At the forefront of medical innovation is the rise of biologics, a new generation of large molecule drugs capable of treating disease more effectively and with fewer side effects than traditional small molecules. However, these larger molecules are inherently more complicated, creating new challenges for the transportation and delivery of these lifesaving medicines.
Picture this: a small molecule drug like Aspirin has 21 atoms – let’s say this in drug terms is as complex as a bicycle. A large biologic – for example monoclonal antibodies used in cancer therapy – has 25,000 atoms and is as complex as a private jet.
Source: Complexity of molecules by number of atoms and size. Esco Pharma 2024
This allows a large molecule drug to be more targeted in its function by binding to specific proteins – the flipside of this is the complex atomic structure also leads to lower stability of the molecules.
The biologics drug market is set to grow 6%[1] a year over the next decade and is expected to make up the majority of the pharmaceutical market. These drugs offer effective and direct treatment for complex diseases like cancer, obesity, Alzheimer’s disease, and more, and will presents a significant opportunity to treat a variety of diseases more effectively.
Biologics growing share of pharmaceutical sales
Source: Jefferies Analysis 2024
Complexity begets complexity: the rise of high-value containment and delivery systems
Biologic drugs are often stored in liquid form and administered by injection. These containers need to be sterile, capable of withstanding harsh conditions, such as cryogenic temperatures as low as -20°C, while maintaining the drug's stability by preserving key factors like pH and osmolality − a measure of the concentration of solute in a solution.
Therefore, containers and delivery systems play a crucial role ensuring the highest quality, efficacy, and safety at each stage of the drug’s journey – from fill, transport, and ultimately being injected into a patient.
Given the long-term tailwinds of biologics, the demand for high quality containers − such as pre-filled syringes and auto-injector pens — is expected to surge. Pre-filled syringes for example offer several advantages, including ease of use and reduced dosing errors, and are increasingly favoured in the industry.
The market for pre-fillable syringes, which is set to exceed $6.2 billion in 2032, is driven by the preference for unit-dose containers. On auto-injector pens, the ease of use and safety mechanisms are paramount, given patients will be injecting themselves often in the home setting.
Barriers to entry and future prospects
The barriers are very much built in to this industry. These container solutions are often specified into a drug during its approval process – meaning these systems must be used for the life of the drug patent, and often beyond in the form of the generic. Given these patents last around 10-15 years, this offers durable recurring revenue for the container manufacturers.
The approval process for biologic drugs is expensive and stringent, with regulatory bodies like the US Food & Drug Administration evaluating the drug delivery system as part of the overall safety and efficacy of the drug. Switching suppliers mid-development can be risky and costly, creating a strong incentive for pharmaceutical companies to stick with a few trusted providers like West Pharma, which have extensive global manufacturing bases and clear expertise in containment design and regulatory approvals.
West Pharma: a case study in reliability and safety
The Sustainable Future investment team hold West Pharma under the theme of Enabling innovation in healthcare within the Global Growth and US Growth Funds. West is a $23 billion market cap US-based market leader in high quality proprietary packaging for complex injectable drugs. The company’s historic expertise lies in superior elastomer products. When a drug goes through its approval process via its trial phases, the drug delivery mechanism on the filing is embedded into the process.
This is West Pharma’s core offering. The company works alongside its pharmaceutical and biotech customers at an early stage of the drug trial process to ensure the highest quality specified containment solution during the drug discovery and approval process, also providing expertise and support for regulatory approval. Then, once approved, West offer outsourced quality management services like coating, washing, and sterilisation of delivery systems. This was historically completed in house, so West are helping to reduce the burden on the drug companies for a price.
West is the leading manufacturer and a key partner globally, with an estimated 70% market share in elastomer parts. West’s strength lies in its patient first culture – integrating highest possible safety standards and quality practices to ensure safe and efficacious drug delivery. Through its expertise and patient first focus, West has forged its reputation as the quality partner for both scale and reliability of supply.
West’s competitive advantage in quality, expertise, and scale is reinforced through its product stickiness. West’s customers are pharmaceutical or biotech companies delivering their approved medicines to patients worldwide. After millions of R&D dollars have been spent developing these drugs, these businesses are incredibly risk averse and want to deliver as many doses as demanded quickly, safely, and reliably. Therefore, the accepted margin of error for packaging solutions is incredibly low.
Further, there is a value mismatch that benefits West’s ability to take price. This is a risk averse industry – and given the cost of West’s solutions (ranging from a few cents to just under $1 per dose) juxtaposed with the price of a biological drug (often +$1,000 and can run into the millions for cell therapies), these customers are willing to pay for higher quality to reduce the risk of containment failure for their novel drugs.
Therefore, West’s competitive advantage and commitment to quality delivery systems have delivered a 5-year compound annual growth rate of 11% per annum and a 5-year average return on invested capital of 20%.
Looking forward, West is positively exposed to the above tailwinds – the rise of approvals of biologics and the move to higher standards in containment solutions.
Management’s own long-range goals are 7-9% organic growth[2], and we in the team believe the underlying market tailwinds have only just begun – expecting these to persist into the 2030s, reinforced by West’s expertise, global scale, and quality standards.
Conclusion
This rise of innovative biologics has led to better specified and targeted medicines for complex disease like cancer and Alzheimer’s coming to market globally.
We in the Sustainable Investment team are very positive on this theme, and intend to invest alongside companies like West Pharma – the ‘picks and shovels’ of this step change in innovation helping to deliver these impactful but complicated drugs to patient.
[1] Precedence Research 2023, Biologics Market Size to Surpass Around US$ 620.31 Bn by 2032
[2] West Pharmaceutical long run growth target
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