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As market forces continue to drive significant change in the life sciences industry, IT spending patterns will respond accordingly. The world’s pharmaceutical manufacturers are looking to the emerging markets to drive revenue growth in the short-to-medium term and, as a result, IT spending growth is following this geographical transition. Furthermore, Big Pharma is externalizing research and development (R&D) and manufacturing to smaller life science companies and contract organizations. Therefore, small life science companies are expected to drive IT spending during the next five years, changing the nature of the sub-sector mix.

Understanding these spending trends will help enterprises to better formulate strategic decision-making and help vendors on their go-to-market offerings and value propositions. Ovum’s Global Life Sciences IT Spending Forecast Through 2016 and the accompanying Global Life Sciences Spending Forecast Through 2016: Analysis, published this month, provide insight into the projected size of technology spending within various geographic, sub-sector, and solution type markets, and provide short- and medium-term spending forecasts for IT investment.

Ovum expects IT spending to grow modestly to $37bn in 2016

Ovum expects total IT-related spending in the life sciences sector to grow modestly during the next five years to reach $37bn in 2016. In the short term, Ovum expects IT spending to increase faster than the rate of total revenue growth for the sector, due to a series of large-scale IT initiatives and changes in the industry’s structure. However, by 2015, most of these initiatives will have been completed and Ovum expects negligible IT spending growth in the fifth year of the forecast. By this time, the industry will be reaping the benefits of cloud-based delivery methods, systems simplification, and centralization. Furthermore, according to IMS Health, the majority of revenue growth during the next few years will come from generics, not branded pharmaceuticals, continuing to put pressure on costs and efficiency. Ovum therefore expects life sciences IT-related spending, when taken as a percentage of total revenues, to fall to 3.4% in 2016.  

Asia-Pacific will be the fastest-growing region for IT spending

The emerging markets, particularly in the Asia-Pacific region, will drive IT spending through 2016. An increasing amount of R&D and manufacturing is being sourced primarily from India and China. This trend will expand to include drug discovery and development; Asia-Pacific countries are rapidly becoming centers for life sciences innovation as well as contract manufacturing. In addition, more clinical trials are being conducted in the region to take advantage of lower costs and large “drug-naive” patient populations. Additionally, some Asian countries are beginning to tie commercialization of drugs to regionally conducted clinical trials to account for possible genetic variations in drug responses. These factors, coupled with elevated regional GDP growth bolstering healthcare spending, will make this region the fastest-growing for investment in IT products and related services by pharmaceutical firms.

Value chain fragmentation is a secondary key driver of IT spending

The continuing fragmentation of the value chain is another key driver of IT spending through 2016.  Big Pharma continues to divest capacity throughout the value chain and source more capability externally. The developing value network in life sciences companies will drive new and continued IT spending as new entities are formed or spun out from Big Pharma. Furthermore, rapid growth in the emerging markets will lead to the creation of new entities, and their future geographic expansion will increase demand for IT products and services. These growing regional companies will need to upgrade their technology capabilities to comply with foreign market requirements and compete on a global scale.