The contract manufacturing outsourcing market is one of the fastest growing segments in the pharmaceutical and biotechnology industry. Despite the recent economic downturn, the market continues to grow at a rapid pace of about 10% to 12% year-on-year (YoY) in comparison to growth projections of 14% to 15% in 2007–2008 before the slowdown. In the mid- to long term, the growth rates are expected to pick up pace, although a higher base effect combined with greater penetration is likely to have an impact on the overall scale of growth.
The downturn has had a significant impact on small- to mid-size sponsors, which have been outsourcing a greater percentage of their manufacturing compared to larger companies. Smaller companies have had issues with funding, especially early-stage projects, which have, in some cases, resulted in payment delays and even defaults.
Larger sponsors, however, are looking to lower their costs as well as improve productivity by spinning off or selling their noncore activities such as manufacturing, which favors the service providers by enabling them to garner a greater share of the business and also potentially expand their services by acquiring these business segments. As a result of these restructuring exercises, we are likely to see a larger number of long-term strategic deals between sponsors and service providers.
The U.S. pharmaceutical contract manufacturing market, which includes solid dosage and sterile and nonsterile semi-solids, is forecasted to grow from $9.3 billion in 2009 to $15.1 billion by 2014 at a compound annual growth rate of 10.1%.
In the short term, it is expected that the slowdown will affect the expansion activities of small to medium contract manufacturing organizations (CMOs) due to tight credits and recessionary effects. However, given the growth prospects for this segment, combined with the flurry of generic versions of major blockbuster drugs, the prospects for CMO growth continue to remain bullish. Additionally, the average manufacturing plant utilization rates at pharmaceutical companies are less than 50%, resulting in several plant closures or sells-offs and increased outsourcing penetration.