Capital expenditure (CapEx) compound annual growth rate (CAGR) of public pharma companies increased by 4.7% between 2014 and 2018, with mega or large cap collectively accounting for approximately 75% of the total 2018 CapEx spending despite accounting for less than 5% of the companies analyzed. Moreover, five mega cap bio/pharma companies accounted for 27% of the CapEx in 2018. These findings highlight exactly why contract manufacturing organizations (CMOs) find it hard to improve the outsourcing rates from mega or large pharma companies, which often invest in their own manufacturing capabilities/facilities rather than choosing to outsource, says GlobalData, a leading data and analytics company.

The general trajectory is that CapEx is rising for all of the different market cap categories with the mega cap group’s expenditure rising the fastest.

The company’s latest report, ‘Bio/Pharma CapEx Trends – 2019 Edition’, characterizes  pharma companies CapEx through a number of quantitative dimensions, including by company market cap, growth rate, compared to their revenue growth, by company headquarter geography, and also characterizes the manufacturing services being gained or enhanced by CapEx projects. The largest public pharma companies have had their individual CapEx projects detailed since a completion date of 2016.

In recent years, the largest public companies have heavily invested in biologic and injectable capabilities. The increasing amount of large pharma CapEx projects involving both active pharmaceutical ingredient (API) biologics (protein and peptide) and injectable manufacturing is influenced both by the shift of the drugs pipeline to biologics and to the lucrative nature of biologic and high-potency injectable sales.

Adam Bradbury, Pharma Analyst at GlobalData, commented: “The continuously rising overall CapEx across different market cap groups reflects the technological shift that the drug industry has been undergoing toward more complex drug production, from small molecule products to biologics. An increasing number of high-potency drugs are being trialed for oncology, and solubility technologies are more frequently needed for poorly soluble APIs.”

Even with their relatively modest levels of CapEx, CMOs can continue to play a critical role in the bio/pharmaceutical industry, even for the mega cap pharma companies. Often, a CMO’s investments will be in the form of mergers and acquisitions (M&A) rather than CapEx, because these contract service providers have a tendency to buy already-existing facilities from other CMOs or pharma companies rather than constructing new facilities.

Bradbury concludes: “Dual sourcing, where a product is both manufactured in-house and outsourced, has become a key part of the manufacturing strategy for many larger pharma companies as a way to manage supply chain risk and financial risk. Understanding why large pharma outsource their production for strategic reasons rather than out of necessity and adjusting contract manufacturing. CapEx can potentially yield manufacturing relationships for CMOs with lucrative pharma companies.”

Information based on GlobalData’s report: Bio/Pharma CapEx Trends – 2019 Edition