Small-molecule active pharmaceutical ingredient (API) facilities are proving to be especially difficult to sell, except for
those with high-containment capabilities. Wiederseim estimates that there are more than 500,000 gall. of chemical API capacity
for sale in North America and nearly 1 million gall. worldwide.
Several factors are driving the sell-off of pharmaceutical chemical facilities, including the decline of legacy products,
the shift of production to tax-favored countries such as Ireland and Singapore (at the expense of other European countries
and Puerto Rico), and the increase in sourcing from India and China. Also, the trend toward high-potency APIs means that companies
need far less production capacity for a given volume of finished-product sales.
Wiederseim says that there are far more sellers than buyers of pharmaceutical facilities, so the market is likely to remain
weak. One of the best options for pharmaceutical companies seeking to sell properties is to find a buyer interested in converting
the site to another use besides developing or manufacturing pharmaceuticals.
Some recent examples include Pfizer's (New York) manufacturing facility in Augusta, Georgia, which has been converted into
an ethanol plant; Bayer (Leverkusen, Germany) site in West Haven, Connecticut, which has been bought by Yale University as a research campus; and
the former Pfizer site in Skokie, Illinois, which Forest City Enterprises will convert into a bioscience incubator.
While CMOs have been eager buyers of pharmaceutical facilities in the past, we expect few, if any, of them to be buyers today.
Ten years of experience in tinkering with their business model has taught CMOs several valuable lessons about the dangers
of facility acquisitions, among them:
1. Having a few highly-used facilities is more likely to lead to success than having a lot of half-used facilities, no matter
how cheaply they can be bought
2. In an industry where the cycle for negotiating a contract and starting production is three years or more, a 3–5 year contract
for legacy products isn't really much of a head start
3. Borrowing money to buy facilities can lead to disastrous results [just ask Inyx (New York), which recently was put into receivership over loans taken to finance facility acquisitions].
Reflecting these lessons, CMOs have shown strong discipline of late. For instance, we know a number of CMOs would love to
have an injectables manufacturing facility in North America, but none have taken a serious run at any of the facilities on
the market. They aren't willing to inherit the problems of some of these facilities, and aren't ready to pay a steep price
for the newer sites.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903,
fax 703.383.4905, info@pharmsource.com
,
http://www.pharmsource.com/.
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