All signs point to further healthy growth of the pharmaceutical contract manufacturing market in 2016. For the fourth year in a row, respondents to Nice Insight’s annual survey of outsourcing-facing pharmaceutical and biotechnology executives expect spending on outsourcing to increase over the next five years. Other results of the survey indicate, however, that only service providers that meet specific criteria will be considered for potential partnerships.
Many Drivers of Growth
The strong growth in the pharmaceutical outsourcing sector can be attributed to current global economic trends and pharmaceutical industry dynamics. There are, in fact, numerous influential drivers behind the expansion of pharmaceutical contract development and manufacturing activities. Not the least is increasing demand for medicines around the world, and particularly in developing countries, as the global population ages, the number of patients with chronic diseases increases, and both wealth and more sophisticated healthcare systems become more established in emerging markets.
The recovering global economy and continued high demand for advanced medicines in all regions of the world has provided pharmaceutical companies with the cash needed to invest significantly in discovery and innovation for the last several years. That investment has resulted in very robust pipelines and in part the highest FDA approval rates seen in some time. Indeed, the number of FDA NDA/BLA approvals reached near-peak levels in 2014 and 2015, and similar results are expected going forward, largely due to the greater number of accelerated approval pathways (Fast Track and Breakthrough The-rapy Designations and Accelerated Approval and Priority Review processes).
Those drug candidates are increasingly more complex. Poorly soluble compounds, antibodydrug conjugates (ADCs), and highly potent APIs (HPAPIs) are just a few of the types of compounds under development that require specialized facilities, equipment and operational expertise. The development of orphan drugs and other niche therapies also often require unique combinations of skills. Biologic drugs are now being developed by both traditional pharmaceutical and biotechnology companies; the former lack the expertise for in-house development and manufacturing and are turning to service providers. The numerous small, virtual startups in the latter also lack development and manufacturing capabilities.
Demand Worldwide
At the same time, the movement in mature countries towards evidence-based medicine, with drug companies increasingly expected to provide cost effective treatments that provide significant improvements over existing therapies, and the shift in demand growth to emerging markets where low cost drugs are placing significant cost pressures on drug companies. Increasingly aggressive competition from generics and biosimilars is also requiring new strategies and often proprietary technology to achieve effective lifecycle management (LCM). Outsourcing across the entire drug development cycle is often an effective solution for increasing efficiency and productivity while simultaneously providing access to advanced and differentiating technologies.
A Surge in Spending May Be Underway
The impact of this convergence of influential factors that are driving pharmaceutical outsourcing by drug manufacturers can be directly observed in the results of Nice Insight’s new 2016 CDMO Outsourcing survey of professionals in the pharmaceutical and biopharmaceutical industries. For the fourth year in a row, respondents indicated that their companies dramatically increased spending year-over-year.
The biggest change is occurring at the highest spending level. Notably, from 2012-2014 the percentage of respondents whose companies spent more than $50 million annually on outsourcing remained fairly stable at 24 to 23%. That number nearly tripled to 71% for CMOs and CDMOs in 2016. Meanwhile, the percentages of respondents whose companies spent less than $10 million and $10 to $50 million on outsourcing both decreased from 2015 to 2016 from 16% and 62% to 3% and 23%, respectively. Likewise, manufacturing equipment needs are shifting; as seen in the Nice Insight 2015 Pharmaceutical Equipment Annual Study, 54% of respondents (n=560) indicated that their companies spend over $100 million on equipment per year.
As importantly, 75% of respondents to the new CDMO survey expect their companies to increase expenditures on contract development and manufacturing services over the next five years. Another 18% expect their level of outsourcing to CMOs and CDMOs to remain the same, while just 4% predict a decrease. In addition, 75% of respondents to the CDMO survey use as many as 10 service partners, 7% use 11-20, and 5% use 21-30. Furthermore, 69% of participants in the CDMO survey expert to increase the use of CDMOs and CMOs going forward, with 29% expecting the number of manufacturing partners to remain the same, and only 1% expecting it to decrease.
The dramatic increases in outsourcing by respondents to Nice Insight’s 2016 CDMO Outsourcing survey seem to reflect, at least in part, the strong growth in the number of drug candidates. Just over 50% of respondents to both the CDMO surveys indicated that expanding R&D portfolios are driving their increasing use of outsourcing partners. Company strategies are also shifting towards a larger proportion of outsourced relationships in their supply chains due to the need to address patent life issues, the need for novel delivery forms and other specialized capabilities, and a desire to increase decentralization for greater flexibility. Respondents also indicated that they are increasing their level of outsourcing based on earlier positive experiences.
