Pharmaceutical Analytical Testing Outsourcing Market

Market Overview

The global pharmaceutical analytical testing outsourcing market size was valued at USD 7.71 billion in 2022. It is estimated to reach USD 15.91 billion by 2031, growing at a CAGR of 8.4% during the forecast period (2023–2031). The performance of market operators in the pharmaceutical analytical testing sector is significantly impacted by the degree of demand from end-users.

Pharmaceutical analytical testing outsourcing is the structure of public services from the testing, manufacturing, and supporting pharmaceuticals and therapeutics. It is a testing practice that reduces in-house production costs by outsourcing portions of the work to a third party as an extension of contract research organizations. Outsourcing services for pharmaceutical analytical testing have begun to replace a substantial portion of in-house analytical development and testing.

As an integral element of the drug and therapy development process, pharmaceutical testing plays a crucial role from the beginning to the commercialization of the product. It involves determining the structures of compounds, purifying a mixture of substances, synthesizing and characterizing active pharmaceutical ingredients, and purifying a mixture of substances (APIs). This initiative to accelerate compound activities typically includes formulation development and early-phase manufacturing.

Market Dynamics

Global Pharmaceutical Analytical Testing Outsourcing Market Drivers

Pricing Strategies

There is a major price difference between conducting analytical tests in-house and outsourcing. A company may lack the required setup and expertise to perform every possible test in-house. In addition, several no routine activities are needed to be performed only once. These include registration stability storage and testing, process and facility validation work, cleaning validations, analytical testing using expensive equipment, and method development. The best course of action for these examinations is to contract with a specialized company that has knowledge and experience in this industry.

Outsourcing benefits companies with various aspects such as personnel management and reduction of equipment, validation, and maintenance costs. Testing techniques are becoming more complex these days due to the arduous and complex nature of the product life cycle. This complexity leads to an increase in prices for tests that are outsourced. This price hike is of benefit to outsourcing firms. Moreover, an efficient testing process may entail a price hike. The price is likely to be increased due to accelerated turnaround times for the performance of these tests. Thus, such factors propel market growth.

Rising End-Users Volume

The level of demand from the end-user side highly influences the performance of market players in the pharmaceutical analytical testing domain. As a result of intensive market efforts, rising levels of awareness, improved accessibility, and government initiatives, consumers are more concerned with self-care, increasing pharmaceutical product consumption. Consumption levels are projected to increase exponentially over the forecast period.

Companies and government organizations work collaboratively to bridge the gap between supply and demand. As a result, companies have to realign their manufacturing capabilities to meet the increasing demand. Although some companies may conduct these tests in-house, they may sometimes face capacity constraints. In addition, global trends shaping the pharmaceutical sector's landscape, such as geographical expansion, shifting facilities to low-cost regions, and increasing collaborations, will likely meet future demand. For instance, in January 2021, SGS SA announced the acquisition of Lab Facilities of the International Service Laboratory (ISL) of Novartis to expand its pharmaceutical analytical testing capabilities.

Global Pharmaceutical Analytical Testing Outsourcing Market Restraints

Third-Party Performance

Pharmaceutical market players shortlist and select analytical testing firms based on service offerings, cost, experience in the domain, and past performance. Finding prospects and closing deals for new players in this market is difficult. Due to this, new firms have to charge less for their services, reducing their profit margins and increasing their financial burden. They also have to offer additional services so that they can close a deal.

In addition, the demand for better regulatory data documentation and quality has further burdened businesses and reduced profit margins. Moreover, performance is always an important criterion in cases where pharmaceutical firms give greater emphasis on product testing outsourcing. Failure to meet the desired performance levels may lead to disputes in the future. Consequently, all these factors restrict market expansion.

Global Pharmaceutical Analytical Testing Outsourcing Market Opportunities

Increasing Innovation and Product Development

Innovation or the creation of new products is proportional to the demand for testing services. Companies outsource testing services due to competitive pressures, pricing concerns, and market lead times. Increased emphasis on individualized care and technological advances have shortened the product lifecycle, resulting in the rapid development of new products. The development of biosimilar, combination products, and other innovative medicines has increased demand for specific types of tests.

