Despite deep and widespread cuts to in-house teams contract sales penetration in the US lags behind Europe, where close to one-third of the work is outsourced. Fortunately for contract sales firms there are signs penetration in the US will increase beyond the current 10 per cent towards European levels.
“US Healthcare Reforms [are] likely to drive this trend owing not only to increasing pressure on manufacturer pricing but also increasing drug sales volumes and ensuing compliance requirements”, James Vane-Tempest, equity analyst at Jefferies & Company, wrote.
Speaking earlier this month Nancy Lurker, CEO of PDI, made similar points, particularly highlighting rising sales team compliance burdens, when assessing triggers to increased outsourcing penetration.
PDI stands to gain from any contract sales inflection point but faces strong competition for newly outsourced work from the likes of inVentiv Health and the firm Vane-Tempest was evaluating, United Drug. Ireland-based United Drug is growing US contract sales to offset weakness in its home market.
United Drug generates one-quarter of its contract sales revenues in the US but Vane-Tempest thinks this will increase to one-third by 2016. To hit this target United Drug must win a decent share of the newly outsourced business and Vane-Tempest “would view any additional US acquisitions positively”.
Although United Drug has a history of making acquisitions it has slowed down in the past couple of years. However, Vane-Tempest expects the company to make bolt-on acquisitions and estimates it has €183m ($228m) to fund deals.
Packaging potential
The second element of the US push by United Drug is contract packaging. In recent quarters contract packaging in the US has been the standout performer at United Drug and further growth is expected.
United Drug generates more than half its contract packaging sales in the US, where its share trails the AmerisourceBergen-owned Anderson, and Vane-Tempest expects this to rise to two-thirds by 2016.
Increased reliance on the US by 2016 reflects faster outsourcing penetration growth than in Europe. In Europe United Drug must also contend with greater fragmentation and less efficient operations.
Some of the efficiency edge possessed by the US stems from better use of capacity than Europe, 60 per cent compared to 40 per cent, Vane-Tempest estimates, and economies of scale. “We would view favourably any strategic steps to gain scale in [the European] business”, Vane-Tempest wrote.