A Robust 2006 for the Pharmaceutical-Biotech Industry Bodes Well for Strong Project Starts in 2007

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas). When considering reported Pharmaceutical-Biotech capital project spending for any given year, it is important to analyze what became of the projects after they are first reported. Utilizing analysis tools such as Gap Measurement and Project Fallout help illuminate an accurate view of industry project spending patterns. Project Fallout represents projects that have been delayed or cancelled for a variety of reasons, with some simply moved to another year due to funding and regulatory issues. The less Project Fallout the healthier the industry.

An analysis from December 2006 revealed a positive note for the Pharmaceutical-Biotech Industry, with 257 projects carrying a total investment value (TIV) of $13.5 billion firmly set for construction starts in 2006. These figures reflect a Project Fallout of 83 projects, valued at $1.9 billion, from the original 240 reported 2006 projects, valued at $15.4 billion. The changes resulted in a Gap Measurement for the year of 12.47%. Simply put, those projects were for some reason delayed or cancelled, thus moving them and their TIV from the 2006 spending forecast.

While there was Project Fallout in 2006, the Gap Measurement shows an improvement of 13% over the 2005 figures. In 2005, there were originally 333 projects with a TIV of $13.9 scheduled to begin during the year that was later adjusted after project updating to 319 projects with a TIV of $11.9 billion. The Gap Measurement for 2005 was 14.06% as opposed to the more encouraging 12.47% in 2006. Factors affecting projects moving forward as originally planned tend to vary depending on the individual project, with a healthy majority eventually being built in one variation or another. The dramatic exceptions are situations such as the recent work stoppage on Eli Lilly’s $325 million insulin plant in Virginia due to a major re-organizational shift within the company (reference: Market Shift Pushes Lilly to Abandon Construction of $325 Million Insulin Plant in Virginia).

Click on the image at right to view the Gap Measurement Chart comparing 2005 vs. 2006 project spending for the Pharma-Biotech Industry

Despite the current flux within the industry as traditional pharma casts a more serious eye on biological drugs (reference: 2007 Pharmaceutical-Biotech Industry Forecast), 2007 is expected to bring a healthy batch of project starts throughout the year. A current analysis of project data reveals 429 active projects with a TIV of $16.6 billion scheduled to begin construction across North America this year. Project activity will be monitored throughout the year, reflecting changes as they occur. The majority of spending this year is unsurprisingly expected to be for vaccine production and both public and private research facilities. Illustrating the importance of tracking these projects after they are reported is the current $300-$400 million “Project Bamboo” being shopped throughout a number of states. Ostensibly codenamed for privacy, but most likely being Solvay Pharmaceuticals, the company is seeking the best site for its domestic influenza vaccine production plant. A number of issues impact just when this project will finally begin construction and where, all dependent on state and local incentives and the accompanying permitting process,

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