Driving industry dynamics
There are multiple factors specific to the AF/F industry that cause demand churn, often meaning the supply side of the market has a significant lag in responding to increases and/or shifts in demand.
- Pricey capital expenditures and long build times
Due to strict regulatory requirements and the high level of expertise required to bring a new AF/F facility online, significant capital expenditures and long build times come with any new capacity development. Machine manufacturing is often the biggest bottleneck; these intricate pieces of equipment are hand-tooled, making it impossible to scale production. - Limited space turnover
Pharmaceutical products typically stay on the market for many decades, either in their original branded form or by being transitioned to a generic/biosimilar version. There is a limited cycle of capacity being reallocated after products on the market recede or fail, which means demand must be met by new construction. - Increased AF/F demand and demand fragmentation
The demand for AF/F has increased, as the market must accommodate oral medications as well as other treatments that rely on AF/F, including many biologics that must be delivered via various injectable methods. This acceleration in demand has further increased the burden on existing supply, putting pressure on the ability of current AF/F players to scale supply quickly. Additionally, as products go off-patent, suppliers may find themselves filling requests for generics from many smaller customers instead of working with one larger client. - Regulatory changes
Government regulations and policy is another key dynamic that is impacting AF/F capacity. For example, the Inflation Reduction Act of 2022 incentivizes manufacturers to favor the development of biologics instead of small molecules, shifting the demand placed on AF/F facilities. More regulatory changes are on the horizon with the potential passage of the Biosecure Act, which would limit the ability of certain producers to use China-based contract development and manufacturing organizations (CDMOs) and put further pressure on domestic demand.
A persistent lag
Demand continues to build and add stress to an already oversaturated industry, spurred by a variety of exogenous shocks that have accelerated demand far in excess of what supply can respond to in a limited time frame. It appears that as soon as the industry adjusts to one shock, another is just behind it.
One factor that has driven demand over the past decade is the unexpected success of new blockbuster drugs, which far exceeded original forecasts and created a constant pressure on AF/F facilities to catch up with demand.
Then, as demand started to equilibrate and supply began to catch up to the new level of need, COVID-19 rocked the global pharmaceutical landscape. The quick development of COVID-19 vaccines that immediately needed to be broadly rolled out jolted manufacturing priorities and put acute pressure on supply. AF/F services worldwide pivoted to meet this high-priority need, scrambling to provide the billions of doses that were required.
Once again, as the market adjusted to the manufacturing requirements of the COVID-19 vaccines and supply started to catch up, another shock was right around the corner. The explosion of manufacturing demand associated with glucagon-like peptide-1 agonists, or GLP-1 agonists (known for their efficacy in treating diabetes and now being applied to weight management), delivered with autoinjector technology, again put acute pressure on the system and introduced another steep learning curve. GLP-1s are projected to be a $130+ billion market by 2033, and we can expect this growth to drive continuous pressure on AF/F capacity.
Connecting customers with existing supply
Despite the short-term dislocation in the AF/F industry that impacts capacity, there are AF/F facilities that are either sitting idle or can take on additional work. Often, the challenge boils down to precise matchmaking to pair customers that are currently shopping with available suppliers that can meet their manufacturing needs.
There are many factors that must be considered when vetting suppliers to make sure the company is an appropriate fit:
- Throughput: The supplier must be able to meet the output volume that the customer’s application requires.
- Format: Dosing mechanisms such as prefilled syringes and cartridges require specialized equipment that may not be present in all AF/F manufacturing setups. To meet this shift, more suppliers are investing in flexible lines that can accommodate more needs.
- Handling: Pharmaceutical products require precise handling, and the exact requirements often vary by application. For instance, some require a cold chain throughout the manufacturing process while others may require procedures that keep operators from encountering them. To protect the supply chain as well as those involved in it, it’s important that products are manufactured at facilities that can accommodate specific handling requirements.
By understanding these customer needs and marketing their services to the right clientele, facilities with available supply can fill a vital hole in the AF/F industry by ensuring that all existing capacity is being utilized.
Responding with investment
Recognizing the urgent need for increased capacity to meet demand, investment is pouring into the AF/F market, with some investments as high as $285 million (see Figure 1). Many expansions are scheduled to come online by the end of 2025, and there is a significant focus on expanding prefilled syringe capacity and flexible fill/finish facilities that can more easily switch between different drug formats and volumes. Additionally, there are numerous CDMOs with AF/F capabilities, representing a large list of credible suppliers.