Biopharma's margins can withstand Capex increases after tech sector M&As, expert

By Gareth Macdonald contact

- Last updated on GMT

Biopharma profits high enough to withstand any Capex increases
Biopharma profits high enough to withstand any Capex increases

Related tags: Merck kgaa

High margins mean biopharmas can absorb technology price increases after a year of supplier consolidation according to one industry expert.

The past 12 months been dominated by technology sector mergers. In the past 12 months, Merck KGaA bought Sigma-Aldrich​, Thermo Fisher acquired Life Technologies ​and sold part of its Hyclone business to GE Healthcare​ and Pall bought ATMI’s bioreactor business​. 

While these deals simplify biopharma sectors supply chains – one biologics CMO we asked told us Sigma-Aldrich had added culture media to Merck KGaA’s downstream processing offering - they also “reduce options for supply and ability to negotiate prices​.”

The CMO told us as “larger manufacturers will begin to have a monopoly on the market​ and that customer service can be impacted as acquisitions take time to fit into larger corporations.” 

We put this idea to Dr ​Anthony Walker, partner at biopharma consultancy Alacrita, who said that although it is generally true that fewer suppliers mean it is harder to negotiate on price “I wouldn’t exaggerate the impact, canny purchasing managers still do OK.”

Walker also said even if purchasing managers fail to get the best deals on production technologies, the impact on manufacturing costs and the price of the products will be minimal.

Higher Capex will translate into higher manufacturing costs/amortization which ultimately has an impact on total COGS [cost of goods sold]”​ he said, adding that “again I wouldn’t overemphasize the global effect as the gross margins in biopharma are still high​.”

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