Measuring the market
Determining the size of the contract-manufacturing market is a methodological challenge. The biggest obstacle is the fact that most CMOs are either privately owned and do not report their financial results or are part of larger corporations that usually do not break out their CMO revenues in their financial reports. Although good research can overcome some of these problems, determining market size ends up requiring some amount of "guesstimation."Another methodological problem is defining what is included as "contract manufacturing." Many published reports are unclear about what they are measuring, which can lead to widely divergent market-size estimates. Understanding a given market size estimate requires that the reader and user fully appreciate what is being measured. Some of the dimensions that must be considered are discussed below:
Given the potentially broad dimensions of the CMO industry, users of market-size data must be clear about the applicability of the data they are using. PharmSource recently published its own estimate of the size of the dose CMO market, Dose CMOs by the Numbers—2012 Edition. We measured the market for contract manufacturing of a client's formulation under FDA, Western European, or Japanese GMP standards and built our estimate based on extensive research of company revenues and revenue modeling.
We (PharmSource) arrived at a contract-dose manufacturing market size of $13.7 billion in 2011. That was up 7% from 2010, but that growth rate includes revenue from facilities that became contract-manufacturing sites during the year after they were acquired by CMOs from biopharmaceutical/pharmaceutical companies. The organic growth rate (i.e., the growth of revenues at facilities that were in CMO networks in 2010) was 6%. We estimate that overall, dose CMOs accounted for 22% of the biopharmaceutical/pharmaceutical industry's dose-related cost-of-goods in 2011.
Of course, size and growth are not the only dimensions that matter for the health of the industry. Contract-dose manufacturing suffers from overcapacity, especially for solid-dose forms, and the intense competition to sell capacity means that only a minority of dose CMOs make reasonable profits. Further, global biopharmaceutical/pharmaceutical companies continue to show a strong preference for building captive manufacturing, shutting CMOs out from some of the most attractive segments of the market.
We continue to believe that a consolidation of the industry will happen sooner rather than later, driven by developments in the broader economic and financial environment. When that happens, the industry may not be so big or growing at the same rate, but it will be getting healthier.