Evaluating Competitive Forces in Contract Manufacturing - Pharmaceutical Technology

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Evaluating Competitive Forces in Contract Manufacturing
The author examines the opportunities and positioning of contract service providers.


Pharmaceutical Technology
Volume 36, Issue 2, pp. s30-s32

A multitude of contract service providers compete in the outsourcing segments for API manufacturing and finished drug product manufacturinga. Added to this mix are the contract manufacturing activities of large innovator-drug companies and generic-drug companies. The author examines the opportunities and positioning of such players.


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Contract manufacturing of APIs and finished drug products is an important sector in the pharmaceutical outsourcing market. Although these contract services generally are provided by pure-play third-party providers, such as CDMOs and CMOs, pharmaceutical companies themselves can be a part of the supply base for contract-manufacturing activities. Seeking to monetize internal manufacturing capacity through external manufacturing activities, third-party manufacturing can be an attractive proposition for pharmaceutical companies.

Crunching the numbers

Recent analysis shows moderate to strong growth for contract pharmaceutical manufacturing, depending on the specific sector involved. Global pharmaceutical contracting revenues totaled nearly $218 billion in 2011, and are expected to reach nearly $361 billion in 2016, increasing at a compound annual growth rate (CAGR) of 10.6%, according to recent research by the market research firm Business Communications Company (BCC). BCC divides pharmaceutical contracting into four segments: contract manufacture of over-the-counter (OTC) drugs and nutraceuticals; contract manufacture of bulk drugs and dosage-forms; contract research; and contract packaging.

The OTC drug and nutraceutical segment accounted for nearly $128 billion in 2011, and is expected to grow at a CAGR of 10.9% to reach nearly $215 billion in 2016, according to BCC. Global revenues for contract manufacturing of bulk drugs and dosage forms were valued at $53.4 billion in 2011, and are expected to increase at a CAGR of 10.1% to reach $86.3 billion in 2016. The contract-research segment was worth $30.2 billion in 2011, and is expected to increase to $50.5 billion in 2016, a CAGR of 10.8%, according to BCC. The packaging segment, worth $6.4 billion in 2011, and is expected to grow to $9.3 billion in 2016, a CAGR of 7.8%.

Drilling down specifically to APIs, moderate growth is expected for contract manufacturing of APIs. The global market for APIs for human use was valued at $101 billion in 2010, according to data from the Italian Chemical Pharmaceutical Generic Association (CPA) in its recent report, "Competition in the World API Market." Of the total market value, the captive market (i.e., APIs produced within pharmaceutical companies themselves for their own needs) accounted for 61.4% of the total API market, or $62 billion in 2010. The merchant market for APIs (i.e., APIs sold by third parties) accounted for the remaining 38.6%, or $39 billion, according to CPA. For purposes of this market, "API" refers to the active ingredient and advanced intermediates (i.e., intermediates requiring GMP compliance). The global API merchant market is almost evenly divided between APIs supplied to the generic-drug market and APIs supplied to the innovator-drug market. Of the global merchant market for APIs, generic APIs accounted for approximately 48.7%, or $19 billion, in 2010, and branded (i.e., innovator) APIs accounted for the remaining 51.3%, or $20 billion, according to CPA (1).

The world merchant API market (i.e., APIs sold by third parties) for both generic and branded/innovator APIs is projected to increase at an average rate of 5.1% during the next five years to reach $50 billion by 2015, up from $39 billion in 2010, according to CPA. The demand for generic APIs, however, will outpace growth for branded/innovator APIs. The merchant market for generic APIs is projected to increase at an annual rate of 7.3% to reach $27 billion by 2015. The merchant market for branded/innovator APIs is forecast to increase at the annual rate of only 2.8% to reach $23 billion by 2015, according to CPA. This differential in growth rates will cause the share of generic APIs in the merchant market to increase from 49.7% in 2010 to 54% by 2015 and for the share of innovator APIs in the merchant market to decrease from 51.3% in 2010 to 46% by 2015, according to CPA (1).


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