Pharma-Bio CMO Sector Emits Healthy Financial Glow with $830 Million in Active Capital Expansion Projects

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--Despite the frequent headlines announcing yet another pharmaceutical plant closure, there is one sector within the industry that is thriving. Both contract manufacturing organizations (CMOs) and contract research organizations (CROs) are enjoying a steady influx of growth as owners continue to invest in the expansion and maintenance of research and manufacturing facilities across North America. A recent survey drawn from data contained in Industrial Info's Pharmaceutical Tracker has revealed 49 active capital and maintenance (MRO) projects worth a total investment value (TIV) of $838 million in North America.

Click on the image to see an analysis of CMO project spending in the North American Pharmaceutical & Biotech Industry.

Outsourcing remains an essential component to the drug industry. The most fundamental driver behind the use of CMOs is state-of-the-art process and production technology offered on a cost-effective basis. As companies are faced with limited resources and the call for increased large-scale biomanufacturing manufacturing capacity, the decision to build in-house or outsource is increasingly crucial. As the proportion of biologics in new drug approvals has risen by more than 30% during the last decade, and with the current pipeline containing more than 500 protein and 50 peptide developmental drugs, this trend is set to continue.

The global revenue for contract manufacturing and research for the pharmaceutical industry was estimated to be at just more than $100 billion in 2004 and is expected to rise at an average annual growth rate (AAGR) of 10.8% to $168 billion in 2009, according to a recent report from Business Communications Company. Of the three market segments, the market for contract manufacturing of prescription drugs for 2004 was estimated at $26.2 billion, which is expected to rise to $43.9 billion by the end of 2009. Contract manufacturing of OTC and nutritional products is the largest and fastest-growing segment, expected to rise at an AAGR of 11.3% to $102 billion by 2009. The contract research market is expected to reach a $21.9 billion mark by 2009, rising at an AAGR of 8.6% from $14.5 billion in 2004.

The U.S. market for outsourced pharmaceutical manufacturing is growing at the rate of 10% to 12% annually. Pharmaceutical companies will continue to fuel much of this growth as they outsource an increasing number of products and services.

When considering just the biopharmaceutical segment of contract production, recent studies have estimated global production at $2.1 billion in 2006. This level is expected to rise to $2.8 billion in 2008 and $4.3 billion by 2009. Measuring capacity in tank liters under the two broad categories of microbial fermentation and mammalian cell culture, biopharmaceutical contract manufacturers' installed capacity for microbial fermentation is expected to reach 300,000 tank liters by 2008, an increase of 15% from two years ago. Biopharmaceutical contract manufacturers also plan additional follow-on capacity expansions throughout the next five years. (Estimate does not include microbial capacity that is used for microbially produced small molecules or for products such as antibiotics.)

The sector as a whole is so lucrative that in an interesting switch from the more traditional practice of domestic firms outsourcing to Asia, an Indian company acquired Hollister-Stier Laboratories LLC (Spokane, Washington). The contract manufacturer is one of the nation's leading CMOs and has recently completed a $30 million expansion and launched another worth $20 million. Jubilant Organosys Limited, one of India's largest custom research and drug developers, purchased Hollister-Stier for $122.5 million and added $16 million more to help defray the cost of the expansion. Jubilant's acquisition gives it Hollister's sterile injectable vial and in-demand lyophilization production capacity. It is considered the largest purchase to date of an overseas CMO by an Indian company. But, by all appearances, it will not be the last.

On the other side of the country, Metrics recently wrapped up construction of an $18 million expansion at its production site in Greenville, North Carolina. The project added nearly 50,000 square feet of space, effectively doubling the site. The addition includes four new analytical laboratories, stability storage facilities, a dedicated cytotoxic and potent compound laboratory, and a new microbiology laboratory.

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Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.