New analysis from Frost & Sullivan, "European Pharmaceutical and Biotech Contract Manufacturing Markets," finds that the European pharmaceutical contract manufacturing market earned revenues of $10.02 billion in 2011 and estimates this to reach $20.75 billion in 2018. Over the same period, the European biotech contract manufacturing market is set to expand from $1.21 billion to an estimated $2.67 billion.
Increasingly, big pharma is viewing the outsourcing of pharmaceutical manufacturing as a strategic move that would enable them to focus on their core competencies, such as R&D. At the same time, the patent expiry of key blockbuster drugs worth $45 billion and biologics worth $30 billion is expected to reduce the capacity utilization rates of their manufacturing facilities, thereby making outsourcing a viable option for pharmaceutical and biotech companies.
"As pharmaceutical and biotech companies strive to enhance their internal core competencies, outsourcing is likely to become increasingly entrenched as a strategic manufacturing option," notes Aiswariya Chidambaram, research analyst, Frost & Sullivan. "The impact of the economic crisis, coupled with the poor performance of the venture capital industry in Europe, has underlined the popularity of contract manufacturing as it has become synonymous with cost-cutting and the timely entry of products into the market."
In parallel, with several blockbuster drugs of large pharma and biotech companies coming off-patent, the utilization rates of manufacturing plants are likely to reduce by half. This is set to trigger an increase in outsourcing of manufacturing by big pharma companies. Currently, big pharma companies contribute 10-25% of the total revenues of contract manufacturing organizations (CMOs) in Europe. Frost & Sullivan anticipates such figures to rise to 40% by 2013, and up to 50% by 2018.
However, stringent regulatory requirements are likely to place pressure on CMOs. As the regulatory environment in Europe becomes progressively stricter owing to contamination issues, safety compliance and drug recalls, the costs of gaining regulatory approvals will make up a major chunk of fixed costs for CMOs.
Despite this challenge, market prospects are extremely buoyant. Frost & Sullivan projects the European pharmaceutical contract manufacturing market to grow at a compound annual growth rate of 10.9% from 2011-2018, with its biotech counterpart poised to register a compound annual growth rate of 12.1% over the same time frame.
"Although the demand for manufacturing capacity is rising, a careful weighing of benefits and risks is required by CMOs while planning capacity expansions lest they be hit by over capacity, which, in turn, could lead to the acquisition of smaller CMOs by larger ones," cautioned Aiswariya. "There is tremendous untapped potential for CMOs which are properly positioned and at the forefront of technology in the capital-intensive and technology-driven contract manufacturing market."
To view the full Frost & Sullivan analysis, click here.