Global Supply and Procurement March On...

The European CMO market gets even more crowded, while global sourcing takes several big steps forward.
Nov 02, 2006

Jim Miller
The CPhI and ICSE trade shows, held this year October 2–4 in Paris, provided the opportunity to take a comprehensive look inside the global pharmaceutical chemical manufacturing industry as well as the European dose-manufacturing sector. This year's meetings provided signs that several trends are continuing to drive the industry, including pharmaceutical company consolidation, the growing importance of Asian producers, and the overcrowded European dose-manufacturing market.

The weeks immediately preceding this year's meetings saw a rash of major acquisition announcements in Europe. Three major transactions were announced: the acquisition of Schwarz Pharma (Monheim, Germany) by UCB (Brussels, Belgium), Nycomed's (Roskilde, Denmark) acquisition of Altana Pharma AG (Konstanz, Germany), and Merck KGaA's (Darmstadt, Germany) acquisition of Serono (Geneva, Switzerland). These deals follow by several months the acquisition of Schering AG by Bayer. All four transactions reflect the realization by both buyers and sellers that mid-size regional players have little chance for success in an industry increasingly dominated by large global players.

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The consolidations will have some interesting implications for the contract manufacturing industry. Although UCB and Schwarz Pharma are already major outsourcers, the other companies have extensive captive manufacturing networks with substantial excess capacity. The integration of the companies could result in more contract manufacturing opportunities if facilities are closed as a cost-saving move, or it could result in even more capacity being thrown onto a market that is already swimming in capacity.

In fact, two of the acquiring companies—Nycomed and Bayer—were at CPhI/ICSE flogging excess dose manufacturing capacity. Nycomed was there to offer the parenteral manufacturing capabilities of its Linz, Austria, site and the blow–fill–seal capacity available at its Elverum, Norway, site. Bayer, aggressively promoting its dose-manufacturing capabilities, had a very large presence in the ICSE hall. Its offerings included parenteral, solid dose, and nonsterile liquid manufacturing and packaging services at sites in Leverkusen and Grenzach-Wyhlen, Germany. The Bayer facilities are FDA-compliant, which gives them a leg up over most of the competitors in Europe.

The efforts by Nycomed and Bayer only threaten to exacerbate the oversupply situation in the European market, where dedicated global CMOs (defined as those with FDA compliance), regional CMOs (including those spun off from pharmaceutical companies), and branded and generic-pharmaceutical companies are all competing for business. Competition is intensifying as the Western European CMOs and generics houses lose more business to manufacturers in Eastern Europe and Asia. Major dedicated CMOs such as Nextpharma (Gottingen, Germany), Haupt (Berlin, Germany), and Vetter (Ravensburg, Germany) are increasingly looking to the North American market for future growth.

A shake-out is badly needed in European contract manufacturing business, but labor laws and the regional nature of much of the buying behavior make this seem unlikely. Efforts by major pharmaceutical companies to consolidate their supply bases may provide an impetus for supplier consolidation, but the process promises to be painful.

If you can't beat them . . .

Two major pharmaceutical manufacturers announced new ventures that seek to leverage the cost advantages of Asian suppliers.

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