UK Pharmaceutical Industry Outlook – 2019

In our previous article covering the UK pharmaceutical sector, we wrote that the capex outlook for 2018 was positive despite a great deal of uncertainty. Investment plans were moving through the pipeline and major investors were making decisions.

Unfortunately, the picture emerging is now one of delay. Larger capex projects in the UK pharmaceutical industry are less likely to go ahead in the next few quarters than those of a small scope, with many expected to remain delayed until 2020.

At the start of 2019 we saw a great deal of early-stage capex plans emerging from UK pharmaceutical manufacturers. The larger schemes however will take some time to get going, with many not reaching the procurement phase until 2020.

Many larger schemes, such as those that comprise a large masterplan, are being divided down into smaller projects. As such, we are starting to see a larger number of upgrades, maintenance and expansions rather than larger new-build capex projects for the year ahead.

We were seeing that the outlook for capital expenditure (capex) projects was continuing along a relatively Brexit-resistant ‘business-as-usual’ path in the UK pharma sector, as companies pressed ahead to maintain innovative drug pipelines and service global demand. Since then, confidence has definitely cooled.

The uncertainty we previously reported a year ago still very much exists, and there is little sign of this changing in a meaningful way for 2019/2020. UK pharmaceutical giants still lack regulatory and trade certainty, and as such the investment picture is expected to remain cautious, uncertain and in flux. Major decisions are either being delayed or placed on hold to a much greater degree.

However, there is still a large amount of capex in the pipeline, but the shape and speed of this investment is changing for 2019-2020.

Major investors in capex projects emerging in the last 12 months include (data taken from our MyProtel project search engine, full details available to subscribers):

• Reckitt Benckiser Healthcare– £87m
• University of Oxford/London School of Hygiene & Tropical Medicine – VMIC – £40m
• Ipsen – Wrexham – £70m
• Becton Dickinson – Plymouth – £30m
• Allergan – Speke – £30m
• Accord Healthcare – Steriles facility – £12m
• MSD – Milton Keynes – £16m
• Piramel Healthcare – Grangemouth & Morpeth – £20m
• Stevenage Bioscience Catalyst – £50m
• FujiFilm – £25m
• GW Pharma – Additional phases – £20m
• Smith & Nephew – £20m
• Wasdell Packaging – £35m
• DePuy Synthes – £35m
• Great Ormond Street Hospital – £20m
• Oxford Nanopore – £100m

The Protel View

There are fewer large project schemes coming through the pipeline. Those that are at concept stage are taking much longer in general to progress, with many being placed on-hold. Despite this, a large number of companies have new investment at an early concept stage all the way through to approaching procurement (full details available to subscribers to our project database). We previously wrote about GSK as an example of a major player who had moved away from large-scale investment, which was expected in 2019.

Since then, this has only become more pronounced, with some project activity expected not to kick off until very late in 2019 or even slip into 2020.

We have seen capex shift slightly away from larger primary production facilities to smaller research, development and testing facilities. The quantity of projects hasn’t dipped in a significant way – but the total potential investment value has, on average, gone down. This means there is plenty of potential for suppliers of capital equipment and associated services, but the marketplace is likely to become increasingly challenging as companies compete to win smaller capex schemes.

Engineering House Activity

The UK pharmaceutical industry in general has further shifted toward engaging smaller engineering companies to design and/or deliver the increasingly smaller scale capex. As a result, the landscape is extremely competitive with a greater focus placed on cost. Larger players are being sometimes overlooked in favour of engineering houses that can provide lower cost solutions.

Engineering houses are overall still very busy, albeit with many commenting that they are seeing some of the larger schemes from clients delayed. There are still resourcing and capacity concerns in some cases. However, there is increasingly work from smaller manufacturers or smaller projects on offer from large manufacturers and it is thought this will continue during 2019/20.

Mergers & Acquisitions

Moving into 2019, M&A activity in the previous period underwent a significant upturn in 2018 compared to 2017.

GSK acquired Novartis’ stake in the combined consumer health joint venture. This was followed up with a deal to merge its consumer business with Pfizer. This is intended to lead to a split up of the UK operation into two separate businesses in three years time. Novartis’ decision to move away from high volume products, through their closure of the Grimsby site, toward low volume, specialist drugs is a good example of some of the changing activity in the UK pharmaceutical sector.

GSK has seen changes resulting from restructuring prompted by the appointment of a new CEO. This has started to produce new capex plans at sites such as the aseptic suite at Barnard Castle. However, activity has mostly remained on hold across its other UK sites including Montrose and Irvine since 2018.

GSK also divested the Horlicks brand to Unilever as part of the same strategic review. In late 2018 GSK acquired TESARO, an oncology focused company based in the US to help build drug pipeline and general capability in this area.

AstraZeneca divested from respiratory drugs through sale of three drugs to Covis Pharma, only three years after the acquisition of the drugs from Takeda. As such, we are not expecting to see much movement on capex for the next 6 months, although a number of upgrades are ongoing.

Takeda completed it’s acquisition of Shire in early 2019, formerly headquartered in Hampshire but having more recently relocated to Dublin.
Catalent acquired Juniper Pharma Services to strengthen drug development.
Sanofi acquired Bioverativ Inc, with Recipharm acquiring the Sanofi Holmes Chapel site.

Advanced Medical Solutions Group acquired Sealantis to enhance capability in access to internal surgery opportunities.

Smith & Nephew acquired Ceretix Orthopaedics.

Dechra Pharmaceuticals acquired AST Farma and Le Vet.

Wayland Group of Canada has acquired Newcastle based Theros Pharma, to access the UK medical cannabis market.

Finally, there may be potential arising following an agreement between Chippenham based Vectura and Hikma for the global development of generic versions of GSK’s Ellipta dry powder inhaler.

Major Trends

We previously wrote of the boom in cell therapy and advanced therapy projects in 2018. We are seeing this continue from strength to strength in 2019. This is supported by a Government announcement of a second round of industry investment in this area.

R&D remains a major growth area, mostly due to continued strong government aspirations in this area. £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.

Following the move of the European Medicines Agency to Amsterdam, it still remains unclear what the UK’s regulatory position will be going forward. Doubtless manufacturers will be hoping to remain in an aligned position with European standards to facilitate trade. The worst case would likely involve the UK setting up a parallel system of approval which may end up delaying access to the market for new drugs or products.

We also expect more organisations to ensure their access to the European supply chain and marketplace, with many making plans to ensure a European presence going forward while maintaining a strong presence in the UK.

Conclusion

The overall outlook is less positive than previously expected in 2018. The number of large-scale investment schemes that are progressing and may offer opportunity for 2019 is reduced. As plans are altered or reassessed we expect delays to procurement for many larger capex projects, which may drag into 2020.

Suppliers need to ensure their focus is on the capex that is progressing, which is smaller-scale upgrades, improvements and R&D-focused projects. There is plenty of opportunity available for the year ahead, but it may be that suppliers need to be flexible in the type of project opportunity they target and prioritise.

It will be imperative to keep up-to-date as timescales shift and small, fast-moving projects enter the pipeline. While these smaller jobs may have previously been ruled out, we anticipate they will be increasingly important in the year ahead.

Pharmaceutical Sector Project Bulletin Coverage – UK

At Protel, we are currently tracking 222 active pharmaceutical projects with a combined potential investment value of just over £4.08bn in the UK.

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