Regardless of the drivers for outsourcing, the number one goal respondents hope to achieve when outsourcing to CMOs and CDMOs is to improve quality. They also desire to improve time to market, increase efficiency, reduce cost and leverage contractor regulatory expertise. Participants of the 2016 Nice Insight CDMO Outsourcing survey are also looking to gain competitive advantage and access to specialized technical and operational expertise by outsourcing to CMOs and CDMOs.
Those benefits are expected at all development phases, although the largest percentage of respondents (63%) indicated that they are outsourcing Phase II projects to CMOs/CDMOs. A slightly lower but similar number of respondents are using manufacturing services for Phase III (54%), Phase I (53%), and pre-clinical – including discovery phase – (51%) projects. This fairly uniform distribution reflects the recent industry investment in innovation and the currently robust drug pipeline, with drugs steadily moving toward commercialization. Phase IV/Post-Launch projects are outsourced by 39% of respondents to both surveys; the lower percentage reflects the attrition that occurs as safety and efficacy are evaluated. However, combined results of the survey do suggest that new programs designed to weed out unlikely candidates as early as possible in the development process and well before they enter into clinical trials are achieving the desired results.
Preferences Count
The numbers are very encouraging for CDMOs, but they only paint part of the picture. Drug companies are increasing outsourcing, but not to a large number of service providers. Instead they are focusing on developing more in-depth relationships with a limited number of partners that serve as preferred or strategic suppliers. These CDMOs (some CMOs) will offer a combination of high-quality, superior, flexible customer service and novel, proprietary technologies designed to address key customer needs, all at a competitive price (and often through creative contractual agreements).
Indeed, the switch to preferred and strategic suppliers is occurring at the expense of tactical relationships. Nearly half (43%) of respondents to Nice Insight’s 2016 CDMO Outsourcing survey seek “Preferred Suppliers”, up from 35% the previous year, while the preference for tactical suppliers dropped from 35% to 31%. There are always opportunities for CDMOs to win business away from competitors that can’t meet customer expectations; 50% of survey respondents indicated that they would switch CDMOs for poor quality.
A Note on Nice Insight’s New CDMO survey
For the first time since That’s Nice began gathering data on the pharmaceutical and biopharmaceutical contract services markets, in 2016 the original Nice Insight outsourcing survey was divided into two separate surveys in order to focus on the differing aspects of the contract {development and} manufacturing (CDMO) and contract research markets (CRO/Clinical Services). In addition, in recognition of the key trend in this sector toward companies that provide integrated development and manufacturing offerings, the new manufacturing survey specifically explores the use of CDMOs and CMOs for drug substance and for drug product.
The Nice Insight 2016 CDMO Outsourcing survey includes responses from 587 outsourcing-facing pharmaceutical and biotechnology executives.
Importantly, the majority (39%)of survey participants are key decisionmakers (executive/management positions) in their organizations. Professionals with positions in R&D, formulation and analytical (18%), development, production and manufacturing (13%), and operations and engineering (10%) functions are also well represented. As a result, the survey is quite balanced with the opinions of both company leaders and those in the trenches. The new CDMO survey is also truly global in nature, with 56% of respondents from North America, 28% from Asia, and 16% from Europe. The survey also includes input from representatives of biopharmaceutical and pharmaceutical companies of all sizes – large (>$5 billion in annual sales), medium ($500 million to $5 billion), small ($100 to $500 million) and emerging (<$100 million) – with 36%, 43%, 12%, and 9% share, respectively.
These statistics clearly suggest that the results of the new 2016 Nice Insight CDMO Outsourcing survey should be highly indicative of the conditions in the global pharmaceutical contract development and manufacturing sector. Initial analysis of the data also indicates that survey participants utilize contract services in all key pharmaceutical and biopharmaceutical markets around the world. Most manufacturing/ research projects are outsourced in the US (30%), Western Europe (14%), India (12%), and China (9%), but a reasonable amount of activity is also taking place in Singapore and Southeast Asia (7%), Japan and Korea (7%), Argentina and Brazil (7%), Eastern Europe and Turkey (7%) and the Middle East (6%).
To learn more about Nice Insight contact Nigel at [email protected] or visit www.niceinsight.com and the annual study websites: clinical services at www.niceinsightcro.com, contract development and manufacturing at www.niceinsightcdmo.com, pharmaceutical excipients suppliers at www.niceinsightexcipients.com and pharmaceutical equipment (products, systems and services) at www.niceinsightpharmaequipment.com
