The European pharmaceutical contract manufacturing market earned revenues of $10.02 billion in 2011, and this will double to $20.75 billion by 2018, according to new forecasts.

Over the same period, the European market for biotechnology contract manufacturing will expand from a value to $1.21 billion to an estimated $2.67 billion, says the report, which is published by Frost & Sullivan.

Increasingly, Big Pharma companies are viewing the outsourcing of manufacturing as a strategic move that can enable them to focus on their core competencies such as R&D, according to the study. At the same time, the patent expiries on key blockbuster drugs worth $45 billion and biologic products valued at $30 billion are expected to reduce the capacity utilisation rates of their manufacturing facilities, thereby making outsourcing a viable option for pharmaceutical and biotechnology companies, it adds.

"As pharmaceutical and biotech companies strive to enhance their internal core competencies, outsourcing is likely to become increasingly entrenched as a strategic manufacturing option," says Frost & Sullivan research analyst Aiswariya Chidambaram.

"The impact of the economic crisis, coupled with the poor performance of the venture capital industry in Europe, has underlined the popularity of contract manufacturing as it has become synonymous with cost-cutting and the timely entry of products into the market," she notes.

In parallel, with a number of blockbuster drugs coming off-patent for Big Pharma and biotech companies, the utilisation rates of manufacturing plants are likely to reduce by half, and this is set to trigger an increase in outsourcing of manufacturing by major drug companies, according to the report. Currently, large firms in the sector contribute 10%-25% of the total revenues of contract manufacturing organisations (CMOs) in Europe, and Frost & Sullivan anticipates that these percentages will rise to 40% by 2013 and then 50% by 2018.

However, the report also warns that stringent regulatory requirements are likely to put CMOs under pressure. As the regulatory environment in Europe becomes progressively stricter as a result of issues relating to contamination, safety compliance and drug recalls, gaining regulatory approvals will constitute a major chunk of fixed costs for these organisations, it forecasts.

But despite these challenges, the study forecasts that prospects for the market are extremely buoyant. It expects the market for contract manufacturing in Europe to show a compound annual growth rate (CAGR) of 10.9% during 2011-18, while within the biotech sector the CAGR over the period is forecast to be 12.1%.

"Although the demand for manufacturing capacity is rising, a careful weighing of benefits and risks is required by CMOs while planning capacity expansions, lest they be hit by overcapacity which, in turn, could lead to the acquisition of smaller CMOs by larger ones," Ms Chidambaram cautions.

But she adds that: "promisingly, there is tremendous untapped potential for CMOs which are properly positioned and at the forefront of technology in the capital-intensive and technology-driven contract manufacturing market."