If it's Planned, Will They Build it? How Many Pharma-Biotech Capital Projects Actually Make Construction?

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--When considering the Pharmaceutical-Biotech Industry's reported capital project spending for any given year, it is important to analyze the projects after they are first reported. Utilizing analysis tools, such as Gap Measurement and Project Fallout, help to illuminate an accurate view of project-spending patterns.

The less Project Fallout, the healthier the industry. Except for the disaster years of 2008-11, when the entire economy hit a tailspin and the pharmaceutical-biotech industry decided it was time to reinvent itself, the sector typically delivers a large percentage of reported projects to actual construction. From 2012-14, 71% of reported pharma-biotech projects in a given year made it to construction.

Click on the image at right for a graph detailing total investment values in the Pharmaceutical-Biotech Industry from 2007-14.

The latest Gap Measurement figures available (November 2014) revealed that the Pharmaceutical-Biotech Industry had projects carrying a total investment value (TIV) of $14.3 billion that were firmly set to start construction in 2014. These figures reflect a total investment value (TIV) drop of $5.9 billion, from the TIV of $20.2 billion originally forecast for 2014. Those changes resulted in a Gap Measurement for 2014 of -29%, in terms of TIV "lost."

Simply put, those projects initially forecast for the year were either delayed or canceled, or the entire project was reconfigured, resulting in a lower total TIV. The number fluctuates throughout the year as new projects were added, which also impacts the project average TIV for the year. Using the November 2014 analysis, there were 80 more actual projects that made it to construction during the year, an increase over the 694 first reported, but of a lower total value.

These figures are entirely different regarding industry growth. They only serve to offer a reported project confidence rating. Case in point for the pharmaceutical-biotech industry, despite the average "fallout" of 29% over the past three years, the actual industry spend has consistently grown. For the same time period of 2012-14, actual project spending has increased 22%.

The burgeoning demand for drug products and devices is global, and it will take years to put in place the required infrastructure overseas to meet those countries' growing needs. Consistent quality problems with product outsourcing overseas are forcing many of the large drug companies to reconsider bolstering domestic production capacity of essential drug components like active pharmaceutical ingredients (APIs).

All the while, because of the unassailable required nature of the industry, there will be no permanent abatement on the domestic front or any mature drug market in terms of product demand and the facilities required to develop, produce and distribute them. Whether through the construction of new facilities, expansion and maintenance of existing ones, or the recommissioning of previously closed sites, the industry will continue to deliver cash-intensive projects.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.