The mood at the 2009 installment of InformEX, the exhibition of custom and batch manufacturers, which was held in San Francisco last week, had a decidedly subdued tone. The culprit: the uncertainty of the economy and its implications on spending and financing, particularly for small- to medium-sized pharmaceutical companies.

In speaking with several contract manufacturing organizations (CMOs), there was widespread agreement that the troubling conditions of the US economy as a whole and the resulting curtailment in financing and credit was hurting an important customer base for CMOs: emerging pharmaceutical companies. As one CMO put it: “We see many examples of companies having to put projects on hold as they wait to get financing. Funding from venture capital firms or other private investors has dried up as they are holding onto cash, so that is a source of funding that is not available. Same is true on the lending side as credit and financing continues to be tight.”

Small and medium-sized pharmaceutical companies are an important source of ongoing and new business for CMOs. Although Big Pharma continues its cost-cutting initiatives and states an interest in increasing outsourcing (a positive development for the CMO industry), CMOs point out that the purchasing power of Big Pharma, its interest in consolidating its supplier base, and the keen competition for contracts makes Big Pharma a difficult option to fill the void left by smaller or medium-sized drug companies.

This cautionary tone is reflected in a recent business survey by the Synthetic Organic Chemical Manufacturers Association (SOCMA). SOCMA is the US-based trade association of custom and batch manufacturers, including manufacturers of active pharmaceutical ingredients and intermediates, and its president, Joe Acker, presented the results of the association’s business outlook at InformEX last week.

The survey was conducted late last year: from November 13 through December 22, 2008. Only 37% of respondents characterized current business conditions as “excellent or very good,” in 2008, down from 54% in 2007 and 53% in 2006. In fact, 28% of respondents characterized the market as “fair or poor” compared with only 9% who said so in 2007 and 18% in 2006.

The performance of the US economy was cited as a key factor. Sixty-five percent of respondents said that the performance of the US economy was a high impact factor in 2008, compared with only 40% in 2007 and 31% in 2006.

Historically, the pharmaceutical industry has been seen as a safe haven in troubling economic times as its product development and life cycle is not tied directly to the cyclicality of the economy as other industries such as automotive or retail.

But as this current financial climate shows, no industry appears immune to the shadow of uncertainty cast by weakening economic fundamentals. For the pharmaceutical industry, this gloomy outlook comes at a time of already slowing growth. The US pharmaceutical market, the world’s largest, is projected to increase only 1 to 2% in 2009, according to IMS, adding further uncertainty for the drug industry’s supplier base.