The global financial outlook is not likely to improve in the foreseeable future. The outlook in Europe remains highly uncertain,
with further cuts in government expenditures likely and the survival of the euro zone at risk. Deep budget cuts are coming
in the United States, where the aging population and the need to cut budget deficits will put severe pressure on Medicare,
the large government-sponsored healthcare program.
These macro environmental challenges and uncertainties compound the bio/pharmaceutical industry's internal challenges, most
notably the decline in revenues resulting from patent expiries. Under these circumstances, the outlook for bio/pharmaceutical
R&D spending would seem to indicate little or no growth in coming years.
The difficult R&D environment will have a mixed impact on the bio/pharmaceutical services industry. Bio/pharmaceutical company
efforts to control R&D costs have helped the contract-services industry, and the penetration of outsourcing is likely to grow,
especially in the nonclinical-development segment. However, those benefits will not be equally shared among all industry participants.
Thanks largely to the efforts of the global bio/pharmaceutical companies to reduce the number of vendors they work with, a
select number of preferred providers is benefiting disproportionately from the outsourcing trend. The clinical-development
services segment has already consolidated into a handful of major CROs with large market shares, and we are seeing evidence
of a similar consolidation in the nonclinical-development segment although the pace is slower. CROs and CDMOs that don't achieve
preferred-provider status will be left to fight over limited opportunities among small- and mid-size bio/pharmaceutical companies.
The pharmaceutical services industry has traditionally risen and fallen with the R&D spending tide. When the tide has been
high, most of the companies in the industry have prospered, but when the tide has gone out, all the participants have suffered
more or less equally. If we are going into another period of industry weakness, the pain is not so likely to be shared this
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Oursourcing Report, tel. 703.383.4903,
fax 703.383.4905, firstname.lastname@example.org
1. J. Whalen, "Europe's Smaller Drug Firms Feeling Pain," Wall Street Jrnl., Oct. 28, 2011.