Forced Coma for $2.9 Billion in 2009 Pharma-Bio Capital Project Investments

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--There is often a fine line between life and death, and extraordinary circumstances sometimes call for an enforced pause to allow healing to begin. The same theory applies to the North American Pharmaceutical-Biotech Industry and its 2009 capital project planning. Deciding against pulling the plug on 39 projects, all originally scheduled to begin construction sometime this year and carrying a cumulative value of nearly $3 billion, the industry has instead chosen to place them on hold while the economy heals. Each has a pulse, albeit faint, with just enough life left to hope for a full recovery somewhere down the road.

Click on the image at right to see a list of Pharma-Bio projects put on hold in 2009.

Having escaped outright cancellation, there is reasonable expectation that a majority of the projects in question will be revived and that their current dormancy will end when funding loosens up. Many have been in planning for a considerable amount of time and a number of them have project teams already in place. The projects in play, drawn from those which have been placed on hold since January 1, 2009, carry an impressive average total investment (TIV) of $74 million each and are scattered across North America (Source: Industrial Info Resources' Pharmaceutical Tracker - Online Database).

A diverse group populates the project intensive care ward. Its denizens run the gamut from a $2 million medical device development laboratory expansion in Massachusetts all the way up to the $250 million second phase of growth for a research park in Philadelphia. The group holding court in the waiting room includes Big Pharma, Big Bio, REITs and universities. Some actually have the cash but decided to hold onto it against darker days, while others were ready to turn dirt and their construction funding vanished.

One of the largest of the dormant projects is Genzyme's (NASDAQ:GENZ) (Cambridge, Massachusetts) $200 million second phase manufacturing expansion of its cell culture plant Allston, Massachusetts. This is extremely likely to eventually proceed as the company is already in the midst of a $150 million expansion project that began in 2007. The company is currently adding 115,000 square feet of manufacturing support space and a 1.5-megawatt cogeneration unit for on-site electricity and steam supply. Members of the Phase I project team include Architectural Resources Cambridge (Cambridge) and Turner Construction (Boston, Massachusetts).

From a regional standpoint, New England, long a traditional industry favorite for capital investment, has the biggest stake on life support, with seven projects carrying a TIV of $633 million waiting for revival. In addition to the Genzyme project, the region was hit by Yale's (New Haven, Connecticut) decision to pause the construction of it $200 million biology building. Citing a drop in endowments, the Ivy League school is counting on resurrecting the project when its alumni's own finances recover.

The Northeast, another major industry stronghold, is currently evaluating the right-to-life of six projects worth a total of $496 million. Imclone Systems (Branchburg, New Jersey), famed for its cancer treatment Erbitux, as well as sending Martha Stewart to prison, is holding off on a planned $191 million expansion of its manufacturing plant in Branchburg. The company was acquired in November 2008 for $6.5 billion by pharma giant Eli Lilly & Company (NYSE:LLY) (Indianapolis, Indiana) and now operates as a subsidiary. This project pause is not entirely unexpected, as Lilly itself currently has nothing on the books for 2009 except for routine maintenance projects. Indeed, the company has been shedding plants as of late rather than building them.

It is anybody's guess as to what will eventually proceed and in what fashion. The pundits have their theories and that is really all they are -- theories. But beyond the speculation, there are some encouraging facts. Virtually every financial expert, dubious a term as that may currently be, agrees on health care being the one guaranteed growth vehicle in these perilous times. And there is no denying the symbiotic relationship between the Pharmaceutical & Biotech Industry and the health-care sector in general. As mentioned in a recent article (See: Pharmaceutical-Bio Industry to Inject $5.6 Billion for Capital and Maintenance Project Starts in 2Q09), far from being terminal, there is still an enormous amount of active capital investment in the industry. The fact of the matter is that unfortunately, or fortunately depending on your perspective, people will continue to become ill and need of treatment. This in turn ensures a positive long-term prognosis of the industry, which is devoted to providing the detection and cure of those maladies.

Honestly, what other industry could claim a somewhat disquieting sense of tempered jubilation resulting from the current swine flu scare and the recent peanut butter crisis? Before railing against Big Pharma and its brethren, it is important to remember it is what the industry does -- simply put, detect and cure. The various scenarios filling the headlines ultimately represent the likelihood of more federal dollars freed for research or manufacturing and underlines what should be the byline of the Pharmaceutical & Biotech Industry as a whole -- even when it is bad, it is pretty good.

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Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.