Bangalore, Oct 21, 2009: Spending on information technology by lifesciences firms will rise to $41.6 billion by 2015 from the current $26.5 billion, a new analysis from Frost & Sullivan said.

The report said global recession will have limited effect on the lifesciences industry. However, internal factors and external issues such as weak product pipelines, generic competition and declining market shares are pressurising lifesciences companies to cut down their IT budgets.

"SaaS technology will be adopted by pharmaceutical companies as it is cost effective and offers enhanced flexibility options," Frost & Sullivan Industry Analyst E. Sujith said. "The lifesciences industry is focusing on outsourcing its operations to reduce costs, creating a new market for vendors of IT solutions."

Pharmaceutical companies will increase outsourcing operations to countries including India, China and Singapore as a cost-cutting measure. Despite the pharmaceutical industry increasingly rationalizing and rightsizing its outsourcing, this still presents a substantial market.

“Pharmaceutical companies are reducing their IT budgets. They are also rationalizing new purchases due to uncertainties in the industry,” Sujith said.

Sujith, however cautioned that pharmaceutical and biotechnology companies are confronting issues such as a flood of generics, intensified competition, shrinking drug pipelines and lowered cash flows. This is discouraging them from investing in IT-related expenses.

Accordingly, service providers should revise their pricing models. These could shift from effort-based pricing methods to potentially more successful outcome-based partnership contracts, Mr Sujith said.

"The performance-based pricing model has been widely accepted in the marketplace during the recession and vendors would benefit by following this model," advises Sujith. "The IT cost efficiency compared to productivity of the business in exploring the cost is now a corporate wide strategy for maximizing business productivity from the costs."