As manufacturing capacity halves, CMO revenue could double in Europe

With blockbuster drugs coming off patent, there will be lots of excess manufacturing capacity in Europe, and that could provide a chance for contract manufacturers to expand there.

At least that is how Frost & Sullivan is reading the tea leaves. Contract manufacturing has already become synonymous with cost cutting in Europe, the consulting firm says, leading more big pharmaceutical companies to use contract manufacturing organizations (CMOs). It predicts that plant utilization could be halved in the next 5 years or so as patents fall away, further fueling the contract manufacturing trend.

The markets for pharmaceutical and biotech contract manufacturing in Europe should double over the next 6 years, reaching $20.75 billion and $2.67 billion, up from $10.02 billion and $1.21 billion respectively last year, Frost & Sullivan says in a release touting new research. Big Pharma currently accounts for 10% to 25% of CMO revenue in Europe but the consultancy thinks that will grow to 40% by next year and 50% by 2018.

Some European CMOs are already looking at expanding. Just last week, Recipharm, said it had obtained a 5-year, €90 million ($114 million) loan from Swedbank AB, intending to expand current production and look for good buys in the industry.

However, there are some gray clouds on the European horizon for CMOs. The consultants say that regulations are likely to become stricter as the industry faces concerns over contaminated drugs, recalls and safety issues. That is likely to put downward pressure on the CMO industry's revenue as it becomes more difficult to get drugs approved. Still, it projects that from 2011 to 2018, CMOs should realize a compound annual growth rate of 10.9% in pharmaceutical work and 12.1% in biotech work. As long as the industry doesn't get overzealous and overbuild, Frost & Sullivan says the future looks good to it. 

"Promisingly, there is tremendous untapped potential for CMOs which are properly positioned and at the forefront of technology in the capital-intensive and technology-driven contract manufacturing market," analyst Aiswariya Chidambaram says.

- here is the release

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