25 March 2019
Global healthcare spending continues to increase dramatically and is projected to reach in excess of US$10 trillion by 2022. This investment is driven in large part by the global increase in life expectancy, improved access to medicines and the growth of non-communicable diseases - most prominently cancer, heart disease and diabetes.
Contrary to popular perception, the Life Sciences sector covers a lot more than just pharmaceuticals. Beyond the top-tier pharmaceutical firms we all hear about, the core Life Sciences subsectors include medicine manufacturing, electromedical apparatus manufacturing, medical equipment and supplies manufacturing, and biological and chemical research and development.
In this diverse and highly-specialized group, one thing these businesses have in common is major capital requirements. Here are five trends that are shaping today’s Life Sciences sector — and how they’re affecting associated capital projects.
The life sciences industry as a whole continues to experience mounting pricing pressures, increasing access to drugs globally, growth in new innovations and therapies, and uncertain trade policies. These forces are causing the industry to become more cost-focused. This increased focus is particularly evident in the industry’s capital investments, which tend to be much more targeted than they were just a few years ago. For instance, the rush to build more factories has been replaced by a more patient approach, wherein companies are waiting until they have a new product that has gone through all phases of clinical trials and all levels of regulation before they commit to building a new facility.
The outsourcing of key responsibilities is also becoming more common. For example, many life sciences companies have capital projects planned all over the world, meaning they’ll be spending a tremendous amount of capital over the next few years. However, these companies are simultaneously re-thinking their role in project delivery, choosing to focus more on the core operations of researching, manufacturing and selling their products. So, while their construction is increasing in number and size of projects their staffing is actually going down. This trend is most obviously manifested in the smaller in-house engineering and construction staffs we see today.
That doesn’t mean that life sciences companies are eliminating their in-house capital management personnel entirely. Rather, many companies are moving to a hybrid execution model, leveraging a combination of internal and external resources. Overall though, the trend is clearly towards outsourcing Project Management responsibilities.
Regulations in the manufacturing of pharmaceutical products will continue to rise, as global regulators share information across borders and the entire industry relentlessly pursues product safety. People are ingesting what is being manufactured, and the facility, its equipment, products and even the air quality in the rooms have got to be safe. Meeting these requirements means going through extensive testing and documentation. The process of commissioning and qualifying a facility to demonstrate safety and compliance to governmental regulatory agencies is already time- and resource-intensive, and as regulations continue to increase, so will this phase of a project.
Another trend is heavy investment on behalf of many pharmaceutical companies in the research, development and manufacturing of biologics and other new cancer drugs. Spending on new cancer drugs alone is expected to grow by more than 50% over the next few years, and the production of biologics, in particular — drugs that are derived in some way from living organisms, and have revolutionized the treatment of many cancers and chronic conditions such as multiple sclerosis, arthritis and rheumatoid arthritis, Crohn’s disease and other auto-immune diseases — is expected to skyrocket over the coming several years. However, biologics and cancer treatments are expensive and time-consuming to research, test and produce, often taking many years and billions of dollars of investment before they hit the market.
Mergers and acquisitions continue to dominate headlines in the Life Sciences sector, with big pharma hunting for the next generation of medicines against declining returns on R&D. There has already been a large amount of consolidation in the industry, and experts are projecting that the larger mergers are likely to settle down. Consolidation among mid-sized manufacturers, however, especially among companies looking to take the lead in next-generation therapies or acquire producers that complement the company’s core, will be the trend.
The life sciences industry continues to adapt and evolve to market conditions, a growing global population, increased regulations, stiff competition and various cost pressures. In this complex and dynamic industry, capital projects are a microcosm of healthcare’s broader challenges.