North American Pharmaceutical & Biotech Industry Project Spending Continues Strong at $15.5 Billion for 2007

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas). As 2007 unfolds, it is proving to be yet another tumultuous year for the Pharmaceutical-Biotech Industry, with product failures, plant closures and the departure of several big pharma top executives, not to mention the criminal indictment of one or two. Yet all is not bleak within the industry, at least in terms of current active project spending for 2007. According to the April Project Spending Index, the North American Pharmaceutical and Biotech Industry currently expects $15.5 billion spread over 427 projects to begin construction this year, an increase of 2.2% over 2006.

Click on the image at right to view the Project Spending Chart – Month of April 2007 for the Pharmaceutical-Biotech Industry.

As the year has progressed, the actual number of projects has increased from 396 (January 2007 forecast) to the current 427, yet the total investment value (TIV) has dropped from $16.1 billion to the current $15.5 billion. This translates into a project increase thus far of 8% and a TIV decrease of 4%.

A look at 2006 reveals the January forecast for the year had reported 322 active projects carrying a TIV $14.4 billion, which had then increased by April 2006 to 344 projects (+7%) with a TIV of $15.28 (+5%). Yet, by December 2006, the industry had settled for the year with 257 projects with a TIV $13.5. The numbers revealed a net loss of 65 projects (-25%) and $900 million in TIV (-6%).

Every industry experiences a fluctuation of some sort in project forecasting for a variety of reasons, with each rated by a confidence factor (CF), which is based on historical performance. The Pharmaceutical-Biotech Industry enjoys a strong CF of 84.4%, which represents the percent of change in total investment value from the initial forecast to the current actual number. In some cases, the percent could be positive growth (100+%), and in others it could be negative, where the number of new projects will not outweigh the reduction from project cancellations and delays. As the year moves forward, there will be a certain amount of fallout due to project cancellations, delays and on-hold activity.

The current analysis reflects today’s trends within the industry. Money is being invested in Pharma-Biotech capital projects but the green light is being delayed more often for a number of reasons. In the case of pure manufacturing projects (expansion and grassroot projects), where demonstrated growth lays in vaccines, biotech and contract manufacturing (CMO), the larger projects can undergo a number of various transformations including project site and size before finally beginning construction. As discussed in further detail within the 2007 Pharmaceutical-Biotech Industry Forecast, the hunt is on across North America to land these high dollar projects, where costs can reach $1,000 per square foot for some sections of the plant. In addition to pursuing biopharmaceuticals for future profits, pharma has realized it has to continue to strengthen its research and development facilities.

While growth has currently slowed to its current level of just over two percent and a still healthy average project TIV of $36 million, there are encouraging signs for the future. Several companies have begun major expansion projects throughout North America, only to launch plans for an immediate additional expansion following the initial phase. Case in point is Merck’s (NYSE:MRK ) (Whitehouse Station, New Jersey) Stonewall, Virginia site. Gearing up to support demand for its cervical cancer vaccine Gardasil (see Merck’s Controversial HPV Vaccine Spurs $100 Million Capital Investment in Virginia), the company had barely completed a $40 million expansion before deciding to invest an additional $57 million.

Answering the twin trends of the anticipated increase in demand for both biological products and contract manufacturing capacity, CMO Lonza has just begun construction of a $300 million-plus expansion project in Portsmouth, New Hampshire. Portsmouth is Lonza’s largest-scale commissioned mammalian cell culture plant with a current capacity of 93,000-liters. The project calls for the addition of a new bioreactor that will add another 5,000 liters.

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