities for service providers.
Among bio/pharmaceutical company respondents, 57% report that they are actively looking for new service providers, either
to increase their vendor base or to replace current providers; that's up from 37% in 2006. Only 5% of respondents say they
are sticking just with current vendors.
SERVICE QUALITY CONCERNS
That search for new vendors may also reflect growing dissatisfaction with current vendor relationships. The survey suggests
that service providers do not fully appreciate how their growing pains are impacting their customers.
