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CRAMS outsourcing: Market size of CRAMS – how big is outsourcing in pharmaceutical research and manufacturing ?

In Part I. of this article series of outsourcing in pharmaceutical and chemical research and manufacturing we have discussed the political and macro-economical implications from outsourcing.

CRAMS have emerged in the biopharma industry in the 1980s and over the years took on a significant role in research and development, expanding from drug discovery, preclinical research to clinical trials, and pharmaceutical drug manufacturing.

According to analysts, the outsourced global pharmaceutical contract research and manufacturing (CRAMS) is estimated  20-25 bio USD, depending on the source and which services are included.

GBI Research[i] in their latest comprehensive insight into the size of the CRO market, estimated 21.6 bio USD for the global CRO market.

This is in the view of a global pharma market size of roughly 1 trillion USD in 2012[ii], expected to grow to 1.2 trillion USD by 2016.

Of the drug development budgets, the degree of outsourcing has continuously risen, from 17% in 2007[iii], to 29% in 2008^[iii], to 38% in 2001^[iv]. This is in the view of  a 9% increase of R&D budget for outsourcing in 2011[iv].

It is expected that due to the European financial crisis CRO outsourcing in the European pharma industry would further increase, “while Europe´s economic troubles causing domestic profitability concerns, established pharmaceutical companies may look to emerging markets for outsourcing partners” [v].

There are over several thousand CRAMS companies in the world (sources mention worldwide 1100[vi] up to 3000 alone in the US [vii]. It is a very fragmented industry with the top 10 controlling over 50% of the market  share^[vi]. These thousands of businesses employ on the average 30 people[vii]. However, many private held small companies and consultants make it difficult to measure the overall market sizes.

A new study even suggests the market size has even been massively underestimated.  In the  report “Resizing the Global Contract R&D Services Market” by Tufts Center´s for the Study of Drug Development^[vii] the market size estimates are drastically revised to the upside. This new study has sized the overall U.S. contract R&D services claiming to have used a systematic bottom-up approach. Tufts estimate the overall U.S. market for the 15 biggest areas between $32.5 and $39.5 billion. Assuming that these geographic areas would represent 75% of the total U.S. market, and that the U.S. market would contribute 50% of contract services worldwide, Tufts estimates that the total global market for all contract services supporting prescription drug R&D would be in the range of 90 billion USD to 105 billion USD. If this logic would be correct, the total global market for contract R&D services therefore would be more than five times larger than commonly cited figures. According to Tufts, the reason for so much larger numbers is that most other studies usually refer to an incomplete database of specific markets sub-segments such as most mature contract pre-clinical and contract clinical services. Moreover , Tufts applied a much wider definition including other areas such as supply chain services, logistics, chemistry, manufacturing and control systems.

On top comes the CRO market of non-pharma specialty chemicals which is very significant as well.

The overall outsourcing market is expected to grow significantly over time to 50% of pharmaceutical R&D (Source: Deutsche Bank) [viii]^,.Given the huge amounts of money spent on outsourcing of R&D already it is surprising that more attention is not given to the procedures of service provider selection[viii].

Outsourcing does not necessarily mean offshoring to emerging markets such as China or India. A big portion of the services are provided by service providers located in the US or Europe, many small to medium specialized companies or even individual consultants. Actually today, by far the biggest part is not offshored, it is instead conducted by specialized service providers in the traditional markets. According to GBI Research, 44% of the clinical trials are done in the US, 23% in Europe and only roughly 12% in Asia (2010)^[i].

The implications for the chemical and pharmaceutical industry are immense, it is expected by leading consultancy firms that significant parts of the R&D process would be offshored, while India is expected to capture a significant market share in this business, as we will see later in this report.

In the next article, part III. Will cover what drives outsourcing of research in the chemical and pharmaceutical industry, what kind of services are outsourced, when does it makes sense to do so, and CRO offshore outsourcing to china and India.

To be continued.