What is the outlook for contract manufacturing of active pharmaceutical ingredients and intermediates? In gaining feedback from exhibitors and attendees at CPhI Worldwide, the large exhibition and conference of pharmaceutical ingredients, which was held in Madrid last week, the prevailing sentiment was one of cautious optimism. Most said business conditions have improved since the financial crisis began in September 2008, but that the level of outsourcing has not returned to levels reached before the start of the economic downturn.

Exhibitors and attendees pointed to different trends among their customer bases. For the Big Pharma companies, exhibitors and attendees shared two key observations. Many said they have seen increased receptivity and interest among the large pharmaceutical companies in outsourcing compared with previous years, largely driven by the large pharmaceutical companies’ interest in improving their own cost structures and using external development and manufacturing to achieve that goal. That same cost-consciousness, however, is leading pharmaceutical companies to manage their inventories more tightly. Contract manufacturers reported that destocking by the large companies, including generic-drug companies, has resulted in fewer new orders and greater competition for the fewer new orders that may become available.

The news from the small to emerging pharmaceutical companies is also subdued. There was widespread agreement among contract players that the tightening of credit and more cautious investor activity in the pharmaceutical/biopharmaceutical sector has pressured smaller companies to reduce their product development portfolios, proceed in a more step-wise fashion for the projects that remain, or in some cases, has resulted in a liquidity crunch that has forced consolidation or driven certain smaller drug companies to cease operations. As one company put it, “Things are better than they were last fall, but it is still difficult for the smaller companies. We haven’t seen business return to levels before the financial crisis.”

A recent Pharmaceutical Technology poll mirrors those sentiments expressed at CPhI. In a poll conducted Sept. 30 through Oct. 14, 2009, a majority of respondents, 56%, characterized the current market for contract small-molecule manufacturing as “fair” to “flat.” Thirty-four percent rated the market as “fair,” defined as growth between 1–3%, and 22% said that growth in the current market was “flat,” representing no growth year-over-year. Nine percent said the market was “poor,” defined as negative growth year-over-year. Reflecting some signs of optimism, however, 35% of respondents classified the market for contract small-molecule manufacturing as “moderate” (defined as growth of 3–5%) to strong (growth of greater than 5%).

Another positive indicator comes from IMS Health, which raised its growth projections for the global pharmaceutical market for 2010. The market research firm expects the global pharmaceutical market to grow 4–6% in 2010, reaching more than $825 billion. Looking ahead to 2013, the industry can expect a 4–7% annual growth rate with the global market reaching more than $975 billion. This forecast represents a 1% increase in IMS’s five-year global market estimates released earlier this year. Particularly encouraging are positive signs from the US pharmaceutical market, where pharmaceutical market growth is expected to be 4.5 to 5.5% in 2009 and 3 to 5 % in 2010.

Broader issues, such as the extent of the global and US economic recovery and the possible passage and impact of healthcare reform in the US, as well as pharmaceutical industry-specific issues, such as the impact of recent consolidation and restructuring among the pharmaceutical majors and financing trends in the pharmaceutical/biopharmaceutical sector, will be key barometers to watch in the upcoming months in tracking the future health of pharmaceutical outsourcing.