Few pharma plants will be sold to CMOs; report

26-Nov-2009 - Last updated on 26-Nov-2009 at 11:44 GMT

Related tags Pharma companies Bristol-myers squibb

The recent wave of M&A will lead to manufacturing over-capacity at pharma companies but only a small number of these sites will be sold to CMOs, in part because of the facilities’ suboptimal locations, according to a report.

Many pharma companies are facing manufacturing overcapacity, or more accurately an excess of unsuitable production facilities, caused by a combination of mergers and acquisitions (M&A), globalisation and changes in requirements, such as the rise in biologics.

Consequently companies are looking to offload sites and, according to a report by real estate company CB Richard Ellis (CBRE), some of these will be sold to contract manufacturing organisations (CMO).

This is a route pharma has used in the past, for example Bristol-Myers Squibb’s sale of a facility in Australia to Sigma Pharmaceuticals, and is often accompanied by a manufacturing contract to ensure the seller still has enough product to meet demand.

By doing this the pharma cuts its overheads and receives a cash injection while retaining supply and the CMO gains an established manufacturing facility and often a fixed term production contract.

However, the report by CBRE predicts that a small proportion of the facilities pharma offloads in the future will go to CMOs. The majority are predicted to be sold and redeveloped for alternative use, with a small number being converted to manufacture non-pharma products.

Tellingly, 80 per cent of survey respondents, who consisted of real estate leaders in each of the top ten global pharma companies, said that their manufacturing capacity was in suboptimal locations.

This is a historic issue, with many pharma companies still occupying locations which were chosen decades ago, and is yet to be resolved because of the huge costs and timescales associated with relocating the facilities.

Respondents listed availability of skilled labour, robust regulation, government support, presence of existing pharma manufacturing, transport infrastructure and partners, such as CMOs, being located in the area as they key criteria for selecting a manufacturing location.

CBRE predicts that the sites pharma offloads will mainly be commercial scale manufacturing plants, which struggle to compete against Asia and Eastern Europe, with pilot plants remaining in established markets for scale-up processes.