Frost & Sullivan Study Finds Major Development Potential for European CMOs

The European pharmaceutical contract manufacturing market made revenues of $10.02 billion in 2011, and this figure is expected to double to $20.75 billion by 2018, according to new forecasts.

Over the same time period, the European market for biotechnology contract manufacturing is expected to increase from a value of $1.21 billion to a projected $2.67 billion, adds the report by Frost & Sullivan.

Increasingly, large pharmaceutical corporations are seeing the outsourcing of manufacturing as a tactical decision that can permit them to concentrate on their core competencies such as R&D. The patent expiries on major blockbuster drugs worth $45 billion and biologic products valued at $30 billion are anticipated to reduce the capacity utilisation rates of their manufacturing facilities, thereby making outsourcing a sustainable alternative for pharmaceutical and biotechnology companies, the report adds.

Aiswariya Chidambaram, Frost & Sullivan’s research analyst, commented that “as pharmaceutical and biotech companies strive to enhance their internal core competencies, outsourcing is likely to become increasingly entrenched as a strategic manufacturing option.”

“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,” Chidambaram noted.

This in combination, with a variety of blockbuster drugs coming off-patent for major pharmaceutical and biotechnology companies, the utilisation rates of manufacturing plants are likely to decrease by half, and this is set to prompt an rise in outsourcing of manufacturing by the bigger drug companies.

Currently, large firms in the pharmaceutical and biotechnology sector contribute 10%-25% of overall revenues for contract manufacturing organisations (CMOs) in Europe, and Frost & Sullivan expects that these percentages will increase to 40% by 2013 and then 50% by 2018.

Nonetheless, the report also cautions that strict regulatory requirements are likely to put contract manufacturing organisations under pressure. As the regulatory environment in Europe becomes increasingly stringent as a consequence of issues relating to contamination, safety compliance and drug recalls, gaining approvals will constitute a major portion of fixed costs for these contract manufacturing organisations, it predicts.

But despite these challenges, the report predicts that future prospects for the market are extremely buoyant. The study projects the market for contract manufacturing in Europe to increase at a compound annual growth rate (CAGR) of 10.9% during 2011-18, 12.1% within the biotechnology sector.

“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 overcapacity which, in turn, could lead to the acquisition of smaller CMOs by larger ones,” Ms Chidambaram cautions.

However, “promisingly, 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,” she adds.


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