It's a bitter pill for U.S. pharmaceutical companies to swallow.
With the increasing economic burden of health care costs, they will be hard pressed to maintain their high-price, high-margin business model.
Droves of retiring baby boomers and the possibility of national health care legislation, among other market forces, are leading folks to favor inexpensive generic drugs over their costly patented counterparts.
A financial analyst interviewed in this Investor's Business Daily article reprinted on CNNMoney.com says this cost squeeze is leading U.S. pharma companies to outsource more of their research and development to low-cost countries. Of the $45 billion such companies spend annually on R&D, 33 percent is currently outsourced; the analyst believes it will grow to 41 percent by 2009.
In particular, pharma companies are looking to Asia, according to the article, with 72 percent of multinational firms surveyed by PricewaterhouseCoopers saying they are considering outsourcing clinical trials to Asia. This reality is reflected in the favorable financial outlooks of several Chinese contract research organizations (CROs) mentioned in the article.
Pharma giant Pfizer just announced plans to outsource more of its R&D to China, India, Japan and South Korea, and also to double the amount of manufacturing it outsources, to 30 percent.
Pfizer is investing $300 million on R&D in South Korea over the next five years, according to Outsourcing-Pharma.com. The company also intends to close two manufacturing facilities in the U.S. and one in Germany and will send more of that work to contract manufacturers in Asia.
Such activity is a continuation of a trend noted by consulting firm Equaterra earlier this year. According to its survey of pharma companies, 39 percent of them planned to expand their outsourcing efforts into new areas of the world and/or new business units in 2007.