Report sees boom time ahead for biopharma CMOs

This trend will drive a doubling in revenues in the pharmaceutical contract manufacturing sector from $12.38 billion (€10.13bn) in 2004 to $25.70 billion in 2005, according to a report from consulting firm Frost & Sullivan.

Driving the trend are rapid advances in processes and technologies and mounting cost pressures that are forcing drug companies to look at alternate means - such as outsourcing - to achieve greater efficiency and productivity, according to F&S​. In this highly competitive industry, it is vital that companies ensure the quick commercialisation of new drugs by accelerating the time to market for their products.

The report, called Global Pharmaceutical Contract Manufacturing Markets​, notes that in order to cater for the changing needs of pharmaceutical and biopharmaceutical companies, CMOs are revamping their business model and providing more value- added services such as development, logistics, packaging, and marketing. By opting for such services, pharmaceutical companies are able to reduce the number of supply chain participants and make optimum use of their internal resources.

"CMOs have been building and acquiring state-of-the-art facilities that rival those of pharmaceutical companies and are constantly upgrading them to enable novel manufacturing processes,"​ said F&S research analyst Barath Shankar.

"The anticipated influx of biopharmaceuticals is likely to create a huge demand for specialised manufacturing technologies that are not available with pharmaceutical and biopharmaceutical companies,"​ he added.

However, the constant changes in regulatory requirements mean that CMOs are adopting a high level of risk when investing in manufacturing plants and technologies. Any radical shift in technology or regulatory norms could result in these companies having to realign their technologies and processes.

The report recommend that to address this concern, CMOs should develop risk-sharing strategic partnerships, instead of engaging in providing one-off contract services. This would result in a shift to the 'virtual pharma' model with pharmaceutical and biopharmaceutical companies concentrating primarily on R&D and marketing, thus freeing up internal resources and turning more competitive.

Generics drive European CMO sector​

The contract manufacturing market in Europe differs from the North American market with respect to its business model. The core client base of European contract manufacturers comprise of generic drug companies as compared to the branded pharmaceuticals in North America. With more than a dozen drugs having annual sales of more than $500 million expected to go off patent between 2004 and 2009, the demand for generic products in Europe is likely to receive a major boost.

While North America remains the leading regional market, a key competitive trend seen here is the focus on long-term strategic partnerships, says the report. Drug manufacturers no longer look upon contract manufacturing as a capacity constraint alternative but consider it a strategic and competitive need. Hence, the extent to which contract manufacturing companies can foster risk-sharing agreements with pharmaceutical and biopharmaceutical companies is likely to determine their success.

"Asian countries, especially India and China, are continuing to draw a significant share of outsourced work from developed nations and the region is expected to show strong growth owing to a large manufacturing capacity and competitive cost proposition,"​ said Shankar.

Turning to specific dosage types, he noted that solid dosage forms continue to lead revenue contribution, and liquid dosage forms are likely to lose significant market share to injectables that mainly include sterile products and biopharmaceuticals.