CDMOs: consolidation, capabilities and customer demand

Clogs turning with people climbing on them to show CDMOs: consolidation, capabilities and customer demand

Mark Quick, VP Corporate Development at Recipharm, explains the three Cs: Consolidation, capabilities and customer demand.

As we head into 2020, we expect to see a lot of the trends we witnessed in 2019 continue. The landscape for contract development and manufacturing organisations (CDMOs) saw a surge in consolidation as contract service providers looked to expand, strengthen and diversify their capabilities in order to meet the evolving needs of customers.

Over the last decade a number of pressures have impacted the development landscape for new pharmaceutical products, for example, the ageing population, patent expirations, an increase in disease prevalence and costly breakthrough therapies. While these trends significantly impact pharmaceutical companies themselves, CDMOs are also challenged with high R&D costs and an expectation to invest in advanced capabilities to have capacity for the development and commercialisation of complex products. These pressures are expected to increase the worth of the pharmaceutical industry to $1.5 trillion by 20211.

“M&A activity continues to be a dominant activity across the sector, allowing CDMOs to enhance their capabilities”

Consolidation

Ernst and Young report that merger and acquisition (M&A) activity has increased by up to 12% each year since 2012. Throughout 2019, the industry has seen large-scale M&A transactions with contract research organisations (CROs) acting as a key source of consolidation activity; this is something we expect to continue into 20202.

While the industry remains severely fragmented, the rise in consolidation over the next few years is expected to resolve this issue. Consolidation has been a prominent trend in the CDMO sector throughout 2019, primarily driven by the desire to diversify product portfolios and expand geographical reach.

To this end, M&A strategies have played a key role in the success of CDMOs and their comprehensive end-to-end drug development and manufacturing services in recent years.

M&A transactions have also facilitated access to innovative technologies and specialised equipment, which has allowed CDMOs to provide capabilities outside their core offering to meet evolving customer demands. Industry consolidation has therefore been a key contributor to the increased interest in the outsourcing of development and manufacturing services to gain access to these resources. Through M&A activity, CDMOs have also been able to gain the capacity required to cater for the increase in the outsourcing of manufacturing services.

In acquiring new technologies, contract service providers can bolster their capabilities and streamline the process of bringing a drug to market. For example, Recipharm acquired Sanofi’s former inhalation product manufacturing facility in 2018. The acquisition of this site in Holmes Chapel gave us access to specialist technologies designed to cater for metered dose inhalers (MDIs) and nasal sprays, as well as other processes for the development and manufacture of inhalation products. These new assets and technologies can now be applied to customer projects.

Gaining access to such technologies allows CDMOs to leverage their position as the go-to provider, as well as improve market penetration and market share.

Customer demand

Industry consolidation has the added benefit of expanding a CDMO’s global presence to allow them to reach new markets. Pharmaceutical companies therefore opt to segment by location. For example, one emerging market that is growing in popularity is India. This is because India gives contract service providers the ability to deliver cost-effective services and access a skilled workforce.

Emerging markets are also supporting increased demand in the outsourcing sector due to the significant improvement in healthcare access across the globe. As a result, CDMOs are striving to advance their service offering through acquisition to serve larger volumes. This is otherwise referred to as ‘capacity consolidation’.

Conclusion

During 2019, the industry has seen a significant increase in demand for outsourcing. M&A activity continues to be a dominant activity across the sector, allowing CDMOs to enhance their capabilities, reach new markets and cater for evolving customer demands in a very competitive outsourcing landscape. As such, the three Cs (consolidation, capabilities and customer demand) will continue to be a prominent focus for the CDMO industry as we head into 2020.

Top 5 takeaways

  1. M&A activity has increased by up to 12% each year since 2012.
  2. CROs will continue to act as a key source of consolidation activity.
  3. Acquiring new technologies allows CDMOs to improve market penetration and market share.
  4. India is an increasingly popular emerging market.
  5. The three Cs will continue to be a significant focus for the CDMO industry.

Mark Quick is VP Corporate Development at Recipharm. Go to www.recipharm.com