Trends, signals, indicators, correlations. There are many ways to interpret and reinterpret data for the basis of forecasting. But first you need a set of data. With big data becoming all the new rage these days, the problem is no longer a lack of market data but rather too much. Data scientists refer to this excess data as noise. Once the noise has been removed from the data source, the true story can then be seen. It should be noted however, that just like the old saying, “One man’s trash is another man’s treasure,” here one data set’s noise may be another data set’s story. The following is one such example using data collected by our team during the first half of 2015. 

One of the simplest ways to develop forecasts regarding a business-to-business (B2B) market is to look at current trends in your customers’ pipeline, in this case the pharmaceutical industry. Recently released data by the Bureau of Labor Statistics (BLS) shows the pharmaceutical sector has been on a hiring spree, outpacing the growth rate of the broader market. There are no doubt numerous factors as to what is behind this hiring spree, but in our context that data is simply noise. 

The question is not why the pharmaceutical industry has been on a hiring spree, but instead how will this increase in human resources affect the contract manufacturing market? Pharmaceutical companies are profit-maximizing entities and will only add new employees when the market demand justifies the investment. So if we see the pharmaceutical industry as a whole is adding new jobs, we can assume there will be an increase in product output—at least in the short- to medium-term outlook.  

It is certainly good to know the pharmaceutical industry is preparing for an increase in production, but now the question becomes, an increase in production of what? If we can identify the therapeutic area for which these new drugs will be designed to treat, we can better anticipate the types of services pharmaceutical companies will need from CMOs in order to bring their products to market. 

When looking over data regarding future trends of a market, the two metrics that provide the highest information density are market share and calculated annual growth rate (CAGR). 

Looking at the respective growth rates of the individual therapeutic areas give us an idea of which submarkets are taking off and which are losing steam. Obviously we don’t want to invest in service materials to address a shrinking submarket, thus here we will only focus on the fastest growing segment. With a calculated annual growth rate (CAGR) of 12.5% through the year 2020, immunosuppressants are expected to be the fastest growing therapeutic area of pharmaceutical products. 

Perhaps more surprising is that this is a 33% increase from last years’ estimate. Try not to get distracted by seeking the cause of this growth; instead you should notice that the submarket with the highest growth rate over the next 5 years is also growing at a faster rate each year—i.e. increasing at an increasing rate. The old saying “the early bird gets the worm” comes to mind.

It is fairly intuitive why we would want to look at the future distribution of market share with regards to therapeutic area of product development; because in its most basic terms the therapeutic area that captures the largest percentage of the pharmaceutical market will be the most probable therapeutic area to be outsourced to contract manufacturers. In this case the leading therapeutic area is oncology, with an estimated market share of 14.9% in 2020—up .5% from last year’s projections. 

Although oncology is expected to have the highest market share in 2020, we should keep in mind this market share is measured in billions of dollars and products related to oncology are typically more expensive than average, thus this finding is likely at least somewhat biased. 

To recap our facts so far, we have found evidence indicating the pharmaceutical industry may be increasing its output of pharmaceutical products soon; the fastest growing types of pharmaceutical products are predicted to be immunosuppressants; and the therapeutic area capturing the greatest amount of market share to be oncology.  Since it can take months or even years to find, purchase, and install certain types of pharmaceutical manufacturing equipment; individual CMOs can use this information as a tool in their strategic decision making processes to start positioning themselves to address the needs of the future market.

But wait! An important facet of this data interpretation has been the assumption that pharmaceutical companies will continue to make partnerships and outsource to CMOs. A recent industry survey has identified a general pattern of growth and increased confidence in CMO partnerships from the pharmaceutical sector. Like the submarket for immunosuppressants, pharmaceutical companies are seeking out partnerships with CMOs at an increasing rate. 

Four basic industry findings

1. The pharmaceutical market is on a hiring spree;
2. The pharmaceutical market is increasingly focused on therapies related to immunosuppressants;
3. The pharmaceutical market incoming revenue will be heavily influenced by oncology products; and
4. The pharmaceutical market is increasingly seeking out partnerships with CMOs.

Knowing these four facts, we can begin to create a foundation that can then be used in support of the final interpretation on how these changes will affect the strategic positioning of your business.

In this article I have made some broad assumptions and greatly simplified the general process for forecasting future trends of a market in an attempt to gather a general idea of where the contract market for pharmaceuticals is headed. Would including extra data in our analysis help to improve the accuracy of our forecast? Certainly, and there are an abundance of research companies out there who are happy to provide you with reports with hundreds of pages of supporting data. But here’s the thing, no one knows the future with 100% certainty. It’s like trying to guess the weather for the fourth of July; although the weatherman has sophisticated tools, models and data sets to help him estimate the most probable temperature, using nothing more than past experience you can say with a fair amount of confidence that the fourth of July will be hot with very little chance of snow.  

Sources

• Bluebox Research Annual Report 2015 (www.blueboxresearch.com)
• Bureau of Labor Statistics (www.bls.gov)
• Evaluate Pharma World Preview 2014 (www.evaluategroup.com)
• Evaluate Pharma World Preview 2015 (www.evaluategroup.com)
• Healthcare CMO Market Outlook (www.transparencymarketresearch.com)

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Cliff Echols is market research director Bluebox Research. He is responsible for managing client relationships and client satisfaction with the firm’s custom research project deliveries and oversees the entire research process from identification of client needs, defining a research objectives, preparing research methodology, supervising panel member quality control, fielding supervision, data analysis, and innovative visual reporting. He can be reached at cliff.echols@blueboxresearch.com, or visit the firm online at www.blueboxresearch.com.