Contract Services Spending: Who's Spending What, and Where?

A survey provides insight into drug companies' plans for spending on outsourced services. This article contains bonus online material.
Oct 01, 2011
Volume 24, Issue 10

Table I: Expenditure on outsourcing by survey respondents, by quarter.
The data from the first three quarters of 2011 in the Nice Insight Pharmaceutical & Biotechnology Outsourcing survey showed that annual expenditure among survey respondents remained consistent (see Table I). However, there were shifts in where resources were allocated and important differences between traditional, small-molecule pharmaceutical companies, and biotechnology companies. Understanding these shifts can help CRO and CMO providers position themselves for capturing business.

Figure 1: Services with an increase in forecast market size for each quarter of 2011. (ALL FIGURES ARE COURTESY OF THE AUTHOR)
The data indicate that traditional pharmaceutical companies—from Big Pharma to specialty and niche businesses—will be cutting back on outsourcing. Big Pharma respondents planned reductions in 15 of the 20 services reviewed in the survey. Fill–finish; stability, storage, and testing; and product characterization were three service areas where Big Pharma outsourcing remained consistent. High-potency compound projects experienced the steepest drop in Big Pharma spending. However, this work appears to be shifting to specialty pharmaceutical companies, which increased high-potency compound and cytotoxic outsourcing. On the other hand, biopharmaceutical companies indicated that they would increase their numbers of outsourced projects across 14 services. Five remained constant, and one (lyophilization) experienced a modest drop after peaking in the second quarter.

Figure 2: Services with an increase in forecast market size for each quarter of 2011.
According to survey respondents, anticipated spending increased in 11 service sectors included in the Nice Insight survey. Six of these services experienced an increase in the forecast market size during each quarter of 2011 (see Figures 1 and 2). These services were bioanalytical testing, clinical research, drug-delivery systems, high-potency compounds, logistics and distribution, and pharmaceutical analytical testing. Of these services, bioanalytical testing had the greatest increase in projected spending. The level rose approximately 50% from $136.5 million to $200 million.

Figure 3: Services with an increase in forecast market size that peaked in Q2 2011.
Anticipated spending on consulting services, regulatory support, and custom manufacturing increased overall in the second quarter and dropped off slightly in the third quarter (see Figure 3). Projected spending on consultants increased roughly 20% over the first three quarters of 2011, and regulatory support spending increased by 30%. For two service sectors, chemical synthesis and fill–finish, anticipated spending increased between the first and third quarters (see Figure 4). However, the spending in the second quarter dipped lower than its level in the first quarter.

Figure 4: Services with an increase in forecast market size that dipped in Q2 2011.
Five of the service sectors covered in the pharmaceutical and biotechnology outsourcing survey remained steady throughout all three quarters. Projected spending stayed within the $5-million range from the first to third quarters. Product characterization, lyophilization, and cytotoxic projects received similar allocations of funds through all three quarters (see Figure 5). Interestingly, sterile compounds and stability, storage, and testing experienced a drop in second-quarter projected spending, though projected budget allocation stayed consistent from the first quarter to the third (see Figure 6).

Figure 5: Services with consistent forecast market size during each quarter of 2011.
Respondents predicted a drop in spending on four of the 20 services reviewed. The services with a decrease in projected market size were packaging, formulation and preformulation, process optimization, and toxicology testing (see Figure 7).

Figure 6: Services with consistent forecast market size despite a dip in projected spending during Q2.
After identifying the shifts in budget allocation for outsourced services, the survey authors looked for patterns among the different types of pharmaceutical and biotechnology companies that outsource: (e.g., Big Pharma, specialty pharmaceutical companies, emerging companies, niche or startup companies, Big Biotech, and emerging biotech). This knowledge can help CROs and CMOs target the businesses that are most likely to be seeking their services.

Figure 7: Services with a decrease in forecast market size from Q1 to Q3 2011.
Big Pharma survey respondents indicated the most change in allocated spending on outsourcing during the course of 2011. Anticipated spending on outsourcing projects decreased among Big Pharma respondents in almost every service sector. Projected spending by this customer base decreased in each of the service sectors that otherwise experienced an increase in overall market size. The one exception was fill–finish projects, which received a steady allocation of funds from Big Pharma during all three quarters of 2011.

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