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The pharmaceutical industry plans moderate increases in spending for equipment and machinery in 2008. Investments include equipment for solid-dosage manufacturing, active pharmaceutical ingredients, and parenteral manufacturing.
Capital expenditures, specifically spending on machinery and equipment, are one barometer of the health of the pharmaceutical manufacturing sector. To examine the state of this segment, Pharmaceutical Technology conducted a survey of its readers to evaluate spending levels, spending on equipment type, factors influencing spending, and regional spending habits.
For the purposes of the survey, machinery and equipment refers to machinery and equipment for solid-dosage, aseptic, sterile, parenteral, and active pharmaceutical ingredient (API) manufacturing, quality control and assurance (including analytical instrumentation and laboratory equipment), process control and automation, pharmaceutical packaging, and environmental control.
The survey (see sidebar, "Respondents' profile") was targeted at individuals who operate, work with, process products through, supervise, suggest, purchase, or review expenditures for pharmaceutical machinery and equipment.
Spending levels in 2007
The results of the survey showed that nearly half (47.4%) of respondents increased spending on machinery and equipment over spending levels in 2006 (see Figure 1). Almost a quarter (21.2%) said spending stayed the same, and 14.3% of respondents said spending at their companies decreased compared with 2006 levels.
Spending increases were most prevalent among respondents from consumer healthcare companies (81.8% of these companies increased spending), followed by generic-drug companies (61.5%), analytical services companies (60.0%), contract manufacturers (53.1%), and innovator pharmaceutical companies (41.8%).
The survey also asked how much companies spent on machinery and equipment as both a percentage of sales and an absolute level. The mean percentage of overall sales spent on equipment and machinery in 2007 was 5.3%; the median was 2.1–4%.
Almost one-third (29.9%) spent less than 2% of their sales on machinery and equipment in 2007, 21.2% between 2.1–4%, and 18.2% between 4.1–6% (see Figure 2). Surprisingly, roughly 20% spent more than 8% of their sales on equipment and machinery in 2007.
The mean expenditure on machinery and equipment in 2007 was $59.6 million. The median expenditure was $1–10 million.
Spending trends in 2007
The survey asked companies that increased spending in 2007 whether the percentage increases were greater than in previous years and what type of equipment they purchased.
For those companies that spent more in 2007 than in 2006, 66% said the percentage increase was greater than their 2005–2006 increase, 28% said it was on par, and 2% said it was less.
Generic-drug companies and analytical services companies were the most likely to have increased spending by a greater percentage in 2007 compared with 2006. The survey showed that 83.3% of the respondents from generic-drug companies and 83.3% from analytical service companies said that their percentage increase in spending was greater in 2007 than in 2006. Only 12.5% of generic-drug companies, and 16.7% of analytical service companies said that spending in 2007 was on par with 2006.
Nearly two-thirds of respondents from innovator pharmaceutical companies (63.5%) and contract manufacturers (62.5%) reported a greater percentage increase in spending in 2007, and more than half (55.6%) of respondents from consumer healthcare companies did so.
As Figure 3 shows, companies spent the most on manufacturing and processing equipment (24.6%), followed by equipment and machinery for manufacturing APIs (13.5%) and solid-dosage forms (13.5%).
A different distribution arose when respondents were asked about increases and decreases in spending for various types of equipment and machinery. Companies most frequently increased spending for laboratory equipment (43.8%), quality-assurance and -control equipment (43.4%), and manufacturing and processing machinery (40.7%).
Only about one-quarter of respondents said that their companies increased spending for machinery and equipment in 2007 for solid-dosage manufacturing (26.7%), environmental control (27.2%), API manufacturing (27.5%), and parenteral manufacturing (27.6%). Not only did fewer respondents increased spending in these areas, they also reduced spending in 2007. About 10.3% of respondents decreased spending for equipment for solid-dosage manufacturing, 10.2% did so for processing equipment, and 8.0% did so for equipment for API manufacturing.
Reasons for spending in 2007
The factors that most influenced purchasing decisions in 2007 were compliance with good manufacturing practices (60% reported high impact), expansion of manufacturing facilities (38%), and adding enhancements, upgrades, and/or technology (30%).
Initiatives by the US Food and Drug Administration such as quality by design (QbD) and process analytical technology (PAT) did not seem to influence spending on equipment and machinery in 2007. Only 11.2% of respondents regarded PAT as a high-impact factor in their purchasing decisions, and only 19.7% regarded QbD as a high-impact factor.
