There wasn't much of a contract services industry when BioPharm International began publishing 20 years ago. Today's big names in biomanufacturing, including Lonza, Boehringer-Ingelheim, and Avecia, had
not yet entered the business. On the fill-and-finish side, only Ben Venue Laboratories and Vetter were focused on contract
work. Options for development services were very limited: Microbiological Associates (now known as BioReliance) and AAIPharma
were among the few companies offering analytical and formulation support. On the clinical research side, firms such as Quintiles
and PPD were just a few years old. Revenues of the contract services industry probably didn't amount to more than $100 million.
The story is very different today. Contract services for biopharmaceutical companies, including preclinical and clinical development,
and manufacturing of active ingredients (APIs) and dosage forms, is a global industry with revenues approaching $50 billion.
At least five companies generate annual revenues of $1 billion or more, and several dozen now top the $100 million mark. Publicly
traded contract research and manufacturing companies (CROs and CMOs) carry high valuations and, at least until this summer's
turmoil in the credit markets, services companies commanded high multiples from private equity investors.
The rapid growth of contract services for biopharmaceutical companies can be traced back to the mid-1990s, when several favorable
- The earliest biopharmaceutical products, including human growth hormones and epoetin, had achieved commercial success. Monoclonal
antibodies, after failing to live up to their initial hype, were showing promise thanks to the development of humanized forms.
- Venture capital was available in unprecedented amounts. The boom in information technology was attracting large amounts of
capital into venture funds, and thanks to these successes, a significant share of that money found its way into early stage
biopharmaceutical companies. Rising valuations for all stocks, including biopharmaceutical companies and a strong market for
initial public offerings (IPOs), made investments in early stage biopharma companies especially attractive.
- A robust pipeline of small-molecule candidates was driving the growth of the CRO and CMO sectors. Anxious to continue their
mid-decade winning streak of new products launches, major pharmaceutical companies aggressively supplemented their internal
capabilities by contracting with CROs. For a while, it seemed that anyone with a telephone and an e-mail address could open
a clinical research organization. A number of CROs and CMOs went public during this period, including Quintiles, PPD, Covance,
BioReliance, and AAIPharma.
The second half of the 1990s and early years of this decade saw the build-up of the parenteral manufacturing sector, which
has been critical to the growth of the biopharmaceutical business because most biopharmaceuticals are delivered by injection
or infusion. PharmSource estimates that the parenteral segment of the contract dose manufacturing industry has grown to nearly
$3 billion in revenues.
Acquisition was initially the major avenue for build-up of the parenteral CMOs:
- Patheon bought parenteral manufacturing facilities in the UK and Italy from Roche;
- Catalytica bought the Wellcome facility in Greenville, NC, from GlaxoWellcome, then sold it a few years later to DSM;
- Baxter entered the industry by buying the facility built by Cook Industries in Bloomington, IN;
- Cardinal Health (now Catalent) acquired SP Pharmaceuticals in Albuquerque, NM (a former Pharmacia facility), and Federa in
- Private equity investors acquired a Bayer facility in Spokane, WA, and created Hollister-Stier.
Investment activity didn't stop at acquisition. The acquirers, along with other large players, including Hospira (then part
of Abbott), Ben Venue (acquired by Boehringer-Ingelheim), and Vetter, poured hundreds of millions of dollars into capacity
expansions, especially for lyophilization and prefilled syringes.
Combined with the expansion in cell culture and fermentation capacity (see the article by Tom Ransohoff in this issue), the
expansion in parenteral manufacturing capacity has offered biopharmaceutical companies the opportunity to focus their cash
resources on product development rather than investing them into expensive manufacturing assets. This has reduced the risk
of biopharmaceutical product development considerably, and increased the industry's attractiveness for venture capital investors.