Executive Summary


This report is an update on the pharmaceutical outsourced manufacturing sector with the last Results’ report published in 2013. By 2015, the global Pharmaceutical market reached $1.11 trillion and is expected to continue growing at approx. 5.5% per annum. Our analysis estimates that the total outsourced manufacturing market reached $71.5bn in 2015 and is growing at 6.6%2. The sector’s faster growth above the pharmaceutical industry is helped by the anticipated transition to more outsourcing, as well as the good growth within particular subsectors. Small molecules dominate the pharmaceutical sector (approx. 83% by revenue) and are expected to continue doing so for some time; however, growing slower than biologics3.

At the time of our last report, the outsourced sector in the West had endured some years of relatively low growth due to the pressure of low cost Eastern manufacturers, compounded by the relatively modest growth in demand for Contract Manufacturing Organization (CMO) services. Since then, there has been a significant trend in repatriation of manufacturing from the East spurred by supply chain security concerns linked with increasing pressure from US and European regulators. In addition, there has been cost inflation in the East which has eroded the competitiveness and attractiveness of Asian suppliers.

Regardless of efforts to consolidate the sector, the landscape of the CMO industry remains fragmented. The major players in the sector only command a 2-4% market share each. This provides opportunities for investment with few significant incumbent majors. With increased competition, European and US CMOs are trying to differentiate in response to low cost competition; One-Stop-Shop is an example of this. Our analysis has found little evidence to support the promoted One-Stop-Shop model, despite the perceived benefits of the model such as simplifying supply arrangements. In the last decades, the cost base has been shaken by Asian competition which has grown to a level where a major proportion of “low value” generic products come from India and China. Recent FDA warnings will need to be addressed by some of these companies, as controls become more stringent.

Based on our analysis, biologics have received heavy investment for new facilities, motivated by anticipated growth and margins, whereas small molecules have been less favored. Overall, pharmaceutical outsourced manufacturing is expected to increase in the coming years. Small molecule outsourced manufacture is expected to grow ahead of the respective pharmaceutical sector, which is helped by outsourcing. High potency active pharmaceutical ingredients (HPAPIs) have also been a sub-segment of attention for investment and differentiation, owing to the regulatory hurdles to operate in HPAPI environments and their foreseen applications in the growth market of oncology. Regarding drug product, acquisitions and investments have in a number of cases favored sterile and aseptic fill, where shortages have been identified, as well as particular device segments.

Overall, the prospects for the sector remain strong, linked to the expected growth in healthcare. There is a strong case for investment in particular segments, subject to appropriate valuation and due diligence. This report highlights some of the trends that should be in the minds of CEOs, CFOs and investors.


To view the report, please visit: http://resultshealthcare.com/insight/pharma-biotech-2017



1  Invoice price basis from Outlook for Global Medicines through 2021, QuintilesIMS

2  Results Healthcare analysis, includes commercial and clinical manufacturing

3  A small molecule is a low molecular weight (< 900 daltons) organic compound that may help regulate a biological process. In contrast, biologics are larger and more complex compounds made by living organisms and their products (e.g. Monoclonal antibodies that are commonly called mAbs)