UK Pharmaceutical Industry Outlook – 2018

Protel tracks capex project activity across the main process sectors to help suppliers win new business. In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the process manufacturing industries in one of our covered regions – the UK pharmaceutical industry. For more information on the areas we cover, click here.

Challenging landscape for the UK pharmaceutical industry persists as investment begins to pick up

We reported in our last industry outlook covering the UK pharmaceutical industry that the outlook for capital expenditure (capex) projects was continuing along a relatively ‘Brexit’-resistant business-as-usual path.

The uncertainty for the UK pharmaceutical giants stemming from the current regulatory and trade uncertainty still persists, but the resulting investment picture has become a little clearer in the UK for 2018 into 2019. The overall outlook for 2018 appears to be more positive in comparison to that which we saw in 2017, as we are seeing a more investment plans moving through the pipeline. Major investors are making more decisions on capex after a period of postponement.

We started to see a slow down in Q3 2017 as projects were delayed and companies held back on major capex decisions. This trend seems to be continuing into 2018 with the exception of a number of companies who had already committed to capex in 2017 – these projects have been developed and are coming to fruition.

Major investors for sanctioned capex projects include (data taken from our MyProtel project search engine, full details available to subscribers):

• Ipsen – Wrexham – New Innovation Campus
• Seqirus – Liverpool – New filling plant
• Becton Dickinson – Plymouth – Medical device production expansion
• Bio Product Labs – Elstree – Site redevelopment masterplan
• Sterling Pharma Solutions – Cramlington – New milling micronisation and solid form facility (MASF) & laboratory and pilot-scale plant expansion
• MSD – London – New R&D facility
• Smith & Nephew – Hull – New K5 processing plant
• GSK – Barnard Castle – New Aseptic Facility
• GSK – Ware –me Ellipta 4
• Cell Therapy Catapult – Stevenage – CTC – Phase 2
• Centre for Process Innovation – Sedgefield – National Formulation Centre
• Manchester Science Partnership – Macclesfield – Site expansion masterplan
• Cambridge Science Parks – Cambridge – New bio-incubator

Contributing Factors

It is still very much the case that Brexit is setting the narrative for investment decisions in 2018. Some contingency plans and strategic reviews are reaching their conclusions, with major producers now committing to investment plans that are aiming to hedge against a ‘no-deal’ scenario with the European Union.

An example of this is the GlaxoSmithKline decision to shelve £350m of investment at Ulverston. (Protel have been tracking the project since 2010 [subscribers see ref: 5547]). The subsequent announcement that this capex is now shelved amid a comprehensive strategic review seemed to mark a change in the mood toward the end of 2017. Despite this decision, there is still £140m of investment that we are tracking across the 3 main GSK sites.

Other major investors who have large schemes still pending sanction include (data taken from our MyProtel project search engine, full details available to subscribers):

• GSK – Montrose
• AZ – Macclesfield
• UCB – Slough
• Teva – Runcorn
• Fujifilm – Billingham
• NAPP – Cambridge
• Boots – Nottingham
• Sanofi – Holmes Chapel

Another major factor affected capex plans for the UK pharmaceutical industry is the challenge of the future regulatory process for the drugs. With the European Medicines Agency relocating from London to Amsterdam, ensuring continuity of access to the European pharmaceutical market is a major issue for UK producers. Licences for products will need to be renewed or transferred, and this carries with it high cost implications.

As such, there is a move toward construction of duplicate testing facilities in European countries, to help ensure that UK-based pharmaceutical companies can supply uninterrupted.

The Protel View

There are still a number of large project schemes coming through the pipeline. A large number of companies have new investment at an early concept stage (full details available to subscribers to our project database). As an example of the changing make up of investment in 2018, we understand that GSK are currently not expected to sanction any individual projects over c£10m in 2018, with their larger investment to follow in 2019 instead.

We have seen the mix shift slightly away from larger primary production facilities to smaller research, development and testing facilities. Protel has reported on over 250 projects progressing over the course of 2017. Of these, nearly half were new projects entering our system, so there is clearly plenty of investment both in the early stages, and moving toward procurement for 2018. This means there is plenty of potential for suppliers of capital equipment and associated services, but the marketplace is likely to become increasingly competitive.

