global biotechnology industry

Global Biotechnology Industry: Value Chain Analysis- ML00027-012

Global Biotechnology Industry

Value Chain Analysis

ML00027-012


Table of Contents

2

Complete Value Chain: Overview Complete Value Chain: Overview (cont’d) Raw Materials: Overview Raw Materials: Analysis Raw Materials: Burning Issue – Competing demand and sustainability Suppliers: Overview Suppliers: Analysis Suppliers: Burning Issue – IoT Biotech Producers: Overview Biotech Producers : Analysis Biotech Producers : Burning Issue – Government cost-cutting B2B End-Users : Overview B2B End-Users : Analysis B2B End-Users : Burning Issue – Ageing Population Appendix


Complete Value Chain: Overview

3

The global biotechnology industry’s value chain can be divided into four distinct stages: raw materials, chemicals, biotechnology producers, and B2B end users.

Raw Materials

Biomass

Reagents

Aquaculture

Agricultural Products

Suppliers

Lab Equipment

Software

IT

Biotechnology Producers

Medical/Healthcare

Food & Agriculture

Environment & Industrial Processing

Service Provider

Technology Service

B2B End Users

Healthcare Providers

Agricultural Producers

Consumer Good Manufacturers

Environmental Processing


Complete Value Chain: Overview(cont’d)

4

The global biotechnology industry’s value chain can be divided into four distinct stages: raw materials, chemicals, biotechnology producers, and B2B end users. Large companies are present throughout the value chain, although there is also opportunity for startups and SMEs.

Raw Materials

China Agri-Industries Holdings

COFCO Group

BASF

Bunge

Suppliers

Microsoft

Major Science

Merck Millipore

Thermo Fisher Scientific

VWR International


Amgen Inc.

Covance Inc.

F. Hoffmann-La Roche

Gilead Sciences

Novo Nordisk

B2B End-Users

Community Health Systems, Inc.

Fresenius SE & Co. KGaA

Archer Daniels Midland

Cargill Inc.

Unilever NV


Raw Materials: Overview

5

Raw materials producers are predominantly large multinational corporations. These include agricultural producers, chemical companies, and aquaculture for algae

Raw Material Producers

Global Chemical

Companies

Reagents

Aquaculture Companies

Algaculture

Agricultural Products

Biomass

Biomass for energy originates from a range of

sources including agriculture, forests

and waste


Raw Materials: Analysis

6

While there is opportunity for smaller firms in algaculture, large multinationals dominate both chemical and agricultural products.

• While biotech is more concerned with living organisms than chemicals, reagents and other items are necessary in the

biotechnology production process in order to create desired reactions or engage in research and development.

• There is significant concentration in the chemical industry, with large companies such as DowDuPont, BASF, Sinopec,

and ExxonMobil. Dow and Du Pont’s merger in August 2017 created the largest chemical company globally.

• Aquaculture companies are also important due to the abundance of marine organisms. Algae in particular has been

noted as having promising applications for biofuel and medical research. Research was pioneered in fuel production in

the mid 2000s, since then algae cultivators have been forced to diversify into other algae products in order to stay

afloat. Algae firms are generally start-ups or SMEs reliant on venture capital.

• Biotechnology is rooted in manipulating organisms, and so will require living organisms in order to research- namely

plants and crops ,as well as microbial cells and bacteria. To this end, biotech producers will rely on large

agribusinesses to supply them.

• There are large global companies present in agribusiness, and it may require dealing with particular locales for crop

production. Brazil for instance, is one of the largest producers of soybean, along with the US. Companies involved in

this stage will also come to rely on biotech companies at the end of the chain, and include Archer Daniels Midland,

Cargill, and ChinaAgri.


Raw Materials: Burning Issue

7

Competing demands of sustainability with increasing demand, particularly in Brazil

Agricultural producers are facing opposing demands of the ever increasing need to feed growing populations and lifestyles,

while also engaging in sustainable practices to ensure environmental health. China, which imports 60% of the soybeans

traded worldwide, bought 50.9 million metric tons from Brazil in 2017, accounting for 53.3% of total purchases, according to

customs data released in February 2018. There has been a surge in demand as the world’s top importer continues to buy

from Brazil after Beijing imposed a 25% tariff on U.S. shipments, including soybeans. Chinese buyers mainly use soy to

churn out cooking oil and ingredients for animal feed.

While deforestation in Brazil remains much lower than at its peak

in 2004, activity has increased since 2012. Brazil’s longest

recession in its history barely ended in 2017, and could see its

climate change credentials tested as strong soybean exports are

forecast to continue in 2018. An election in 2018 also had to

consider the voice of ruralistas in the country, which currently

control a significant bloc in both houses of parliament. This bloc is

pro-agricultural expansion. President Temer survived two

impeachment votes partly due to their support, so deforestation

could lose out to agribusiness.


