Water for Pharmaceuticals: Opportunities in the developed and emerging markets

The drop in income for pharmaceutical companies caused by the ‘patent cliff' has led to a sea change in the market for water and wastewater services. This sector of the market is set to see significant growth in the years to come, led by burgeoning demand in developing economies such as Brazil, India and China. The expiry of numerous blockbuster drug patents within a relatively short period of time has resulted in significant profit erosion for pharmaceutical companies .An industry used to enjoying double-digit growth has had to deal with the impact of these expiries on its P&L, and lower profit figures have made it necessary for the industry to look for new ways to manage its costs. Ongoing market consolidation has also resulted in downsizing and the closure of manufacturing facilities.

The industry changes have inevitably affected the landscape of the water for pharmaceuticals market. Maximising profits is a clear priority for pharmaceutical companies, and water-related players are feeling the pinch from their pharma clients. In a market where companies were once known as big spenders on the very best quality equipment, pharmaceutical companies are now opting for lower-cost solutions. Remaining competitive is crucial for suppliers to the segment, and water companies are also having to keep a close eye on their margins. Nevertheless, there are still a number of opportunities available within the industry, which will see solid growth over the next five years. The market for capital expenditure on water supply and wastewater treatment in the pharmaceutical industry will be worth an estimated $714.1 million in 2014. With an annual growth rate of 6.4%, this figure is expected to hit $916.3 million in 2018.

Developing markets

Established pharmaceutical markets in the United States, Western Europe and Japan are the largest by revenue, a situation that will continue over the four-year forecast period. Having been hit by the brunt of the patent cliff, mature markets in Western Europe and the United States in particular are struggling with slow growth figures. Due to the sheer size of these markets, however, the size of the water services market is still significant, despite coming largely in the form of upgrades and expansions at existing facilities.

The market for water services in the US pharmaceutical industry is set to grow at a moderate pace, from $141.9 million in 2014 to $159 million in 2018. The picture is similar in the Western European market, where growth is likely to edge up from $194.6 million in 2014 to $210.8 million in 2018.

In Japan, meanwhile, the growth in spending on water for pharma is expected to be higher, at around 4% a year. The government is promoting the increased use of generic drugs, allowing for expanded production capacities. In addition, premium pricing guarantee reforms will also go some way to alleviating the effects of the patent cliff.

Developing countries hold the majority of opportunities within the water for pharmaceuticals market, with China leading the charge. With an average annual growth rate of 17.6% over the forecast period, China is expected to be the fastest-growing region for spending in the water for pharmaceuticals market. Investments of $68.3 million in 2014 are set to rise to $130.7 million in 2018.The level of growth is being driven by the growing expectation of an increasingly large and affluent population in China, which will result in increased spending on improved healthcare and pharmaceutical products. For water-related companies, the opportunities can be found in projects offered by international pharmaceutical companies manufacturing in the region. In India, investment in water will also see impressive growth over the forecast period. This is linked to the government's plan to expand pharmaceutical exports by 2016 and overtake the market for domestic pharmaceutical consumption. The key driver here is the increase in active pharmaceutical ingredient production and contract manufacturing for generic or cheaper drugs. Over the next four years, this market will see a growth rate of 13.8%, reaching $124 million in 2018. The Brazilian pharmaceutical market has been active for about a century, and as such, international pharmaceutical manufacturers already have a strong presence. These players offer great potential for water companies to enter the market, particularly after a recent spate of acquisitions in the region. The market growth rate, estimated at 9.8% from 2014 to 2018, will be driven by the Brazilian government's plans to promote local generic drug production. Spending is expected to reach $38.9 million by 2018.

Technology trends

In the 1990s, the pharmaceutical industry was known for investment in water technologies, a focus on innovation and an unwavering demand for quality and expertise. The drop in income caused by the patent cliff has brought the industry down to earth with a bump. Pharmaceutical companies now give priority to low-cost rather than best-quality systems. To stay viable in the market, water technology providers are moving towards offering standardised solutions instead of more expensive customised solutions.

The trend that holds the most opportunities for the water sector is the potential for outsourcing the water and wastewater management aspects of the pharmaceutical industry. Previously, risk averse pharmaceutical companies were generally against third parties operating their pharmaceutical-grade water treatment plants. But the advent of the patent cliff has caused some companies to shift perspective. The expansion of general engineering contracts to include both process water and wastewater systems is on the rise. Veolia Environnement was awarded an extended contract with Novartis in 2014. Part of the five-year contract, which is worth $1.275 billion, involves the management of facilities generating potable water, ultrapure water and demineralised water streams, as well as wastewater management. The cost reduction approach being taken by pharmaceutical companies can result in opportunities for private water companies, with the need to achieve more efficient and optimised operations in terms of water use and energy consumption. Identifying low-cost solutions for retrofitting existing plants holds additional potential.

For pharmaceutical companies, one major problem is how to deal with the presence of micropollutants. With the industry anticipating regulatory changes around the world on micropollutants, pharmaceutical companies are looking to get ahead of the problem. Water technology providers have an opportunity to benefit from the need for cutting-edge systems that can handle micropollutants, and need to identify the appropriate technology combinations to achieve the most efficient and cost-effective results.
Global Water Intelligence August 2014
The GWI Analysts' report Water for Pharmaceuticals: Opportunities in the developed and emerging markets is available now, priced at £1,200/$2,185. Order online

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