Last week, online, Frost & Sullivan analyst Somya Datta dropped a ton of facts, figures and projections about global pharmaceutical outsourcing on those listening in on her quarterly briefing from India. Here’s what we learned:
Datta, of Frost & Sullivan’s economics research and analytics division, said that the global pharmaceutical market reached $663 billion in 2007, and that those numbers are slated to double by 2018.
Since the 1970s
Datta noted that pharmaceutical companies began outsourcing operations in the 1970s. Initially, non-core functions (think IT, payroll, finance) were outsourced, she said. But by the 1990s, core services (clinical trial management; manufacturing) were on the table. Now, she said, drug companies even outsource scientific discovery operations.
“Drug discovery has become increasingly complex since the 1990s, because of advancements in molecular biology, the emergence of biological therapies and other new technologies,” said Datta. “This has made it impractical for companies to undertake it in-house. Hence companies are choosing to outsource it frequently.”
Last year, by Frost & Sullivan’s calculation, pharma and biotech companies spent $57 billion on outsourcing. Contract research organizations (CROs) got almost 30 percent, or $17 billion, while contract manufacturing organizations (CMOs) got 68 percent, or $40 billion.
That $57 billion is expected to surge into the $80 billion range by 2011 (a 40 percent jump). Outsourcing in the industry is expected to grow by 13 percent annually through 2013. U.S. companies in particular outsource 40 percent of their clinical trials. That’s expected to rise to 65 percent by 2013, said Datta.
Said Datta: “Outsourcing is faster, giving access to therapeutic expertise, and increasing the chance of hit-to-conversion ratio, and letting one identify an unsuccessful compound in the early life cycle.”
Trends seen in outsourcing include more pharma companies forging risk-and-reward sharing arrangements with CROs, as well as doing functional outsourcing, and preferred outsourcing provider (master service) agreements, she added. She predicts the industry will use a mixture of all such appproaches, not gravitate toward one specific model.
Datta discussed several markets in detail. Russia is growing its Phase II activity, but saw an 18 percent drop in Phase III projects, according to Frost & Sullivan. Poland is a growing market but one that is struggling with bureaucracy. Frost & Sullivan says Poland could surrender its second-place rank in Eastern Europe (to Hungary or Romania) as sponsors shift business elsewhere.
Datta said China looks poised for the most growth. It cut its approval time for projects in half last year. That country is currently strengthening intellectual property rights, with stiff penalties for infringement. Chinese CROs are launching in numbers large enough to soon rival those of international CROs doing business there, Frost & Sullivan says.
India is still a powerhouse, though, and will likely remain so. In 2007, 139 trials were outsourced to India, compared to 89 to China. India has the highest number of FDA-certified manufacturing facilities outside the U.S., and more than four times the drug manufacturing staff in the U.S. The companies that outsourced the most to India in 2007 were Johnson & Johnson and GlaxoSmithKline, which together comprised about 30 percent of the clinical trial market in India. The CRO market there is expected to grow 22 percent annually, while manufacturing is slated to grow by a whopping 41 percent annually.
Brazil is another bright spot, said Datta. Though in 2006 Mexico had 37 percent of the Latin American clinical trial market, Brazil is a close second with 28 percent; the Brazilian government is revising clinical trial regulations to raise standards. And for now, that level of activity dwarfs what is happening in Asia: in 2007, about 645 trials were being conducted in Brazil.
—by Suz Redfearnd9A2t49mkex