Healthcare Contract Manufacturing Market

Market Overview

The global healthcare contract manufacturing market revenue was valued at USD 255.11 billion in 2022. It is estimated to reach USD 1,201.32 billion by 2031, growing at a CAGR of 18.80% over the forecast period (2023–2031). The expected rise in regulatory compliance requirements is projected to drive the demand for various consulting services such as remediation, compliance, and QMS. This will contribute to the growth of the global market for medical device outsourcing.

A corporation and a manufacturer will enter into a contract for the manufacturer to produce a certain quantity of components or goods for the firm within a certain time frame. The products produced will bear the company's name or logo, commonly referred to as private-label manufacturing. This practice is referred to as outsourcing when it is conducted across national boundaries.

Manufacturers offer their service using their designs, formulas, and specifications unless the customer provides their own. They will manufacture these products for any party with a contractual agreement, including rival companies. Pharmaceuticals, medical equipment, and other components, as well as various services related to drug manufacturing, are all provided by contract manufacturers to the healthcare sector.

Market Dynamics

Global Healthcare Contract Manufacturing Market Drivers

Implementation of International Standards by Contract Manufacturers

Contract manufacturers are a better choice than those in India and China since they adhere to international standards for quality management systems, particularly in developed nations like the U.S., EU nations, and Japan. However, regulatory adjustments in developing nations guarantee contract manufacturers' adherence. The demand for regulatory compliance is anticipated to increase demand for several consulting services, including remediation, compliance, and QMS, and consequently support the expansion of the global market for medical device outsourcing. For instance, it is anticipated that Indian GMP standards for medical equipment will be compatible with the ISO 13485 quality management system. The demand for QMS services in the nation from OEMs and contract manufacturing firms is anticipated to rise. As a result, supporting market expansion.

Drug Shortage Driving the Demand for Pharmaceutical Development

Lack of internal resources, manufacturing capabilities, expertise, and budget constraints are significant factors resulting in a drug supply shortage. Contract service providers are considered an effective approach to curb issues of drug shortfall and meet the demand. The lack of resources and budgets has prompted many pharmaceutical manufacturers to establish mutually beneficial relationships with CMOs and CROs.

Contract service providers are attempting to meet their client's expectations and provide highly sophisticated manufacturing facilities. Political turmoil, economic hardships, and mismanagement have also contributed to emerging countries' shortages. This global drug shortage emphasizes the need for the development of pharmaceuticals, which is anticipated to bolster demand for pharmaceutical contract manufacturing services.

Global Healthcare Contract Manufacturing Market Restraint

Threat of Information Loss

OEMs in the medical devices market are bound to share proprietary information about their products, collaborations, and agreements while outsourcing to third-party vendors. This creates the risk of data theft or loss, which might hamper OEMs' business. Therefore, OEMs are still hesitant to adopt outsourcing as a cost reduction, which directly hampers the market's growth. There is also a threat during medical device design transfer. Medical devices are no longer relegated to clinics and hospitals. There is tremendous pressure to augment the Internet in the medical industry, which has led to the growth of wearable or portable medical devices.

They are also categorized as IoT devices that use the Internet to transfer data. Therefore, they are subject to cybersecurity threats, and, as a result, the PCBs they consist of must meet severe design and development standards. Though preventing unauthorized access to medical information is tremendously important, it is not the only security threat that medical devices encounter. Almost all device design transfers to manufacturers today are performed over the Internet through email or data uploads, potentially leaking it to unauthorized access. This is expected to restrain the market growth.

Global Healthcare Contract Manufacturing Market Opportunities

Commercial Success of Biologics for Clinical Use

Concerns regarding the use of conventional synthetic drugs have been mitigated in part by the development of biological drugs. These artificial medications have negative side effects because they are made of artificial substances that are not naturally found in the human body. Therefore, biopharmaceutical companies are implementing biological processes to create biologics that target more than 100 diseases. Biopharmaceuticals encompass vaccines, gene therapies, cell therapies, and monoclonal antibodies. The emergence of biologics enables tackling pitfalls associated with synthetic drugs/biosimilars, which drives demand for contract manufacturing services within the pharmaceutical industries. This rising demand for outsourcing services for biologics development can be attributed to the manufacturing complexity of biologics.

Biopharmaceutical manufacturing processes are sensitive and intricate in addition to being complex. A slight change in any of the factors, such as temperature, is likely to impact the safety and efficacy of the final product. These factors are expected to contribute to the growth of contract manufacturing services for biologics production. In July 2020, GSK received FDA approval for its new Nucala formulation for treating adult and pediatric patients suffering from Hypereosinophilic Syndrome (HES). With this approval, Nucala became the first targeted biologic treatment approved for patients with this eosinophil-driven disease in the US.

In 2020, 53 new molecular entities and novel therapeutic biologics were approved by the FDA's Center for Drug Evaluation and Research (CDER). In 2015, 48 biotech drugs or biologics were approved by CDER. These approvals exhibit the success of biologics and biosimilars. This success is expected to accelerate the growth of the contract manufacturing and contract research services market during the forecast period. The need for higher potency, a new dose form, and biologic fill/finish by biologic manufacturers is anticipated to boost the adoption of contract services in the near future.

