That was the prediction of Jim Browne, director of contract manufacturing, Europe, as GlaxoSmithKline, as he addressed IQPC's European Pharmaceutical Contract Manufacturing conference in London recently. Times have changed from the 1980s and 1990s when the pharmaceutical industry could rely on a plentiful supply of new products, predictable approval paths, fewer restrictions on reimbursement and high volume, high value blockbuster drugs, said Browne. At that time, firms would extrapolate the volume of drugs into the future and invest hugely in new capacity. "There was a lot of competition among big pharma companies as to who could build the biggest plant," commented Browne. As a result contract manufacturers played a very different role than they do today, "offering mainly specialised technologies or steeping in at times when demand for products exceeded the internal capacities of big pharma companies." Fast forward to this decade and the picture is very different. The consequences of that overinvestment have left big pharma with surplus manufacturing capacity at the same time as R&D pipelines are drying up, regulatory barriers are delaying new approvals and many of the blockbuster products are losing patent protection. All this is leading to declining volumes and as a result "there is overcapacity across most big pharma companies" said Browne. Inevitably that has led to an increased focus on pharma manufacturing costs and a reduction in the size of the internal site network via the closure or sale of plants. "For some companies this means that outsourcing of manufacturing has become the first preference for new products where volumes are uncertain," said Browne. That was certainly not the case five years ago." Outsourcing of manufacturing is also becoming more prevalent at the other end of spectrum, where internal sites are making so-called 'tail' products coming to the end of their patent life which often have reducing profit margins. One recurring theme in the CMO marketplace at present is the sale of former internal facilities to management teams, often alongside contracts to maintain production of existing product lines. "We're seeing an acceleration in that, as well as cases where the first site sale is followed by other divestments to the same management team," he noted. Tactical to strategic In the past the default mode for big pharma was in-house production. CMOs were tactical partners at that time but are now strategic partners - integrated into the internal manufacturing network, often via long-term partnerships. Driving down the cost of goods as well as overheads related to infrastructure is one element of that change, but another critical component is greater speed to market, said Browne. This is becoming ever-more imperative given that the changing regulatory environment means that reimbursement becomes a cloudy issue for products that do not reach the market first. Another factor to consider is that in very general terms, big pharma is seeing a shift in its R&D portfolio from a large volume/small molecule products to small volumes of large molecules, often licensed from small research-based companies. That changes the technological requirements for manufacturing, and often makes outsourcing more attractive than investing internally in unfamiliar processes. Browne noted that in his role at GSK, "the biggest focus is on in-licensed products, which are generally going to have their development, scale-up and launch carried out by external contractors." "I think this is typical of other big pharmaceutical operations," he added. This shift in big pharma's focus has caused a huge expansion in the contract manufacturing sector in Europe, many originating from site sales from big pharma companies, and has created a dynamic and competitive business sector. And it continues to evolve, with a shift into contract development services and distribution networks. And there is even more dynamic and rapid growth on the international scene, with China emerging as a major source of active pharmaceutical ingredient (API) manufacture, with secondary manufacture starting to come through as well. India has invested a staggering amount in the contract sector, said Browne, with a lot of movement into secondary manufacturing to complement API production and vice versa, with many offering full development services to boot. Low cost? Not necessarily... Interestingly, Browne notes that outsourcing to India and China is not necessarily a low-cost option in comparison to the European Union. "There are a number of contractors in Europe which are offering a very competitive service in terms of cost compared to Indian firms, for example, and when looking at providers in terms of cost you might want to include a number of European CMOs as well," he said. Browne notes that where costs are similar, a stronger case can be made for going with a 'local' company closer to your company's internal facilities. However, he believes that a lot of companies in emerging contract manufacturing markets are being very clever in their pricing policies. "I suspect there is a lot of margin at the moment and potential for prices to be driven down if price competition steps up," said Browne. Consolidation The accelerating growth of the CMO sector is leading to increased investor attention, including from private equity firms, and this will drive consolidation in via mergers and acquisitions but also new entrants as sites move from internal networks, predicted Browne. This consolidation is also being driven by the demands of the pharmaceutical sector and particular big pharma, who are looking for strategic partnerships with companies that can both provide a full development, scale-up and manufacturing service, but also have the scale and provenance to provide assurances that they will be a partner over the long-term. "In many other industries cost is the first factor behind outsourcing. In pharma, confidence that the supply is reliable, high quality and delivery performance outweigh that," said Browne.