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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. For more information on the areas we cover, click here.
Our previous UK pharmaceutical industry update at the start of 2016 painted a positive picture for the year ahead. We are now able to look back and say that the predicted project investment horizon was largely correct – despite uncertainty, major global economic and political upheaval it was ‘business as usual’ to a large extent.
However, while the negative impact around predicted uncertainty failed to materialise, we are now starting to see the reality of recent political changes impacting on the landscape of pharmaceutical capex investment in 2017. As previously covered, 2016 saw a high level of overall capex investment, both planned and in implementation terms. The outlook for 2017 by comparison is more mixed. So far, we have seen a slower start to 2017 than in the previous year, with many major investors starting to hold back on capex decisions.
The most cited cause of this delay is the political and economic uncertainty resulting from the UK drawing nearer to Brexit. Second, the election of the Trump administration in the USA has signalled major political transition in the US with potentially wide reaching and significant potential impacts on US industrial strategy. The global pharmaceutical market is notoriously susceptible to these political and economic changes, with slowing investment reflecting this uncertainty across the wider market.
At Protel, we are seeing many large project schemes sitting in an early concept or design phase, much of which we have been reporting on for a significant period of time. Opportunities for suppliers do still exist and are expected to maintain into 2017-18, although with fewer new projects entering the pipeline the marketplace is expected to be increasingly competitive.
For UK pharmaceutical companies, Brexit means that there is major uncertainty surrounding future regulatory process, compliance legislation and human resource. The European Medicines Agency is headquartered in London, with the UK currently placed as a world leader in science, innovation and regulatory robustness. Concerns over the relocation of this organisation, along with the UK becoming isolated from common regulatory process means the future global position of the UK as a global producer of pharmaceutical products could be under threat.
With 90 top pharmaceutical industry executives cited as supporting the UK remaining in the EU, it is therefore follows that many organisations are allowing this uncertainty to impact investment decisions, which we are seeing in the projects entering the development pipeline.
The picture is mixed of course, with some arguing that the UK leaving the EU will be an opportunity for pharmaceutical producers, allowing greater freedom from regulation, bureaucratic oversight and increasing competitive advantage – time will tell. GlaxoSmithKline’s post-Brexit announcement of £275m of capex in the UK (we had long before made much of this available on our project search engine, MyProtel) is one powerful endorsement of a major player’s commitment to post-EU UK as a global hub for pharmaceutical production (others include Novo-Nordisk & Alnylam).
Potentially, pharmaceutical manufacturing (particularly bulk) may end up moving away from the UK depending on the currency situation, with the trend instead being toward investment into R&D (e.g. Novo-Nordisk announcing £115m new investment into diabetes research centre in Headington, with manufacturing in Scandinavia). We saw the beginnings of this trend in 2016 and this is potentially an area of future growth in 2017 and beyond.
2016 was a good year in the UK pharmaceutical industry for both large and medium-sized UK engineering houses. Jacobs, Bouygues & Boulting all had a good year in both design and implementation activity. Medium sized Merit-Merrell, WH Partnership, Austin Partnership also all had a positive 2016.
Fluor is making entry into the UK pharmaceutical market. Morgan Sindall Professional is also actively growing UK pharmaceutical activity, mainly looking at larger projects within institutions. SPIE acquired Environmental Engineering and this also incorporates MSS Clean Technology.
Overall, engineering houses are busy with implementation phases of project schemes as we move into 2017 rather than high level enquiries concerned new capex.
With regard to new M&A activity, 2017 would seem to be relatively quiet so far. There have been significant developments over the last year resulting from major deals agreed in the UK pharmaceutical industry in 2016.
Examples of faltering M&A activity would be Teva’s acquisition of Actavis’s generics business which was completed in mid-2016. Teva has since been forced to sell off part of the unit as part of an antitrust ruling to Intas. Further, Pfizer’s bid to acquire Allergan (which would have been one of the UK pharmaceutical industry’s biggest) has subsequently been blocked on the basis of tax inversion legislation.
Strides Shasun also approved the divestment of its UK business based near Newcastle via a management buyout, the new entity is now known as Sterling Pharma Solutions.
As mentioned, R&D investment is expected to continue into 2017. We are seeing many large schemes at Universities across England (Nottingham, Deeside) & Wales. There is also a large amount of advanced manufacturing investment.
A stated trend in 2016 was the continued capex investment in science parks, e.g. Manchester Science Parks, Northumbria Science Park, Discovery Park in Kent, Cambridge Science Park and Thornton Science Park. This is still on the agenda, with multiple schemes currently being tracked on our project database.
We reported on over 300 projects over the course of 2016. Some of the major investors for new and existing capex include:
The outlook is slightly less positive than at the start of 2016. Political and economic turbulence is only now starting to emerge as a slowing of capex in the UK pharmaceutical market. However, there is still a large amount of active investment across the UK pharmaceutical industry (as evidenced in our pharmaceutical project coverage), with plenty of potential for suppliers.
Projects are entering the pipeline but we are seeing final sanction is more often delayed as we move into 2017. It is taking some time for higher level enquiries to filter through, with fewer speculative schemes and enquiries being discussed. It is also likely the trend toward larger projects being delayed or placed on review will continue.
Overall, the outlook is optimistic for the UK pharmaceutical market despite a challenging global picture.
At Protel, we are currently tracking 252 active pharmaceutical projects with a combined potential investment value of just over £5.4bn 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.