Outsourcing: Robust Market Testing CROs' Ability to Deliver

Many service providers admit that their systems and management are inadequate to handle current growth—and more demand is coming in 2008
Sep 01, 2007
Volume 20, Issue 9

Jim Miller
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
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.


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.


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.

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