Outsourcing Outlook
Outsourcing Outlook
March 2003
Jim Miller, PharmSource Information Services, Inc.
Pharmaceutical Technology
Contract research and manufacturing is entering 2003 on a high note with strong fourth-quarter results and record backlogs
for new business in clinical research. However, signs of softness have appeared in a few segments.
CROs offering Phase II?IV services are particularly upbeat about prospects for 2003. All companies reported a strong flow of new proposal requests with the average proposal size up significantly, reflecting a pickup in Phase IIb and Phase III research activity. Nearly all enjoyed substantial increases in their order backlog, which provides the basis for forecasting
future results. Privately held CROs PharmaNet (Princeton, NJ) and PRA International (McLean,VA) reported at the recent UBS Warburg Health Care Conference in New York, New York, that 80?100% of their projected results for 2003 were already on the books.
This bright outlook for 2003 comes on the heels of a strong 2002 for many clinical CROs. Revenues were up 15?30% at most reporting CROs (e.g., PRA International doubled its revenues thanks to its acquisition of CroMedica last year) (see Table I).
The downside to this positive outlook appears in some areas that have been strong in previous quarters. Executives at Charles River Laboratories (CRL,Wilmington, MA) characterized the CRO services market as ?shaped
like a barbell,? with strong demand for latediscovery services and Phase II?III, but with soft demand in the preclinical and Phase I segments. CRL officials have noted increased price competition for preclinical services as competitors, including Covance (Princeton, NJ) and Inveresk Research (Cary, NC), add capacity. Covance executives didn?t speak directly of
market softness in preclinical services but suggested that it would take a while to fill justcompleted preclinical capacity. PPD Inc. (Wilmington, NC) executives revealed a 12% decline in their bioanalytical testing revenues and said that their Phase I business was flat.
The downturn in early-phase services is undoubtedly related to continuing problems in biotech funding. The pipelines of young biopharmaceutical companies are concentrated in discovery and early development phases, and with limited internal capabilities, those companies are highly dependent on CROs. Because public capital markets have been closed to biopharmaceutical companies for the past two years, many of those companies have had to discontinue development of all but one or two of their most promising compounds. Those cancellations directly affect CROs, which have made conscious efforts to increase the presence of biopharmaceutical companies in their business mix.
Several contractors said that selling cycles for biopharmaceutical companies had lengthened in recent months. Cambrex (Baltimore, MD) noted the effect of tighter budgets among biopharmaceutical companies and blamed decision delays for causing its biomanufacturing operations to run at less-than-full capacity. Parexel International (Waltham, MA) also observed
that outsourcing activities in the biopharmaceutical segment had become more competitive.
Sterile manufacturing expansion
Sterile-products manufacturers, experiencing strong demand for their fill?finish services, are in the midst of a apacityexpansion binge. Projects worth more than $300 million are in various stages of development or completion.
The largest undertaking is at Ben Venue Laboratories, Inc. (Bedford, OH), which is spending $110 million to upgrade its existing plant and to add 150,000 ft2 of manufacturing space. The added capacity will serve both Ben Venue?s contract business and the requirements of its sister company, Bedford Laboratories, a provider of generic injectable products.
The renovation of the existing facility included building a segregated cytotoxic?genotoxic manufacturing suite, which was undertaken at the behest of the United Kingdom?s Medicines Control Agency. The facility makeover also included the addition of two tunnel-type continuous filling lines, which reduces the handling of materials and enhances sterility, and a substantial increase in capacity for making water-for-injection.
The $80-million, 150,000-ft2 addition to the Bedford facility includes installation of six 400-ft2 lyophilization units, which will give Ben Venue a total of 21 production lyophilization units. The expansion includes two tunnel-type continuous filling lines and a terminal sterilization unit.
At least three contract sterile manufacturers are spending upwards of $50 million to upgrade capacity. Abbott Laboratories? Hospital Products Division recently broke ground on a $50 million expansion of its McPherson, Kansas, facility. Few details are available yet, but the expansion will include additional lyophilization capacity. Abbott?s contract manufacturing unit (Abbott One2One) is the largest in the sterilemanufacturing segment.
Cardinal Health (Dublin, OH) recently announced a $20-million expansion of its Albuquerque, New Mexico, facility (the former SP Pharmaceuticals site), which will triple its lyophilization capacity. Lyophilization capacity is also part of the investment program at Cardinal?s Raleigh, North Carolina, facility, which is becoming operational following its purchase from Schering-Plough last year. Cardinal is also upgrading the former Matrix Pharmaceuticals manufacturing facility in San Diego, California, for the manufacture of clinical trial materials.
Patheon Inc. (Toronto, Canada) is in the midst of a $50-million program to upgrade its sterile-manufacturing operations,
spread among three sites in Europe. The initiative includes upgrading and expanding lyophilization capacity at the Monza and Ferentino, Italy, facilities. Those facilities, plus the sterile-liquid operation in Swindon, United Kingdom, are being brought up to FDA compliance standards because a large portion of the committed increased capacity is for North American companies.
Among the other large contract sterile manufacturers, DSM Pharmaceuticals(Greenville, NC) has announced an expansion
that will bring its lyophilization capacity up to 12 commercial units, and Baxter Pharmaceutical Solutions (Bloomington, IN), known for its large prefilled-syringe capability, has not yet announced its latest expansion plans.
Smaller contractors also have expansion plans underway. Draxis Pharma (Montreal, Quebec, Canada) is tripling its lyophilization capacity with the addition of a 254-ft2 unit, and Akorn (Decatur, IL) is installing two 200-ft2 units but is wrestling with financial and regulatory problems. Hollister-Stier (Spokane,WA) recently installed its first lyophilization unit and has plans for a $15?20 million expansion if it can arrange appropriate funding.
Although increased lyophilization capacity is a major driver for many of the capacity expansions, boosting prefilledsyringe
capacity is another important impetus. Brussels, Belgium?based Federa, a subsidiary of Intercare plc (Harrogate, UK), is building a new $20- million facility for expanded capacity for its prefilled-syringe and ampulfilling services. The new Federa facility, which will be operational in 2004, is being built to comply with FDA?s GMP standards. Vetter Pharma-Fertigung
(Ravensburg, Germany), another prefilled-syringe specialist, recently added capacity for 70 million liquidprefilled syringes.
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