Regional Analysis

Region-wise, the global healthcare contract manufacturing market is segmented into North America, Europe, Asia-Pacific, Latin America, and the Middle East and Africa.

Asia-Pacific Dominates the Global Market

Asia-Pacific is the most significant global healthcare contract manufacturing market shareholder and is estimated to register a CAGR of 20.12% during the forecast period. Asia-Pacific is among the most attractive markets for contract manufacturing. This can be attributed to supportive regulatory reforms, especially in nations like India and China, and cost-saving opportunities present in Asian countries. cGMP-compliant facilities and established regional market players are also expected to fuel market growth. Moreover, China is a leading producer of low-cost electronic chips and products. The region also has a high degree of business ease because of its low manufacturing costs, favorable tax laws, and reasonably priced skilled labor. Therefore, it is expected to attract a significant number of investors.

North America is estimated to grow at a CAGR of 17.40% during the forecast period. As per an article published by CNN Business, the labor costs in China are nearly 4% less than that in the U.S. The cost and time involved in offshore production also reduce the cost-effectiveness and productivity of the manufacturing process. Therefore, improved productivity due to domestic manufacturing is anticipated to fuel market growth. High client satisfaction is also expected to fuel the country's contract manufacturing growth. For instance, according to a Consumer Reports, Inc. study, 8 out of 10 Americans prefer a Made in America product over an imported one. In contrast, according to another study published by the Inc. magazine (Mansueto Ventures), nearly 85% of U.S. consumers believe that Made in America products are of higher quality.

Furthermore, stringent regulatory policies regarding the inspection of manufacturing facilities are anticipated to promote domestic contract manufacturing. This can be ascribed to heightened scrutiny, leading to failed inspection and import bans of offshore manufacturing facilities, thereby increasing manufacturing challenges. For instance, in August 2019, Windlass Healthcare was issued a Form 483 warning and was placed on import alert by the U.S. FDA for violations of current good manufacturing practices. It also withheld approval of new drug applications filed by the company until the firm fulfilled the required regulations, thus resulting in supply chain and production challenges.

In Europe, market growth is anticipated to be driven by the combination of established market players and advanced manufacturing capabilities. Increasing investments by multinational companies are also expected to boost market growth. The aftereffect of Brexit on the economy and the pharma and biotech industry is anticipated to limit the market growth. There will likely be substantial changes to the EU's regulatory framework, which might impact entering or accessing certain markets. Due to strict regulatory policies, this region's market is anticipated to experience lucrative growth. With the new EU MDR taking effect in May 2017, manufacturers are now obligated to monitor the quality and performance of medical devices. This factor is predicted to propel the market's growth during the forecast period.

Furthermore, the UK is one of Europe's largest pharmaceutical and medical device markets. Orthopedics is the main segment for manufacturers in the UK, and areas such as cardiovascular devices, imaging, and diagnostics play a major role in strengthening the position of the UK in the medical devices manufacturing space. Various multinational CDMOs in the country are anticipated to contribute to market growth. For example, according to an article published in Pharmaceutical Technology, as of 2019, there were nearly 114 pharmaceutical contract manufacturing organizations headquartered in the UK, and nearly 239 contract manufacturing facilities were present in the country, of which around 166 were owned by foreign companies.

Segmental Analysis

The global healthcare contract manufacturing market is segmented by type.

Based on type, the global healthcare contract manufacturing market is segmented into medical devices and pharmaceuticals. 

The pharmaceutical segment dominates the global market and is estimated to grow at a CAGR of 18.1% during the forecast period. These providers are recognized as an effective approach to curbing the issues of drug shortfall and high production costs and meeting the growing demand. Lack of resources and low budgets have prompted many biotechnology and pharmaceutical manufacturers to outsource the manufacturing of their products to CMOs. The contract manufacturers provide highly sophisticated manufacturing services, such as front-end innovation, commercial manufacturing, clinical manufacturing, precision injection molding, high-speed automation, assembly, fill/finish, and others for various pharma and biotech products.

Moreover, rising demand for biologics is anticipated to fuel segment growth. Manufacturing processes for biopharmaceuticals are highly sensitive and complicated. Slight variations in any of the variables—temperature, humidity, and biocontainment—may have an impact on the final product's safety and efficacy. These elements are projected to support the expansion of contract manufacturing services to create biologics.

The medical device segment is expected to grow fastest over the forecast period. This is because OEMs are under increasing pressure to cut expenses and accelerate the time it takes to launch a product. The demand for medical devices is driven by macroeconomic factors such as the growing number of noninvasive surgeries and the worldwide aging population. Moreover, medical device firms are determined to reduce costs as profit margins decrease. Companies are implementing shift work to limit fixed costs. Small and medium-sized companies lack skilled labor and technical resources to complete projects. Contract manufacturing enables addressing these issues. OEMs are looking for partners with deep capabilities who can fill technology gaps in their portfolios and enhance time to market for innovations. Hence, they prefer contract manufacturers with the scale and sophistication required to support the increasingly complex global supply chains.

Recent Developments

• June 2023- YKK Corporation of America, a division of Japan-based YKK Corp., and Minneapolis, Minnesota-based Visura Technologies, Incorporated, a privately held medical device company, established Evevo Manufacturing LLC, a new joint venture dedicated to supporting up-and-coming medical device companies in the Minneapolis ecosystem.