Pharmaceutical and Laboratory sectors Outlook UK 2023
The outlook for the UK pharmaceutical, life sciences, biotech and laboratory sectors (referred to in this article as pharmaceutical and laboratories) is rapidly changing, with many challenging factors persisting and evolving. There is a feeling of a post-COVID adjustment in the industry following the UK focus on vaccine development and production scale-up of the last few years.
So far in 2023 there has been a relatively slow emergence of new capex project schemes. Many that did enter the pipeline in 2023 are experiencing multiple delays – many that Protel started tracking in 2022 are now expected to move forward in the latter half of 2023.
Pharmaceutical manufacturers are under pressure on multiple fronts and there is impetus to move forward with projects into design stage before the end of 2023. It is therefore possible that funding deadlines for new builds could result in more project kick-offs in Q1 2024.
Trends 2023
Pharmaceutical manufacturers are making changes to their operations in 2023 in response to a challenging landscape. Global demand is growing rapidly, with an unprecedented demand for therapeutics which has placed additional pressure on production levels in the industry.
Cell/gene therapy and mRNA vaccine technology have further increased as a focus of capex, from 11% to 21% of the drug development pipeline. This growth continues to open new supply chains and provides opportunities for suppliers of capital equipment and services.
Upcoming EU measures aimed at reducing shortages, improving drug security and targeting anti-microbial resistance may result in the change of the protected period of production of drugs, with unbranded rivals able to enter the market more quickly as a result.
Sustainability and net-zero carbon targets are coming into focus as deadlines loom – many organisations are yet to make concrete plans to achieve these goals within the next 10-15 years and will have to adjust capex plans accordingly.
Other factors such as post COVID developments, inflation, geopolitics, new therapeutic modalities and new modern ways of working are putting further pressure on pharmaceutical producers to reconsider their long-term choices in sourcing, manufacturing and supply chain optimisation. These factors are expected to have major impacts on the emerging capex in the next few years.
Some growth areas include the advancement of digital and analytical tools for production, with cutting edge computing and cloud-based analytics providing real-time optimisation and transparency for producers. This, combined with the desire for pharmaceutical companies to leverage the power of data & AI to become more resilient and agile means the potential is there for global leaders to emerge in this field in the years to come.
Modular buildings are a focus of attention as project delivery speed becomes more of a focus in light of deadlines to kick-off to ensure the allocation of secured private and grant funding.
R&D is still a growth area in the UK, with scale up organisations and university spin-outs still prominent. However, many will be subject to securing funding where there is associated capex planned.
Developer led projects are also prevalent into 2023, suppliers therefore need to know the developer and have good routes to market secured long before the eventual scope emerges and fit-out commences on these schemes.
Challenges 2023
The UK pharmaceutical and laboratory sectors are subject to many of the same headwinds that are challenging the global economy. Many UK producers are looking to reduce capex budgets or get more from their existing budget as inflationary and cost pressures persist.
Post COVID-19, many organisations have seen a reduction in demand and are therefore scaling back production or adjusting capex accordingly. The reasons for this are complex and numerous, but the war in Ukraine and a post-Brexit adjustment feature prominently – with the UK being affected more severely than comparable neighbours.
Energy consumption has become even more of a focus, as continued high costs make some schemes or types of production less viable. A major victim of this is cleanroom production, which can use up to 25 times the amount of energy of non-classified production methods.
Government funding is stalling, compounding supply chain pressures and general disruption to the sector. Inflation means that the cost of labour, raw materials, transportation and construction are all higher than previous, which is also having a stalling effect on the capex plans of pharmaceutical companies.
Many capex projects are being reduced in scope, with fewer new build projects being viable in the current environment. Therefore, Smaller efficiency improvements, reconfigurations and debottlenecking are expected to be prioritised throughout the latter half of 2023.
The procurement route is changing as a result, with fewer EPCM led projects and more traditional work packages where work is split up emerging instead.
Organisations across the whole sector from engineering downwards are required to be flexible, agile and open to collaboration to ensure they can have a successful pipeline of these adjusted capex projects.
Our Coverage
Overall, there is a strong capex project pipeline in pharmaceutical and laboratories. At Protel, we are currently covering 413 active projects in the UK, with 61 of these on-hold or under review. These projects have a combined potential investment value of £14.8bn.
All these projects are available to subscribers – test our platform here.
Summary
In the short-term there is still a great deal of concept and design work ongoing. However, the heavy headwinds facing the UK pharmaceutical and laboratory sectors have slowed project timescales and delayed project kick-off. A demand for products, continuing clinical trials and ultimately, funding will be a potential driver of capex sanction in 2023. In general, there will be more efficiency, op-ex and maintenance type projects, with mission critical schemes to optimise processes and facilities prioritised. There is still a large volume of potential capex for suppliers to focus on in the short term, with a potential speed-up of implementation toward the end of 2023.
Flexibility is key, with those able to target, prioritise and adapt to the changing market conditions more likely to find success in the year ahead. Major investors are still spending a great deal of money on capex, with large volumes of schemes in the planning stages (full details available to Protel subscribers) and suppliers therefore must ensure they are well-placed to capitalise on capex being sanctioned in 2024 as early as possible.
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