Having compiled quite an extensive amount of published life science market size data, we’ve noticed a lot of very optimistic growth rates. That led me to wonder if that optimism is warranted, given overall growth in life science R&D, or if there’s something about published market reports that cause them to overstate growth rates.
As I’m sure many of us realize, life science R&D spending isn’t exactly skyrocketing. According to the Battelle and R&D Magazine “2014 Global R&D Funding Forecast” life science R&D spending has only rose from $184.2 billion in 2011 to $201.3 billion in 2014. This equates to a 3.00% compound annual growth rate. All else being equal, we should expect to see published life science market growth rates hovering around that, with the exceptional outlier for high-growth markets. It stands to reason that growth in the markets for life science tools and services should be in line with the growth in overall R&D spending.
To determine if the published studies hold to this, we took our list of published market size data and cleaned it using the following criteria:
- Only global market size data were considered. All regional market size data were removed.
- All studies not listing a growth rate were removed.
- All studies publishing data from 2008 or earlier were removed. We only wanted to look at fairly recent data, roughly in line with the time frame of the R&D spending data from Battelle.
- Only the newest study of a particular market from any given publisher was included. If XYZ Reports had a study of the cell culture market from both 2011 and 2013, only the 2013 report data was included.
- If there was data for a directly related market and sub-markets from the same publisher, only the overarching market was taken. For instance, if data for the cell culture market and for the cell culture media market existed from XYZ reports, we would ignore the cell culture media market data in favor of the broader cell culture market data.
This data cleaning still left us with quite a large amount of data – 104 studies. These studies projected an average growth rate of 11.2%, far higher than the 3.00% increase in life science R&D spending. Weighted by the value of the market size estimate, the weighted average was still 10.4%, again far greater than life science R&D growth. In fact, the lowest growth rate from those 104 studies was 4.0% (a 2012 BCC Research study of the electrophoresis market and a 2013 Decibio study of the Life Science Research Tools Market). Even the lowest published growth rates are higher than the growth in life science R&D spending. This makes absolutely no sense.
There are a few potential ways in which our analysis may be flawed, either by bias or by failing to consider all realities. For instance:
- The data we compile only includes studies that make public the market sizes and growth rates. This excludes a number of market research companies operating in the life sciences space. While our analysis included 104 studies, these studies all came from only 7 companies. Still, there is no evidence that these growth rate estimates are far higher than the estimates from any other companies.
- Some of these market sizes may include growth from outside the life science R&D sector, such as diagnostics or life science (pharma / biotech) manufacturing. While this may be true in part, it does not explain the size of the disparity. With the exception of certain high-growth sub-markets, such as biosimilar manufacturing, IVD and manufacturing growth rates are both generally predicted to be in the mid single digits.
- Companies which publish research may be focusing on “hot” markets and more likely to release studies on those high-growth markets. This is potentially a source of bias, however there are many very well-established markets included in this analysis (cell culture, research antibodies, chromatography, electrophoresis, microscopy, etc.) and even those markets have growth rates higher than the overall life science R&D market. The same can be said for market studies that analyze the life science tools and services markets at a very broad level, such as “Life Science Research Tools,” “Life Science & Chemical Instrumentation,” “Laboratory Equipment,” and “Preclinical Outsourcing.”
- Decreases (or deceleration) in life science R&D funding may be disproportionately applied across R&D costs. It may be the case that spending on products and services tends to be more resistant to budgetary contractions than personnel, infrastructure, and other sources of cost. We do not believe this to be true, however, as much equipment and service spending is far easier to cut than staff or space.
In conclusion, we believe that it is very likely that life science growth rates are overstated in published reports, perhaps by as much as a factor of two. While we can’t be certain why such overestimates exist as we do not know how the studies were performed, we do know that they are not remotely in line with overall life science R&D growth rates and the discrepancy is very unlikely to be explained by other mitigating factors. The next time you use a commercially sold study to gauge growth rates, you may want to take them with a grain of salt and assume that they are an overestimate.