Moreover, automation technology has also helped develop new drugs by expediting the development process without affecting the quality of drugs. Increasing R&D investments is among the essential strategies for achieving sustainability. Not all businesses have an infrastructure suitable for all forms of analytical testing. Thus, outsourcing these operations is the best course of action, as it saves time and money. In recent years, the R&D expense to total revenue ratio has been increasing and is expected to continue to increase over the forecast period, thereby creating opportunities for market growth.

Regional Analysis

Based on region, the global pharmaceutical analytical testing outsourcing market is bifurcated into North America, Europe, Asia-Pacific, Latin America, and the Middle East and Africa. 

North America Dominates the Global Market

North America is the most significant global pharmaceutical analytical testing outsourcing market shareholder and is estimated to exhibit a CAGR of 7.81% during the forecast period. North America is expected to contribute the largest pharmaceutical analytical testing outsourcing services outsourcing market revenue share. This may be attributed to the increasing number of pharmaceutical industries within the U.S. and Canada. Several major market players in this region are expected to augment market expansion. The companies offering analytical testing services for pharmaceuticals within the U.S. region are Alliance Technologies, LLC, ANAMA Package & Container Testing Services, Inc., Aria Diagnostics, BioConvergence, LLC, Cornerstone Analytical Laboratories, and others. The presence of these companies drives regional market growth.

In addition, Canada is rapidly becoming a hub for outsourcing firms catering to pharmaceutical manufacturers' manufacturing and regulatory compliance needs, thereby leading to increased outsourcing activity in the region. For instance, BioPharma Services Inc., a CRO with research facilities in Canada, is highly regulated by international quality standards of GCP and GLP to provide enhanced bioanalysis services. The company provides reputable and reliable data for supporting drug submission to various agencies, such as the FDA, Health Canada, EMA, WHO, UK MHRA, French-ANSM, Danish-DKMA, ANVISA, and Standards Council of Canada, for market authorization.

Europe is estimated to exhibit a CAGR of 9.1% over the forecast period. European biopharmaceutical companies are expected to benefit from services such as research and products, thereby boosting the growth of CROs and CMOs. These services are expected to be majorly outsourced within the U.S. and Chinese regions. Europe is the leader in microbial manufacturing technology and represents the global R&D endeavor for this industry. Diverse developing nations worldwide are pursuing partnerships with Western giants to establish their domestic capability by offering support services to the industry, such as clinical research, toxicity testing, and drug development.

In addition, Europe's pharmaceutical and biotechnology sectors have significantly invested in R&D in recent years because of surging demand for advanced medicines. This may be attributed to the increasing aging population, chronic diseases, and infectious diseases. The rapid consumption of advanced medicines is influencing the need for support from CROs. Owing to easy access to large treatment-naïve patient pools, highly skilled medical research talent, and low labor and manufacturing costs, Europe is expected to witness a lucrative growth rate over the forecast period.

Asia-Pacific is the quickest growing market, owing to many developed countries investing in Asia-Pacific countries. Several market players are expanding their presence in the Asia-Pacific region. For instance, in December 2018, WuXi AppTec, Inc. expanded its pharmaceutical R&D facility in California. Such expansions are likely to impact the Asia Pacific market positively. The Government of India has realized the potential of the CRO sector and has laid some action plans for boosting the CRO business in India. The key initiatives include service tax exemption and venture capital-based funding; this is further expected to promote the regional market.

The Latin American market will witness lucrative growth over the forecast period. Increasing government spending, rising per capita health spending, and initiatives by WHO and government bodies are expected to boost market growth in Latin America. Several organizations in this region are striving to carry out quality clinical research. In addition, the Latin American government faces many challenges as it caters to a huge population with vast income disparities. For example, Brazil has some of the most renowned healthcare institutions in the region, but most of its public healthcare system is plagued by poor planning and understaffing. Government reforms are anticipated to boost the demand for pharmaceutical products, further increasing the need for analytical testing.

