"What this means," said Eric Melton, research analyst for Frost & Sullivan's Environmental and Building Technologies Practice at a recent briefing, "is that the American pharmaceutical water and wastewater industry has a lot of information and a lot of access to different people at different companies that could penetrate the market … It's a great opportunity right now." The North American industry generated total revenues of around $345m in 2006 and Melton's forecast is for medium-level growth across all three segments - water treatment, wastewater treatment and turnkey solutions/operations & management (O&M) - in the years to 2013. The distribution of revenues across these segments has been fairly consistent year on year. In 2007, about 38 per cent went to water treatment suppliers, 27 per cent to wastewater treatment suppliers and the remaining 35 per cent to turnkey solutions companies - a sector Melton said is "constantly evolving", with a steadily expanding roster of deliverables. Nonetheless, little change is foreseen in the overall pattern by 2013, when some 39 per cent of revenues in the North American market are expected to come from water management, 28 per cent from wastewater management and 33 per cent from turnkey solutions.
Taken segment by segment, North American revenues for suppliers of pharmaceutical water treatment equipment were more than $100m in 2003, rising to around $128m in 2007. Over the same period, wastewater treatment revenues grew from around $84m to $97m and turnkey solutions/operations and maintenance revenues from $107m to $125m. Not surprisingly, a key driver in the overall marketplace is regulation, and it is expected to remain so. Pharmaceutical manufacturers in North America will continue to require "upgrades and enhancements to address the ever-changing manufacturing regulation environment", Melton predicted. The main regulatory framework for water treatment in the US is the United States Pharmacopeia (USP), with specific requirements for two grades of water used in manufacturing: purified water and water for injection. Wastewater is overseen by the US Environmental Protection Agency, under a three part programme that includes the 40 CFR Part 439 regulations; the state-by-state NPDES (National Pollutant Discharge Elimination System) Permit Program and the National Pre-treatment Program, which regulates wastewater going into the municipal and environmental water supply.
The third layer of regulations is those applying to pharmaceutical manufacturers specifically, namely Good Manufacturing Practice and, within that framework, Validation Life Cycle rules. Breaking any of these rules can be an expensive business, with fines for violations ranging from a minimum $500 right up to $200,000-$300,000. The impact is not just on operational practices but on liability to end-users of pharmaceuticals and the reputation both of the pharmaceutical manufacturer and the equipment supplier. This was identified as a particular risk in the wastewater treatment segment. "If a company has a lot of violations, a lot of that goes into the public viewpoint of the company," Melton noted. In terms of market demand for water and wastewater treatment solutions, a Census Bureau survey of capital expenditure trends for pharmaceutical manufacturing facilities in the US found a positive trend towards building and construction in 2006, while the trend for capital expenditure on machinery and equipment in the same year was negative.
This latter phenomenon "could actually be a short-term issue", Melton believes. And while he acknowledged the growth in offshoring of pharmaceutical manufacturing to cut costs, with some facilities closing down, he was confident demand would hold up in the light of increased sales and production volume as well as R&D expenditure in the industry. Another demand driver is that a number of top-tier pharmaceutical manufacturers are taking steps to 'green' their production processes by reducing water usage and footprint and by embracing sustainability policies. Re-used and recycled water is already viable in applications such as cooling systems, onsite irrigation, groundwater percolation and even in some boiler rooms, Melton pointed out. Among other issues raised at the briefing were the "ever-increasing" budgetary constraints in the pharmaceutical sector - underpinned by a variety of factors including increased R&D spending and higher prices for production materials, as well as fuel and labour costs - and the particular need to reduce manufacturing costs per gallon. Costs for treated wastewater in North America are usually between $1 and $39 per 1,000 gallons treated, while costs for USP purified water average $20-$60 per 1,000 gallons, Melton told the briefing.
There is also consolidation among suppliers, which Melton expects to continue both in the short- and long-term. While some companies have established themselves as major players - the market leaders are Siemens Water Technologies and GE Water and Process Technologies - many others cannot afford to address the stringent regulatory requirements in the sector, Melton observed.
Those that do not exit the market are likely either to seek partnerships with pharmaceutical manufacturers or to end up being acquired by established players, he predicted.