The worldwide pharmaceutical market is very lucrative for pharmaceutical producers and also for equipment suppliers, service providers and consultants. a number of capital projects have been initiated and completed worldwide, creating what appears to be the ideal growth market for companies that specialize in the design and delivery of pharmaceutical plants and equipment.
In contrast to enormous growth in the chemical and power generation plant engineering industries during the boom years, the big winners in the pharmaceutical sectors were suppliers of specialized equipment. Engineering service providers and contractors continue to face stiff competition for projects worldwide. Events on the Emerald Isle are one reason for the competitive nature of the market. Government subsidies at the end of the 1990s and the beginning of the new millennium helped Ireland to become the world’s sixth largest pharma producer within the space of a few years. Production volumes reached € 14.9 billion in 2006. In the wake of these developments, highly capable engineering service providers based on the Anglo-Saxon model were set up. When government funding came to an end, suppliers increased their focus on continental Europe.
There is also another significant difference compared to the chemical plant design & construction market. The customer base ranges from multinational corporations, which have in-house production operations, to family-managed SMEs (particularly in Germany) and specialist contract manufacturers. The products and manufacturing techniques can also vary considerably, ranging from conventional pharmaceutical active ingredients to biopharmaceuticals. The demands are equally complex, including conceptual design, basic and detailed engineering, project management and contractual terms and conditions.
Opportunities for consolidation
Specialized engineering service providers have evolved over the years, which have adapted to the structure and requirements of the industry. However, consolidation in the engineering services sector has taken place in recent years in response to more stringent regulatory requirements (e.g. by the U.S. Food and Drug Administration FDA) and increasing schedule and cost pressures as well as the demand for globally active service providers. And the pressure has not subsided. In the wake of the recent boom, chemical plant engineering service providers have been able to exercise greater influence on contractual terms and conditions, but competition in the pharmaceutical plant engineering sector remains intense. “Most customers still have a strong preference for lump-sum pricing agreements or pricing on actual expense with upper cost limit on their projects,” explained Ralf Roepenack, Managing Director of NNE Pharmaplan. In addition to fixed pricing, customers also try to impose penalties for schedule overruns or even when project team members are replaced. It is essential for engineering service providers to carefully scrutinize RFQs as part of their risk management program. “If the customer sends out requests for lump-sum bids, then the system/plant description will have to be very detailed,” emphasizes another planner.
Fast Track projects
Time pressure generally becomes extreme when an original pharmaceutical product moves into the marketing phase. “Fast Track” project management helps cut down time to market. A number of decisions relating to the production process are made up front in contrast to the conventional methodology where a number of changes are made during the implementation phase. The fast-track approach can save a lot of time. Plant owners who take the fast track approach have to be prepared to accept some degree of risk. Orders for subsystems with long lead times have to be placed before the process is finalized. Fast track also has an effect on system configuration. As many parts as possible must be prefabricated. Subsystems are produced as skids and modules. In contrast to the chemical industry where individual solutions are regarded as a competitive advantage, there is a trend towards standardization in the pharmaceutical industry. “It often happens that similar plants in a corporation generate very detailed individual requirements profiles. Given the incessant increase in cost pressure and the need for regulatory compliance, we are forced to standardize parts”, said Dr. Bernhard Luy, Managing Director of the pharmaceutical engineering company Glatt.
Sometimes less is more
Very lengthy specifications and contracts are a constant source of irritation. A 1,500 page specification for a fermenter is just one example of extreme attention to detail. Yet the hope remains that plant-level standards will become less important in the future and the industry will rediscover the advantage of pragmatic specifications on increasing cost pressure.
A number of suppliers which have to deal with very lengthy specifications and RFQs do not share this optimism. Christian Stark from Christ, which specializes in ultra-pure water treatment systems, claims that “both contractors and plant owners are contributing to the proliferation of specifications. Customers for the most part used to accept our proposals, but engineering firms now often generate their own standards.” The problem for specialist suppliers is that they are often reluctant to draw attention to incorrect RFQ documentation or specifications which do not reflect the current state of technology for fear of being excluded from the evaluation process.
Increasing focus on cost
Increasing cost awareness on the part of customers will have an effect not only on the project but also on production. It will not necessarily reduce the willingness to invest in technology, but it will focus attention on production costs. And there, technology is decisive. “As batch sizes continue to decrease in the pharmaceutical industry, the proportion of overall production costs, which are directly related to quality control, continues to increase,” explained Werner Zesch from international management consultants Arthur D. Little.
In the future, engineering service providers and equipment suppliers will have to address another trend in the pharmaceutical industry. Customers are striving for operational excellence which will help them reduce costs and ensure product quality. A reduction in throughput times is one element of this strategy. It gives producers greater flexibility to react to market needs. As a result, modular design will become an increasingly common feature of system architecture. Cost pressure is not the only factor driving change in engineering and technology. New classes of active ingredients are also having a noticeable effect. New system designs are needed to meet growing market demand for biopharmaceuticals (world market in 2006: 58.5 billion euros), because cleaning following the fermentation process is currently creating production bottlenecks. Dr. Hermann Allgaier, Managing Director of the pharmaceutical firm Merckle Biotec, is convinced that in the future these processes will run to an increasing extent in disposables. The production systems, from the reactor to the purification filter, are thrown away rather than cleaned after they are used. Compared to a stainless steel system, the amount of cleaning and cleaning validation effort is drastically reduced. It also takes less time to construct these systems, because scale-up is much simpler. “The approach can substantially reduce the amount of basic and detailed engineering effort,” explained Allgaier.
Summary: Owners, contractors and suppliers will have to work more closely together in the future. Owners will need to take a holistic approach and be willing to optimize their existing process. Producers will also have to be prepared to accept greater project risk, especially when the schedule is very tight.
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