In the Middle East and Africa, outsourcing research offers advantages such as cost efficiency, infrastructure, and excellent medical facilities. The only drawback is discrepancies between the laws of different regions. Many regions are initiating to adapt to the global standards and collaborating with other global CROs to mark their presence. For instance, Hassan Labs of Egypt and Saham Group of North Africa joined hands to provide international medical expertise across Africa. MCT participated in the Partnership in Clinical Trial in April 2014 to reach out to clients and expand in developed countries. As a result, MCT met sponsors from North America and discussed the benefits of doing research in the Middle East and Africa.

Segmental Analysis

The global pharmaceutical analytical testing outsourcing market is segmented by service.

Based on service, the global market is bifurcated into bioanalytical testing, method development and validation, stability testing, and other testing services. 

The bioanalytical testing segment dominates the global market and is projected to exhibit a CAGR of 8.9% over the forecast period. Bioanalytical testing involves the examination of drugs/formulations or active ingredients within a biological system, such as blood, urine, serum, tissue, and others. This analysis is performed to characterize and quantify the drug activity and provide evidence for therapeutic action. These tests also help create the drug monograph for reference during preclinical and clinical trial testing. Broadly, the segment is further classified into clinical and non-clinical bioanalytical testing and is expected to witness lucrative growth over the forecast period. This is attributed to the fact that various companies are working toward developing new molecules (both small and large), particularly biopharmaceuticals. These firms are investing huge amounts of capital and manpower in innovating the antibiotic, vaccine, and cancer drug markets. A surging number of clinical trial registrations and the entry of new players within the market space in the past ten years have also contributed to the growth of bioanalytical testing needs.

Market players provide pharmaceutical companies with a comprehensive package and a hassle-free experience by performing method development and validation services in addition to analytical services. The analytical tests are crucial for introducing the product for the next research phase. Hence, their method development and validation are expected to generate higher reliability and maintain proof of the results. With the rising growth of outsourcing testing processes, ancillary growth may also be witnessed for this service over the forecast period. In addition, higher outsourcing of these services is observed due to the mundane nature of the activity, which entails a requirement of low-skill manpower and minimum risk involvement for the pharmaceutical firms. However, their contribution to accelerating drug discoveries and commercialization processes and ensuring the smooth performance of research activities is crucial. The resulting growth of this segment is expected to be high over the forecast period.

Pharmaceutical companies seeking marketing approvals from regulatory authorities must also analyze and report stability testing results. This service is segmented based on the product being examined or the type of study conducted into drug substance testing, stability-indicating method validation services, accelerated stability testing, photostability testing, and others (including stability storage services and excipient testing). Amongst these tests, accelerated stability testing dominated the market during the forecast period. In addition, accelerated stability testing deals with the product's analysis to understand the drug's or formulation's stability curve over a long period. This test helps identify the product's shelf-life, educating the consumers and healthcare providers about the duration the product is fit for use. A product is never introduced in the market without an expiry date; hence, conducting these studies is highly important. However, generally, companies work on product design and market launch simultaneously, which overburdens their resources. Outsourcing acts as a boon for managing resources and better attention to the performance of the entire process.

Recent Developments

• July 2023- Broughton, a scientific consultancy and contract research organization (CRO), launched a new Extractables and Leachables (E&L) testing service intending to help pharmaceutical and consumer healthcare companies bring their products to market safely and efficiently.
• November 2022- Altasciences announced that they are extending their facility in Columbia, Missouri, to facilitate preclinical and clinical studies conducted in the United States with bioanalytical services. The new 8,000-square-foot facility, whose conclusion is scheduled for next year, will mirror Altasciences' existing bioanalytical laboratory in Laval, Canada, and supplement the company's Seattle-based services.