Biopharmaceutical industry suppliers (i.e. anyone that sells services, instrumentation, or raw materials to the industry) are increasing their budgets in a number of key areas this year, according to data from our newly released 9th Annual Report and Survey of Biopharmaceutical Manufacturers. And, these increases won’t be limited to smaller items, either. In fact, nearly half (44%) of vendors are planning to increase their budgets for new capital equipment, including 6% who will be making large increases of 20% or more. This contrasts with just 11% planning any decrease in spending in this area, the majority of which are small decreases. Similarly, a third (33.3%) of vendors are forecasting greater dollars spent on new facility construction, including 8% making large increases.
This is a significant reversal from previous years, when the economic downturn forced many suppliers to retrench and reduce spending. The increased budgets are likely a leading indicator that industry suppliers expect long-term growth in relation to their customers’ — biopharma manufacturers — budgets.
Although big-ticket items such as new capital equipment account for some of the biggest areas of spending, other areas are signaling growth, too. Nearly half (45%) of our respondents are boosting their marketing budgets, and more than half (54.5%) will increase their sales budgets. This may indicate short-term expectations for more rapid growth. As yet, advertising budgets remain generally flat this year. Hiring also figures into the equation. A majority of respondents are increasing budgets for hiring new operations staff (43%) and close to two in five (38%) will be boosting new scientific staff budgets.
We measured 11 areas of budget changes among our 186 vendors surveyed this year. When we average out the planned increases and decreases across respondents, outside of marketing or sales budgets, we find that vendors are again planning relatively large increases for new capital equipment (3.4%), hiring new operations staff (2.8%), hiring new scientific staff (2.4%), and new facility construction (1.4%). While these numbers may not appear substantial, when shown as cumulative over the past three years, the budget increases (aside from new facilities construction, which has shown sluggish growth the past three years) have generally far outpaced the budget slashing that occurred during the economic downturn in 2009.
Sustained Industry Growth Is Expected
The increase in sales budgets of suppliers to the biopharmaceutical production industry is a positive sign and indicates current growth among vendors. Perhaps more importantly, it shows that vendors expect sustained growth in the overall industry. Budget changes for operations staff (2.8%) are lower than those reported for sales (4.3%); however, these increases do show recognition that inventory levels must be increased to support sales of current products. Interestingly, budget increases for advertising were significantly less than for sales. This may be a cause for concern, but it is offset by a relatively strong growth forecast for marketing budgets.
We compared annual budget changes from 2009 through to this year. Budgets during the economic downturn in 2009 were down in all departments except for sales, and by as much as 6.7% for new facility construction. In 2010, the environment generally improved, with all areas except new facility construction and in-licensing seeing their budgets recharged. That trend continued last year, with almost all areas getting bigger budgets, led by sales.
This year we see the trends continuing. Sales budgets, which led the list last year at 5%, get an average increase of 4.3% this year. Keep in mind these increases are cumulative, year-over-year. So, a drop in budget increases is not unexpected. Some of the biggest changes from last year include budgeting for new capital equipment, marketing budgets, new scientific staff, and new facility construction. In fact, each area of the 11 areas we studied is slated for at least some budget increase this year, including basic R&D and in-licensing (which was up only slightly).
With budgets up across the board and increases seen in almost all areas from the past three years, the overall picture is one of optimism.