As contract manufacturers enjoy the favor of drugmakers, outsourcing as a whole is calling into question the definition of the term "drug company." Pharmas are increasingly turning to CMOs to reduce operations cost pressures and offload process-development optimization, says RNCOS. The market researcher cites "a sustainable growth pattern despite economic slowdown" in its $1,500 report, Global Contract Manufacturing Market Analysis.
That market reached $22.5 billion in 2009, says the 50-page document, and the authors expect a compound annual growth rate of 12 percent through 2012.
Separately, Motley Fool columnist Brian Orelli notes the win-win nature of drugmaker/contract-researcher deals like the current one between Sanofi-aventis and Covance, which was preceded by a similar Covance deal in 2008 with Eli Lilly. Sanofi is outsourcing its preclinical through clinical drug development activities to the CRO for the next decade.
Sanofi and Lilly can eliminate the researchers from their payrolls, with the work being done by the likes of Covance, WuXi PharmaTech, and Charles River Labs, which ply their trades among several or many pharma clients.
Orelli questions whether a virtual drug model is the most ideal setup for the pharma industry in the long run, and says it's something for investors to think about. The pharma company as quarterback, distributing the development and production balls to contractors, may lead to a loss of in-house skills in both areas that represent competitive advantage.