Engineering House Activity

The UK pharmaceutical industry’s shift toward smaller, more fast-paced investment has led to many engineering companies tendering for the same schemes. As a result, the landscape is extremely competitive. The move away from larger investment projects has levelled the playing field somewhat, as smaller organisations can better compete with larger companies on smaller to medium scale schemes.

EH’s are on the whole still busy, with some commenting that they are seeing more of the larger schemes from usual clients delayed. However, they are increasingly seeing work from smaller companies and it is thought this will continue during 2018.

Mergers & Acquisitions

Moving into 2018, M&A activity is a stronger compared to the start of 2017. There have been some significant developments over the last year.

Fareva acquired Boots Contract Manufacturing, as such projects have been placed on temporary hold. Sanofi has acquired biotech firm Bioverativ, further strengthening its position in rare disease treatment. Autifony Therapeutics have entered into a commercial supply agreement with Boehringer Ingelheim, which gives Boehringer exclusivity to purchase Autifony assets to treat serious CNS disorders. Blue Earth Diagnostics and GE Healthcare have signed a UK manufacturing agreement to establish the manufacturing of Blue Earth’s positron emission tomography (PET) imaging.

Drug development company Ergomed has agreed a co-development partnership with Allergy Therapeutics, the collaboration will support the commercialism of Allergy Therapeutics OralVac Platform. PCI Pharma Healthcare has acquired Millmount Healthcare to expand European pharma and contract manufacturing services. Syngenta was acquired by ChinaChem.

Instrumentation business Spectris has acquired Concept Life Sciences (drug discovery) to add tech capability to their analysis division. Selcia custom radiolabeling have been acquired by Eurofins testing company. In addition, there have been a number of smaller drug discovery takeovers.

Major Trends

Drug discovery companies are competing to generate the next generation of antibiotics with an eventual commercial scale up inevitable. A number including Bicycle Therapeutics, Medherant are looking to secure investor grant funding. This is likely to be a long drawn out process – up to ten years to scale from clinical trials to commercialisation – so no imminent investment is planned, but we’re expecting to see this start to filter through in the coming years.

R&D is continuing very strongly in the UK pharmaceutical industry, the government’s industrial strategy is aiming to bring Universities together with small, medium and large scale businesses to collaborate and commit to further investment in the UK. This involves attempting to raise R&D to 2.4% of GDP by 2027, delivering an increase of £80bn over the next 20 years. £146m of government money in the next 5 years is already committed across a number of areas, for example, advanced therapy, medicines and vaccine development and manufacturing.
Expansion of cell and gene therapy centre in Stevenage, currently at second phase of £12m to double capacity (Protel covered this scheme in 2016 [subscribers see ref: 14752]).

UK advanced therapy SMEs experiencing rapid growth and investment including Oxford Biomedica, Toughlight Genetics and Adaptimmune. The number of UK companies has increased from 22 in 2012 to 64 in 2017, which shows it as a promising growth area. MSD and Qiagen announced a combined investment in the UK of more than £1bn. Merck Healthcare established £30m life science research centre in London and Qiagen Diagnostics to develop a genomic campus in Manchester.

Artificial intelligence is currently being explored for its applications in pharmaceutical diagnostics and is a potential growth area. Potential benefits could include deploying informatics and data analytics platforms to inform clinical operations teams of emerging trends.

Pharmaceutical Sector Project Bulletin Coverage – UK

At Protel, we are currently tracking 207 active pharmaceutical projects with a combined potential investment value of just over £4.8bn in the UK.

Summary

The overall outlook looks quite optimistic, with some areas of concern. The government’s industrial strategy looks to be providing a significant boost for the UK pharmaceutical industry for 2018 into 2019. However, there is undeniably a significant amount of uncertainty out there which is still affecting project timescales.

It is therefore essential for suppliers interested in this industry to keep a watchful eye on the rapidly changing timescales and investment horizon in the sector for 2018. With projects that have been paused for some time suddenly reaching sanction and beginning to progress, correct timing of approach is therefore vital. Many industry players are watching the likes of GSK and AstraZeneca to see in which direction they decide to head and following accordingly. Fewer big projects will keep the landscape very competitive – the good levels of investment still planned or about to become underway become even more vital for suppliers in 2018.

For more information on any of the organisations, projects or trends covered, including key information required to target specific projects, please contact us.