Can Bigger be Better?

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The industry is becoming more consolidated, but there needs to be some strategy behind the mergers and acquisitions.

The CDMO space is extremely fragmented, with a complex web of small-scale providers emerging over the years, supplemented by new players entering the market to support the buoyant biologics sector and serve particular niches, such as the growing need for orphan drugs. Yet, consolidation is prominent, with larger players focused on strategic growth through acquisition.

The need for scale, breadth, and depth will always be drivers for outsourcing, and CDMOs that can offer a wide range of services, technologies, and expertise are well positioned to serve the evolving and complex needs of drug developers. This so-called one-stop-shop model brings clear benefits; not only does it reduce the number of providers a sponsor company needs to work with, but it also provides a more robust supply chain.

However, there needs to be some strategy behind the merger and acquisition (M&A) activity. It must fulfill a need; whether that be expanding capabilities, capacity, or geographical reach. Rather than being about sheer size, the CDMO’s offering must make sense to the customer. The value is in how a CDMO can differentiate its service offering. For example, by acquiring a company which specializes in niche technology such as advanced pellet coating, a CDMO can fulfil client needs for a range of technologies, while working as one full service partner.

Integration of acquired companies is also a crucial factor in success. People underestimate the experience and benefits that combining resources and capabilities can bring to the industry. While it is a legitimate strategy, M&A based purely on cost synergies is unlikely to deliver these benefits. The focus must be on allowing entrepreneurship and innovation to thrive to the benefit of the customer. It is doubtful that these qualities will ever emerge if people are concerned about their jobs. The driver for M&A must, therefore, have clear commercial synergies over and above cost.


It’s no secret that in a highly-regulated market such as pharma, change can be frequent and potentially disruptive. Bigger means having the resources to adapt to market changes, with serialization being a good example. Those companies without the ability to invest in new technologies and infrastructure risk damaging the security of their supply, which is a crucial factor in any outsourcing decision.

In short, sustainable businesses need scale, portfolio size, and geographic spread. The value of M&A is not just to boost profit, unless that is a strategic decision.  Consolidation in the industry provides the opportunity to simplify complex supply chains and achieve the ultimate goal of bringing vital medicines to market in the fastest possible time. And if economies of scale can be passed on to the customer, that is, of course, a bonus.  

Author: Mark Quick is executive vice president of corporate development at Recipharm.