Industry and M&A trends
Pharma pressures driving outsourcing trend
Although the fundamentals of the pharma industry remain attractive, increasing R&D costs and continued pressure on pharma companies’ operating margins have encouraged the industry to outsource their non-core operations and rationalise their fixed cost bases, which has resulted in the significant growth of the pharma services market. Continued pressures on pharma, combined with significant headroom in outsourcing penetration today, are expected to drive high growth in the industry in the medium term.
The pharma services market is consolidating as companies seek to add scale, broaden geographical presence and achieve synergies to gain a competitive advantage over their peers.
Driven by the desire of pharma to reduce the number of outsourcers they use, pharma services companies are expanding their service offerings (either organically or inorganically through M&A) in order to become full-service providers, simplifying their customers’ operations and capturing maximum share of their outsourcing expenditures.
Shift of expertise to outsourcers
Pharma services companies typically offer their expertise in specific services to multiple pharma companies, allowing them to accumulate significant know-how from multiple projects. This, combined with increasing outsourcing penetration and decreasing levels of in-house expertise, means that pharma companies are becoming increasingly reliant on their outsourced service providers.
Increasing uptake of technology
Technology and data are playing an increasingly important role across all pharma services sectors and early adoption of innovative technologies are increasingly becoming key differentiators.
High levels of private equity activity
PE has been highly active in the sector and responsible for much of the consolidation of the industry, often amongst the market leaders in their respective sectors. Private equity interest and activity in the sector is higher than ever before and PE bidders are becoming increasingly competitive with strategic acquirers in M&A situations, further illustrating their eagerness to participate in the industry.