Suppliers: Overview

8

Suppliers vary - while large companies dominate ICT and software, there is more opportunity for specialist

niche SMEs in lab equipment.

Suppliers

Lab Equipment Manufacturers

ICT

Software


Suppliers: Analysis

9

ICT is dominated by large firms and there’s increasing consolidation in lab equipment.

• ICT has become integral to research and development due to its capacity for instant communication and storage of

large volumes of data. Software can also be integral to modeling results or further manipulating data.

• There is a plethora of OEM manufacturers of ICT equipment, such as ASUS, Lenovo, Hewlett Packard, and Dell.

Software is likely to be dominated by Microsoft, although open source solutions such as Linux are available, as well as

publishers of more industry specific software.

• For provision of network services, there are companies such as Cisco, IBM, Microsoft, and Google. These companies

are large global players with significant resources.

• Biotechnology requires specific industrial equipment, such as bioreactors, which is where proteins are produced.

Scientific tools, materials, and testing equipment are highly specialized, so integration throughout the value chain is

unlikely. Given the high manufacturing skills required to make advanced lab equipment, it will most likely come from

industrialized economies.

• Pharmaceutical company Merck has acquired several life science product manufacturers, including the Millipore

Corporation in 2010 and Sigma-Aldrich for $17bn, announced in 2014 and completed in November 2015. There is also

opportunity for SMEs in this market to produce niche products. However, these can be prone to M&A activity, such as

BioReliance, which was acquired by Sigma-Aldrich in 2012 and is now part of Merck.


Suppliers: Burning Issue

10

The Internet of Things opens opportunities and risks in SmartLabs

While manufacturers have been offering remote monitoring and automatic data logging for years, the Internet of Things (IoT)

allows the integration of different instruments, from different vendors, into a single integrated platform. The SmartLab will include

a laboratory information system to which all lab components will be connected and controlled, from 'intelligent', self-cleaning lab

benches to smart safety goggles that can project chemical safety information and augmented-reality displays. TetraScience,

which connects data from all machines to a single dashboard, currently has 60 corporate and academic clients.

Suppliers must be prepared to offer smarter

solutions in products to appeal to clients. However,

the system must also be comprehensive and

accessible. During the early stages of adoption

problems are likely - for instance, if a company’s

smart thermometer monitoring a freezer is faulty.

Further, it presents security risks to the customer,

and companies must also ensure that systems are

protected from invasive hackers, or indeed

corporate espionage.


Biotechnology Producers: Overview

11

Biotechnology producers vary from large multinationals to start-ups. Biotechnology has a wide range of

possibilities for specialization, including healthcare, industrial, or agricultural applications.


Medical/Healthcare Industrial

Catalysts

Food/Agriculture

GMOs Pesticides


Biotechnology Producers: Analysis

12

While there is opportunity for smaller firms in algaculture, large multinationals dominate both chemical and agricultural products

• Biotechnology companies have high costs due to their focus on research and development and the length of time and

difficulty in testing and creating new products. The discrepancy in the cost and length of time required to manufacture a

new product has led to biotechnology products holding their patents for 12 years.

• Start-ups and SMEs can also thrive in this business if they can find access to venture capital. All of this leads to very

volatile profits for biotechnology companies. Many operate at a loss for many years until a highly profitable substance is

manufactured, which can then reap significant dividends.

• It is increasingly common for conventional pharmaceutical companies to enter the biotech industry by the acquisition of

an established biotech company, thereby gaining its hard-won IP assets. One such example was Roche’s acquisition of

long-established US player Genentech in 2009.

• Most major pharmaceutical companies have active target-discovery research programs heavily reliant on

biotechnology, and smaller new companies such as Exelixis and Cephalon do focused drug discovery and development

often using unique proprietary techniques. In addition to direct drug development, there are companies like Abbott

Diagnostics and Becton-Dickenson that are looking for ways to use new disease-related genes to create new clinical

diagnostics.

• Biotechnology’s remit means it has a wide array of end-users and possibilities. In agriculture, it has been focused on

improving crops. More than 90% of US-grown corn, soybeans, and cotton are bioengineered. The most publicly

notorious company engaged in this was Monsanto, which was acquired by Bayer in 2016.


