For those who had any doubt about where R&D money is headed…look east. As in the Far East. A recent survey of 241 execs from drugmakers and biotechs finds that R&D budgets are rising just 1 percent overall this year. Meanwhile, outsourcing is expected to rise 11 percent, to 41 percent of the R&D undertaken, and most companies favor investing more of their clinical work in China.

There is a price to pay, though. In the three-month period prior to the survey, price increases by contract research organizations outnumbered decreases by a 5-to-1 ratio. Looked at another way, 35 percent of the drugmakers and biotechs reported a price hike from CROs, compared with 6 percent that reported a price drop, according to the survey by RW Baird, the Wall Street brokerage.

“We are shocked by this pricing feedback,” writes Baird health care analyst Eric Coldwell in an investor note last week in which he reported the results. “…We believed that excess capacity, volume-based discounts, more rigorous cost management by clients and other factors would still be weighing on pricing dynamics.”

After examining the raw data, Coldwell adds that there were insignificant differences in “directional pricing trends” reported between preclinical and clinical functions. And so when aggregating all of the data, he found the average reported outsourcing price increase was in the mid-single digits.

And as for outsourcing, the 11 percent increase anticipated by the execs is larger than he was expecting. Nonetheless, he goes on to write that “the ultimate end game is for outsourcing penetration to at least hit 60 percent, and possibly 80 percent, in the distant future, up from the 41 percent forecast for this year and the 37 percent share notched last year.

Where will the money go?

In total, two-thirds of the outsourcing decision makers would invest “first and foremost” in major Asian markets, North America or Central and Eastern Europe, he finds. Meanwhile, only one-third placed the UK, Western Europe or Central and South America among their top three locales, while less than 10 percent selected markets such as Australia, Southeast Asia, Africa or the Middle East.

Not surprisingly, China ranked highest, at 35 percent, followed by India at 19 percent and the US garnered 18 percent. Russia and Brazil received what Coldwell called distant “honorable mention” responses of 4 percent each. No other country received more than four votes.

How would the spending be divided? In total, 49 percent cited clinical development as the area most likely to experience increased investment, with 24 percent selecting preclinical, 16 percent choosing discovery, 9 percent selecting late phase work and 2 percent pointed to other, which Coldwell says was weighted toward late-phase areas such as life-cycle management and ROI improvement.