The move to outsource operations continues to rise as service offerings broaden beyond the traditional contract services, but the ability for service providers to make good margins remains difficult in this competitive market
The sheer size and complexity of the outsourcing market make estimates of its global value difficult and arguably somewhat meaningless. However, market research group Visiongain predicts the world market for contract pharma manufacturing will reach US$69.7bn in 2017.1 Market researcher Frost & Sullivan (F&S), meanwhile, puts earned revenue at $13.43bn in 2012 and estimates this will reach $18.49bn by 2017.2 What can be said with certainity is that the sector is growing and encompasses ever more services and offerings.
‘Emphasis on complex disease areas, trends in disease control, growth in emerging markets and reformulation of existing products have widened the scope of the contract manufacturing market,’ says F&S. It also predicts that ‘investments and capacity expansions in the injectable dose formulation segment are likely to be the most significant source of income for the global pharmaceutical contract manufacturing industry’. According to F&S analyst Aiswariya Chidambaram, cytotoxics manufacturing still offers immense growth potential, given the demand from the cancer research and therapy segments.
Despite the growth, many companies in the contract sector have suffered recently from pressure on margins and fierce competition. F&S says many contract manufacturing organisations (CMOs) are relying on one client for more than 50% of their revenue. ‘Coupled with huge tax incentives and lower inventories for low-volume products, this creates immense pricing pressures for CMOs.’
Traditionally, the US and Europe have been the major markets for outsourcing finished dose formulations and sterile preparations, while Asian CMOs have been preferred destinations for active pharmaceutical ingredients, intermediates and generics. However, given the immense cost benefits, Asian CMOs, such as those in India, China and Singapore (once having proved their quality credentials), are likely to emerge as favourable destinations, particularly for solid dose formulations.
To maintain a competitive edge amidst stiff competition, CMOs are striving to provide a greater value proposition for clients by engaging in early life-cycle stage projects and establishing long-term relationships. Promoting additional services such as formulation improvements, alternative dosage forms, real-time order tracking and logistics support will also be necessary to attract new customers.
Similarly, the total combined peer group revenue from Contract Research Organisations (CROs) increased by 10.2% year-on-year, from $12.4bn in 2011 to $13.6bn in 2012, says research and consulting firm GlobalData.3 According to the company’s latest report, Quintiles is the market’s largest CRO, and contributed approximately $397m to the $1.2bn market increase. Quintiles’ revenue grew by 12.1% year-on-year to $3.7bn in 2012, demonstrating considerably larger growth than its closest rival, Covance, which grew at 4% year-on-year to $2bn, GlobalData says.
With the demise of the blockbuster, contract manufacturers need to be more flexible in the services they offer
Analysis of the European CRO markets reveals that they achieved revenues of approximately $6bn in 2011 and are forecast to reach $11.54bn by 2018. Europe is ranked second, after the US, in the global CRO market, accounting for approximately 26%. Phase III clinical trials account for the largest share (22.7%) of the total CRO market in Europe. However, the study says the increase in the number of CROs in the Eastern European and Asian regions is impeding market growth in Western Europe due to economic constraints. BRIC and other emerging regions saw a flood of investment and business activity from CROs in 2012. Combined peer group revenue in the BRIC regions increased by 14.6% above 2011 levels to $394m in 2012. GlobalData expects this trend to continue into the near term, with CROs looking to increase their share in these lucrative markets.
Countries such as China and India no longer lag in technology and are already set up to cater for new markets such as biopharmaceuticals. According to Research and Markets, the combined value of the Chinese biopharma outsourcing market will reach around $1.3bn by 2018, accounting for about 8% of the global biopharma outsourcing market by then.4 The current market size of the biologic drug discovery research service in China has reached around $95m, already accounting for about 5.4% of the corresponding global market. In the past four years (2009–2012) it has been growing at a CAGR of about 34%. The research company forecasts that the market may reach $450m by 2018 and could account for approximately 8% of the global biologic drug discovery research service market.
The current biomanufacturing service market in China is about $170m with a CAGR of about 24% during 2009–2012, accounting for roughly 3.5% of the global bio-CMO market.
The other trend changing the outsourcing market is the increasing globalisation of clinical trials. The US represents the largest market worldwide; however, growth would be led by Asia-Pacific, which is projected to be the fastest-growing region during the analysis period and is presently witnessing a huge surge in contract research outsourcing of a wide range of tasks, including clinical trials. The existence of a large pool of drug-naïve populations is also resulting in conducting the largest number of clinical trials in Asia.
According to Research and Markets, another fast-growing area is in the protein therapeutics market. Recent analysis has found that, driven by the increasing prevalence of chronic diseases, a large number of market players have been developing therapies based on monoclonal antibodies (mAbs), and the market has been forecast to increase at a CAGR of 7.08% through to 2016. This has provided an opportunity for specialist services in this area. The US currently holds a dominant position in the global protein therapeutics market as the country provides a major proportion of product sales. However, the future landscape of the market may find positive developments from the Asian countries.
1. Visiongain, Pharma Contract Manufacturing: World Market Outlook 2013–2023 www.visiongain.com
2. Frost & Sullivan, Analysis of the European Contract Research Outsourcing Markets www.healthcare.frost.com
3. GlobalData, PharmaLeaders: CRO Benchmark Report – Financial Benchmarking & Competitive Landscape Assessment of Leading CROs www.globaldata.com
4. Research and markets www.researchandmarkets.com http://www.researchandmarkets.com/research/jvnkl7/outlook_of_china