Biotechnology Producers: Burning Issue

13

Governments cost-cutting could have a negative impact on profitability

In the US, federal and state legislatures, health agencies and third-party

payers continue to focus on containing the cost of health care. The 2010

Patient Protection and Affordable Care Act, which has already imposed

significant health care cost containment measures, also encourages the

development of comparative effectiveness research and any adverse

findings for players’ products from such research may reduce the extent of

reimbursement. Biotechnology producers rely heavily on the reimbursement

for their principal products through government programs such as Medicare

and Medicaid in the US and similar programs in foreign countries, and a

reduction in the coverage and/or reimbursement for its products could have

material adverse effects on the product sales, business, and results of

operations. In the US, there is an increased focus by the federal

government and others on analyzing the impact of various regulatory

programs on the federal deficit, which could result in increased pressure on

federal programs to reduce healthcare costs. Cost containment measures

and healthcare reforms, resulting in drug price reductions, could affect the

sales growth and profitability of biotechnology producers.


B2B End-users: Overview

14

Biotech’s wide applications mean it has various B2B end-users. The main verticals are healthcare,

agriculture, consumer products and industrial manufacturing.

B2B End-Users

Healthcare providers

Large companies

State sanctioned providers

Agricultural producers

Large consumer product

companies

Industrial manufacturers

The NHS is the publicly funded national healthcare system for England and is

also the largest single-payer healthcare system in the

world.


B2B End-users: Analysis

15

The multiple applications of biotech give a wide variety of players in this stage of the value chain

• The main buyers range from healthcare providers to the agricultural sector, indicating a moderate number of medium-

to large-sized buyers. While medical biotechnology is the most lucrative segment, the agricultural and industrial sectors

are also significant in size and are growing at a fast pace.

• In many countries, the prices of at least some prescription drugs are subject to control by government agencies. There

are various approaches, a common one is reference pricing, in which the price of each drug in the country is

benchmarked to its price in a set of comparison countries.

• Even though a biotech company might have several buyers (e.g. distributors, hospitals, and so on) in a given country, if

it is unable to freely negotiate an industry price due to price controls, then in effect it is operating in a monopsony.

• Agribusiness firms can operate in a symbiotic relationship with biotech firms, providing the necessary biomass but also

benefitting from biotech’s products, such as transgenic crops .These large firms include Cargill, Archer Daniels Midland,

and Bunge.

• Other applications include in consumer products and industrial processes, where enzymes give a reaction necessary-

for instance, in washing detergent. Consumer products is dominated by an oligopolistic market with firms such as

Bayer, Procter and Gamble Unilever, and SC Johnson.


B2B End-users: Burning Issue

16

An aging population is presenting significant challenges to healthcare providers

Lower birth rates in developed economies combined with advances in medicine and lifestyles, has led to projections

that the combined senior and geriatric population will reach 2.1 billion by 2050. It will vary from country to country, with

Japan already showing significant concerns. Japan’s population shrank by 512,000 in 2019 and on current trends the

proportion of people aged 65 years and older will increase from the 2019 level of 28% to 38% by 2050. Despite

scrapping the one-child policy in 2015, China saw its birth rate decline. Estimates made in 2019 suggest that over-60s

in China will make up one third of the population by 2050.

For healthcare providers and governments, social policy

needs to adapt to these pressures. As well as an

increase in the amount of ill health, population ageing

will mean a greater prevalence of age-related

conditions. including mental health conditions such as

dementia. This requires a stronger emphasis from

providers of social and community care, for-profit

providers may experience spiraling costs, with little in

the way of revenues from consumers or insurance

companies.


Ask the analyst We hope that the data and analysis in this presentation will help you make informed and imaginative business decisions. If you have any questions or further requirements, MarketLine's research team may be able to help you. The MarketLine Research team can be contacted at [email protected].

About MarketLine At MarketLine, we deliver accurate, up-to-date insights on over 100,000 companies, 4,000 industries, 215 countries, and 1,600 as well as the latest news and financial deal information from within your market and across the globe. Established in 1997 when the Internet was in its infancy, we recognized the need for a convenient and reliable data service to help our clients understand local and global markets and the companies operating within them. In today’s information-rich world, sifting fact from fiction to pick out what’s relevant and what’s up to date has become the new ‘holy grail’ in business information provision. Our 400 dedicated research professionals aggregate, analyze, and cross-check facts in line with our strict research methodology, ensuring a constant stream of informative and accurate information is added to MarketLine every day.

Disclaimer All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, MarketLine. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that MarketLine delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such MarketLine can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.

MarketLine John Carpenter House, John Carpenter Street London, United Kingdom, EC4Y 0AN T: +44(0)203 377 3042 E: [email protected] W: www.marketline.com

Appendix

mailto:[email protected]



global biotechnology industry

Documents