Capacity Investment in Biopharmaceutical Contract Manufacturing

Challenge

In 2001 a biopharmaceutical contract manufacturer was looking to invest in new capacity. At that time there was significant industry undercapacity, causing some leading drugs to lose several hundreds of millions of dollars in sales. The industry had reacted with a rush of announcements regarding new capacity investments, but likewise there was a pipeline of potential blockbuster drugs that would keep demand high. If the industry remained in undercapacity, my client had an attractive opportunity. If it tipped into overcapacity, it did not.

Solution

From a detailed bottom-up analysis of products in the global large-molecule development pipeline, correlated against an analysis of the competition and technology trends, we highlighted a large and growing gap between demand for bio-manufacturing capacity and supply, over the period 2001–10. We predicted an expected capacity shortfall of 110 m³ in 2005. However, there were significant risks (see the tornado diagram above). For instance, if Erbitux (cetuximab) failed in its late stage clinical trials, this would free up the 200 m³ of capacity being built for it.

Results

My client decided to proceed with a phased investment, commissioning an initial 30 m³ facility at a cost of €100 million. Faced with unexpectedly high competition from India and China, and with a new technology option having come available, the company decided in 2006 to scale down its contract manufacturing activity. The facility was sold to a Big Pharma company seeking captive manufacturing capacity to support its burgeoning biologics pipeline.

The research and analysis featured in a Business Week major article on biotechnology.