Although some pharmaceutical recently announced plans to rationalize manufacturing facilities and increase outsourcing, these two factors did not play a significant role in purchasing decisions for equipment and machinery in 2007. Almost two-thirds of respondents (62.9%) said closing of manufacturing facilities did not have an impact, and 17.8% said it had low impact. Increased outsourcing also did not play a role. Almost one-third of respondents (30.7%) said that increased outsourcing played no role in reducing expenditures on machinery and equipment, and 26.1% said outsourcing had a low impact.
Radio-frequency identification (RFID) technologies also played a small role in influencing buying habits. Half of the respondents said that RFID had no impact, and 30.6% said it had little impact.
Spending projections for 2008
For 2008, respondents to the survey said they plan to spend slightly less than they spent in 2007. The mean percentage (as a percentage of sales) for planned spending increases for 2008 is 4.4%, down from 5.3%, the mean percentage spent in 2007. The median level, however, is stable. The median level of spending (as a percentage of sales) planned for 2008 is 2.1–4%, the same level spent in 2007.
Figure 4 shows the level of spending planned for 2008 measured as a percentage of sales. Almost one-third (29.9%) of respondents plan to spend less than 2%, 21.2% plan to spend 2.1–4%, and 18.2% plan to spend between 4.1–6%. Nearly one-third (30.7%) plan to spend more than 6% of their sales on machinery and equipment in 2008.
Although the level of spending, as measured as a percentage of sales, is projected to decline in 2008, absolute levels of spending are projected to rise slightly. The survey showed that the mean planned expenditure on machinery and equipment in 2008 is $65.9 million. This level is slightly higher than the mean level of $59.6 million spent in 2007.
Spending increases for 2008
More than one-third (36.4%) of respondents plan to spend more on pharmaceutical machinery and equipment in 2008 than in 2007, and more than a quarter (26.8%) plan to spend the same amount (see Figure 5). About 16.5% plan to spend less, and 20.3% do not know whether they plan to increase spending.
For those companies that plan to increase spending in 2008, a critical question is how great the increases. For respondents whose companies plan to spend more in 2008 than in 2007, the mean planned increase in spending is 9.3%. The median increase is 4.1–6%.
Figure 6 shows the percentage by which respondents say they will increase spending in 2008 compared with 2007. Almost 14% say their planned percentage increase will be less than 2%. Roughly one-third (34.0%) say the increase will be 2.1%–4%, and 30.1% say it will be between 4.1–6%. More than 20% (22.3%) report that their planned increases will be greater than 6% compared with 2007.
Of the respondents whose companies plan to increase their 2008 spending over 2007 levels, 66% say the planned increase is greater than their 2006–2007 increase, 30% say it is on par, and 4% say it is less.
Spending allocation in 2008
An important consideration in assessing spending habits is to determine the types of equipment for planned spending in 2008. Respondents most frequently plan to increase their spending on laboratory equipment (31.6%) and machinery for quality assurance and control (30.9%).
Roughly one-quarter of respondents say they will increase spending in 2008 in the following areas: process control and automation (27.9%), processing (27.9%), packaging (27.6%), API manufacturing (24.7%), cleanrooms (21.6%), and parenteral manufacturing (21.2%).
Solid-dosage manufacturing and environment control ranked as the lowest areas for planned spending in 2008. Only 19.6% of respondents said that they will increase spending for equipment and machinery for solid-dosage manufacturing in 2008, and 16.1% for environmental control.
Figure 7 shows the areas in which respondents say they will spend the most in 2008. Roughly one-fifth (21.3%) say they plan to spend the most on manufacturing and processing equipment in 2008. Interestingly, although solid-dosage manufacturing was not a popular area for spending, it was one of the areas in which respondents said they plan to spend the most in 2008. Nearly 15% of respondents said that they plan to spend the most for machinery and equipment for solid-dosage manufacturing. Thirteen and one-half percent ranked API manufacturing as the area for their highest spending in 2008, and 13.1% did so for parenteral manufacturing.
Impact factors for 2008 spending
As in 2007, compliance with good manufacturing practices will most influence purchasing decisions in 2008; 58% report this as a high-impact factor for planned spending for 2008. About 37.9% of respondents ranked expansion of manufacturing facilities as a high-impact factor. Nearly 30% ranked adding enhancements, upgrades, and/or technology as a high-impact factor.
As in 2007, QbD and the PAT initiatives are not strong influences on planned spending for 2008. Roughly half (49.4%) of respondents said QbD had either no impact or little impact on their planned purchases for 2008. Even more respondents (58.1%) say that PAT will have little or no impact.
For 2008, there was virtually no change in regional spending habits. Seventy-four percent of respondents plan to spend in the United States (including Puerto Rico) and Canada, and 14% in Western Europe. In 2007, 75% spent in the US and Canada, and 16% in Western Europe.