Spending Trends in the CMO and CSO Market
In today’s highly competitive market, it is extremely important for contract research and manufacturers to have access to information that allows them to target the specific segments of the pharmaceutical and biotechnology industry that are looking to outsource the particular services they provide. Understanding shifts in annual outsourcing budgets and spending can help CROs and CMOs to better position themselves for capturing business, particularly at a time when many – if not all – pharma and biotech companies are looking to cut costs and streamline operations.
Despite peaking in Q3 of 2011 at $2.14B, the outsourcing market size (based on data from Nice Insight’s pharma and biotech survey respondents) stayed consistent from Q1 to Q4, ranging from $1.933B to $1.935B. Not surprisingly, Big Pharma spent the most on outsourcing of the different customer bases; however, their anticipated spend decreased over the course of the year, with a $28M drop overall. The services where Big Pharma anticipates the greatest spending reductions are packaging and pre-formulation/formulation. The survey results also indicate that Big Pharma outsourced the greatest number of services in Q4, at 5.08 – up from 3.74 in Q1.
Outsourcing spend for biotech companies increased over the first three quarters of 2011, but when it comes to their anticipated spend for 2012, respondents indicated it was only marginally higher than Q1 2011 (+$6M). The service with the largest increase in spending among biotech companies was blending, which grew 11% from Q1 to Q4. However, the number of services outsourced by Biotech companies changed little when comparing Q1 (3.90) and Q4 (4.0).
Emerging biotech and emerging/niche/start-up companies showed the largest increases in outsourcing spending in Q4. Interestingly, the additional money spent did not translate into additional services outsourced; rather, these businesses will likely up the number of projects or the size of the projects outsourced. This is likely due to the fact that these smaller companies are dependent on investment dollars, can be more vulnerable to swings in the financial markets, and often need to prove the efficacy of their data through clinical phases. Between Q1 and Q4, outsourcing of blending and consulting services (11%) and custom manufacturing and drug delivery (8.5%)* increased the most among this group.
Conversely, specialty pharma had the largest drop in outsourcing spend, decreasing by $109M between Q1 and Q4. The largest decreases in spending among specialty pharma survey respondents were in the following services: custom manufacturing (-$21m) process optimization (-$13m) and stability, storage and testing. specialty pharmaceuticals also dropped from 4.54 services in Q1 to 4.2 services in Q4.
When asked about 2012 budgets in the Q4 survey, 50% of Big Pharma companies reported budgets of 50+ million USD. This was followed by biotech/biologics (24%), emerging biotech/biologics (19%) specialty pharma (17%) and emerging, niche or start-up companies (2%). for the 10 to 50 million range, specialty pharma companies were most prevalent at 49%, followed by emerging biotech/biologics (44%), big pharma (40%), biotech/biologics (38%) and emerging, niche or start-up companies (19%). Not surprisingly, companies with annual budgets of less than 10 million were comprised primarily of emerging, niche or start-up companies at 79%. Emerging biotech/biologics and biotech/biologics companies accounted for 38% of the total companies in this lower range.
For CROs and CMOs looking to increase partnership opportunities with pharma and biotech companies, one thing is for certain – knowledge is power. According to Nice Insight’s survey results, companies that outsource drug development tend to use a combination of 2.5 different methods to select a partner. Respondents indicated they are most likely to seek advice from consultants (68%) followed by referrals (53%) and visiting trade shows/industry events (41%) during the vetting process. By pinpointing how and where different segments of the industry are investing in outsourcing, providers can adjust their marketing efforts to better focus on these companies and improve their odds of forming successful partnerships.
*This service was added to Nice Insight’s survey in Q2.
Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to 40,000 outsourcing-facing pharmaceutical and biotechnology executives on a quarterly basis/four times per year [Q4 2011 sample size 2619]. The survey is comprised of 1200+ questions and randomly presents ~30 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions on 300 companies that service the drug development cycle. Over 1600 marketing communications, including branding, websites, print advertisements, corporate literature and trade show booths are reviewed by our panel of respondents. Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score. The customer perception score is based on six drivers in outsourcing: Quality, Accessibility, Regulatory Compliance, Pricing, Productivity and Reliability; which are ranked by our respondents to determine the weighting applied to the overall score.