BioPharma Supply Cost Trends: April 2024

This report summarises the key issues impacting prices across a range of categories in the Bio/Pharma industry in April 2024:

  • Bioprocess supplies may experience increase in prices due to instability in raw material (plastic) prices
  • Rise in regulatory scrutiny may drive pharma companies to invest in compliance, potentially leading to increased costs and affecting pricing strategies
  • The Red Sea situation, along with the Panama Canal drought, may hike chemicals and API prices due to increased shipping costs and delays
  • The rise in inflation of 3.2% in the US in March 2024 may delay the interest rate cuts until June 2024
  • Prices of lab supplies are projected to increase due to fluctuating raw material prices

Breakdown by category:

Biologics contract manufacturing

Although the global biologics contract development and manufacturing (CDMO) market is poised to register a CAGR of ~13% during 2024–2028, 2024 is expected to showcase a slower growth

  • Key growth inhibitors include drop in sales from COVID-19-related contracts, slowdown in funding and the financial challenges faced by biopharma and CDMO at large
  • In February 2024, New Vision Pharmaceuticals (a US-based CDMO) closed its blow-fill-seal production facility in Tamarac, Florida, and laid off 88 workers due to shutting down of the plant 
  • Muted biotech funding for the past 2–3 quarters has led to fewer early-stage development projects, which is expected to put pressure on the CDMO for the major part of 2024

However, the CDMO market is expected to outpace the overall biopharma market growth by 2028, as CDMOs become increasingly vital.

  • During the pandemic, several pharma companies built their own manufacturing facilities, which the companies are now either selling or spinning off into their own CDMOs (due to high costs involved)

Bioprocessing supplies

The SUS1 market is expected to continue seeing price increase due to volatile feedstock prices

  • In February 2024, HDPE prices increased slightly by 0.3% M-o-M in Europe, whereas in the US, the prices reduced 1.7% M-o-M; the prices are expected to uptrend in March and April 2024, driven by supply tightness and rising feedstock (ethylene) prices

Gamma irradiation (using cobalt-60 radioisotopes) is considered the standard method of sterilising SUS; however, suppliers are now moving towards X-raw sterilisation as an alterative

  • Although cobalt prices in China declined ~1% M-o-M in February 2024 and reduced 4.4% M-o-M in the US in January 2024, the overall cost associated with production of its radioisotopes is very high; additionally, the high demand for gamma irradiation has caused issues in supply chain

Cell and gene therapy

The cell and gene therapy market is experiencing growth due to rise in the use of allogeneic cell therapy, as it offers advantages such as simplified processing and manufacturing, positioning the industry for positive expansion

  • In February 2024, the US PPI for pharma preparation manufacturing increased 0.4% M-o-M
  • In February 2024, the PPI for other biological product manufacturing in US remained stable, reflecting steady pricing dynamics within the sector

Moreover, rising investments in the field are expected to boost technological advancements and enhance treatment effectiveness

  • In 2023, top pharma companies increased their R&D budgets significantly, as evidenced by Merck investing $30.5 billion (a 126% Y-o-Y increase), Johnson & Johnson investing $15.2 billion (a 6.7% Y-o-Y increase) and Novartis investing $11.4 billion (a 23.9% Y-o-Y increase)

Regulatory compliance, submission and audit

Pharma companies may need to invest more resources in ensuring compliance with regulatory standards set by the US FDA and other international regulatory bodies; this increased regulatory focus could result in higher compliance costs, which may influence pricing strategies

  • In March 2024, Sun Pharma (an India-based pharma company) recalled ~55,000 bottles of Febuxostat, a generic gout medication, from the US market due to deviations in current good manufacturing practice (cGMP) regulations
  • In March 2024, the Indian government established a high-level panel to review the pricing framework for drugs and medical devices; the panel has a mandate to submit its report within 3 months, which can lead to adjustments in the pricing of pharma products and medical devices
  • In February 2024, the US FDA announced its plan to increase inspections of Indian drug manufacturing units in 2024 due to concerns over drug quality, which may prompt pharma companies to invest in upgrading facilities to meet regulatory standards; these additional costs could potentially be passed on to consumers through higher drug prices

Small molecule manufacturing: Chemicals and APIs

The attacks in the Red Sea pose risk of supply disruptions of key pharma ingredients and chemicals, especially from APAC (India and China) to the US and Europe

  • Due to the forced reroute through the longer channel, rise in shipping costs can be passed on to API buyers in regions that typically import these goods from APAC
  • However, due to their healthy profitability, pharma companies will be able to absorb the higher freight costs and pose a lesser risk of price increase compared to other categories such as agriculture

The Panama Canal drought poses a risk of significant supply chain disruption of pharma APIs and chemicals due to reduced shipment traffic, especially between Asia and the US East Coast; shipping prices on the route may shoot up hundreds of dollars per FEU container

In February 2024, the PPI for US pharma and medicines manufacturing increased 0.5% M-o-M, while the PPI for US chemicals and allied products increased 0.9% during the same period

Drug discovery and clinical trials

Many clinical research sites in the US are exposed to financial risks due to the current inflation

  • With majority biopharma sponsors having a 90-day payment cycle, clinical sites suffer lower profitability; also, since many clinical sites operate at lower margins, delayed receivables impact their ability to reinvest operating profits in technology, quality management systems and training

Pharma companies are extensively adopting AI tools, mainly GenAI, to cut drug discovery cost, dramatically reducing the expense associated with failed drug candidates

  • As per a February 2024 report by EY, GenAI has the potential to lower early-stage drug development costs from 25% to 50% and accelerate failure identification

Wages account for >40% of the total cost involved in discovery and clinical research; due to the ongoing shortage of qualified and experienced researchers, the suppliers’ teams comprise only a few highly qualified (PhD) and experienced researchers

  • The US average hourly earnings for education and health services increased 3.7% Y-o-Y and 1.4% M-o-M in February 2024; an average US employee now earns >$33.9 per hour

Medical devices

Electronic parts, including those needed for medical devices, may be at increased risk of disruption due to the ongoing Red Sea attacks

  • A typical electronics consignment from Taiwan to Netherlands takes ~25 days via the Suez Canal; this distance can increase >35% if rerouted via the Cape of Good Hope, taking ~34 days and thereby increasing costs

In February 2024, India has approved allocating up to $15 billion to build 3 new semiconductor plants to take on China, Taiwan and other countries in the chip race

Government initiatives to stabilise pricing and improve transparency are ongoing; in February 2024, the EU Council endorsed measures to address medical device shortages by extending transition periods for high-risk in-vitro diagnostic devices (IVDs) and rolling out the electronic European database on medical devices (EUDAMED) gradually

Analytical laboratory and processing equipment

The US PPI for analytical lab instrument manufacturing increased 2.0%, while that of HVAC and commercial refrigeration equipment increased 0.8% M-o-M in February 2024

Capital expenditure and investments in the biopharma sector are expected to slowly take up in 2024 (after a steep decline in 2023), majorly due to potential ease in fiscal policies

  • In December 2023, the US Federal Reserve decided to keep interest rates constant and outlined plans for at least 3 rate cuts in 2024; however, the rise in inflation of 3.2% in March 2024 may delay the rate cuts until June 2024, as the Federal Reserve seeks to balance economic and price stability
  • According to the Bank of America, the ECB is expected to start cutting interest rates in June 2024, indicating the possibility of over 4 rate reductions by year end

In analytical laboratories, skilled labour is required to operate sophisticated equipment such as chromatographs, spectrophotometers and mass spectrometers

  • According to the Q2 2024 ManpowerGroup Employment Outlook Survey, 77% of healthcare and life sciences employers report difficulty in finding the skilled talent they need; this shortage may lead companies to raise wages to attract skilled workers or invest in training programmes

Lab supplies: Plastic ware, glassware and reagents

Up to 65% cost of manufacturing lab supplies is attributed to raw materials, which include HDPE, glass and polypropylene; Q2 2024 is expected to witness an inflation of 1–2% within the lab supplies category

  • The Houthi attacks in the Red Sea have potential to impact the global plastics prices
  • In February 2024, HDPE prices increased 0.3% M-o-M in Europe, whereas in the US it reduced 1.7% M-o-M; the prices are expected to uptrend in March and April 2024, driven by supply tightness and rising feedstock (ethylene) prices

Lab chemicals are also experiencing disruptions due to the ongoing Red Sea attacks, as the rerouting will impact the shipment of ~24% chemicals, the delays of which are already impacting prices in the US

  • The US PPI for chemicals and allied products increased 0.9% M-o-M in February 2024 and are expected to increase.

Primary packaging: PVC/PET, glass and aluminium packaging

Blister packaging for pharma products typically involves raw materials such as aluminium, PET and PVC, while HDPE is used for bulk drums

  • The prices of PVC (suspension) increased 31.2% M-o-M in the US in February 2024, and prices of PP copolymer increased 5.6% M-o-M during the same period; consequently, companies such as Orbia (a Mexico-based PVC manufacturer) announced the indefinite suspension to construct a PVC plant in US Gulf Coast
  • Prices of PET (bottle-grade) in Europe increased 8.8% M-o-M in February 2024, whereas its prices in the US remained stable
  • Global aluminium prices dropped 0.5% in February 2024; in March, prices are forecast to increase 1% M-o-M in line with rise in restocking activities after the spring festival holidays in China, recovery in demand from the downstream automotive sector and elevation in feedstock (alumina) price

Biologics and injectable drugs are typically packed in glass or plastic vials and ampoules

  • The US PPI for glass and glass product manufacturing dropped 0.1% M-o-M in February 2024

This category update is powered by The Smart Cube, a WNS Company. For more procurement intelligence, visit Amplifi PRO

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