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Investments, biologics, and the impact of COVID-19 will continue to shape the bio/pharmaceutical outsourcing industry for the near term.
The pharmaceutical outsourcing market has seen a growth in vaccine development and manufacturing activity in the past year, particularly due to the industry’s response to the COVID-19 pandemic. And this growth is likely to continue, according to Mike Kleppinger, chief commercial officer at Curia (formerly AMRI) (1). “If you look at the vaccine developers, much of that production was outsourced. And with its global impact, we would expect COVID to continue to drive growth because you’ll have more treatments, as well as vaccine boosters, different strains, etc.,” Kleppinger says.
Increased demand for new treatments, either for COVID-19 or other much-needed medicines, requires increased production. Many sponsors partner with contract development and manufacturing organizations (CDMOs) and contract manufacturing organizations (CMOs) to scale up and meet capacity demands for the commercial level in order to get treatments to patients quickly, according to Kleppinger. “Not only that, I believe they discovered that contract partners are particularly effective at the application of data, technology, and other innovations. CDMO partners have invested in greater capabilities and sponsors have realized that certain CDMOs have great innovation, great technology, and they have relevant subject-matter expertise. I think they’ve learned that partnering with a good CDMO enables agility, speed, efficiency, and quality,” Kleppinger says.
CDMOs have made investments in capacity and resources to address supply chain challenges, says James Choi, chief information and marketing officer at Samsung Biologics. “More modular construction and expansions, investments in the latest technologies, and process intensification strategies have all accelerated in the CDMO industry,” Choi says.
A continued increase in the need for new medicines is causing growth in the pharmaceutical industry, and sponsor companies will continue to use CDMOs as necessary, according to Andrew Henderson, chief commercial officer at Sterling Pharma Solutions. “Smaller or virtual biotechs rely almost entirely on outsourcing across all disciplines; mid-size pharma invests in core activities internally such as R&D and commercialization, but not manufacturing; and large pharma strategically outsources manufacturing in order to use assets efficiently,” says Henderson.
The industry has seen record highs in investment, according to Joe Sinclair, vice president, corporate strategy and business development at Vibalogics, which has created new companies and expanded pipeline assets. “In addition, requests for CDMO services are tracking in parallel fashion as service demand follows clinical and commercial industry progress. The industry has also seen a renewed focus and surge in demand in infectious disease R&D and cGMP [current good manufacturing practice] manufacturing, accordingly, fueled by the concerns of the COVID-19 pandemic,” Sinclair says.
Sinclair sees a potential for growth in the emerging oncolytic virus therapeutics market. “Much of the market is in preclinical or early-phase trials, but Amgen’s commercial approval of Imlygic here has created a regulatory pathway or template for others to follow in the future. As a result, we are seeing activity picking up due to improved confidence. I think we will continue to see more and more activity in the classes reviewed,” Sinclair says.
Gene Nakagawa, EVP business development at LGM Pharma, says his company has seen an increase in the outsourcing of analytical testing. “Our expectation is that the demand for analytical testing services will continue to be a strong area of growth as FDA elevates its testing requirements for products,” Nakagawa says.
According to Tom Wilson, contract manufacturing lead at Pfizer CentreOne, demand for mammalian drug substance has increased, but he has also seen growth in the outsourcing market in general. “[Sponsor companies] are looking for greater network efficiencies so they can share costs with other companies and ensure demand and supply protection without building redundant facilities. These partnerships benefit all parties involved but most importantly, the patients,” Wilson says. “While there hasn’t been a change in the quantity of business from sponsor companies, there has been a change in the type of business as requirements for outsourcing have changed,” he continues.
Biopharmaceutical development is expanding, according to Choi, and small and emerging biotechs are relying on CDMOs for their development and manufacturing expertise. “The bio/pharma outsourcing industry is actively revisiting its supply chain and investing more to offer the multi-scale capacity required to support increasing demand in the next five to 10 years. Moreover, many leading CDMOs are expanding their capabilities in new modalities such as [messenger RNA] mRNA and cell and gene therapy,” Choi says.
Matthew Barker, corporate strategy at Vectura, agrees that biologics and gene therapies have seen an increased focus recently, but other markets will also see growth in the future. “In addition to biologics, we expect other specialist market areas with a high degree of complexity and barriers to entry, such as inhaled drug delivery, to continue to grow. In contrast, we expect growth to slow in the more commoditized areas of the outsourcing market with lower barriers to entry, particularly for companies without the benefits of scale,” says Barker.
The advancement of next-generation biopharmaceuticals will require consolidation of expertise, capacity, and know-how, according to Kleppinger. “It will be analogous to what we’ve seen in CROs [contract research organizations] buying up niche players to expand capabilities and deliver scale,” he says.
For example, the former AMRI announced several major developments in July 2021, changing the company name to Curia and entering into an agreement to acquire Integrity Bio, Inc., a formulation and fill/finish organization in Camarillo, Ca. (2). The company also agreed to acquire LakePharma, a biologics drug discovery, clinical research, development, and manufacturing company that has facilities in California, Massachusetts, and Texas (3).
In April 2021, Thermo Fisher Scientific announced it had acquired PPD, a clinical research services provider, for $17.4 billion. The acquisition will give Thermo Fisher access to PPD’s drug development platform, patient recruitment capabilities, and laboratory services, Thermo Fisher said in a company press release (4). The collaboration is expected to offer new solutions for customers, while reducing the time and cost of the drug development process.
“M&A in the CMO/CDMO space is definitely ‘hot’ right now,” says Nakagawa. “Valuations are high for both manufacturers and for lab-services companies that are US-based. The partnership model is expected to continue to be strong as companies try and save on development costs. In the pure generic space though, the trend for partnership is decreasing, primarily due to the downward pricing pressure we are seeing in the generic drug space,” he says.
According to Henderson, consolidation in the small-molecule CDMO market is “inevitable” as outsourcing companies invest and expand. “This industry consolidation will include M&A to broaden capacities and capabilities and expanding service offerings within the value chain. It will be driven by the needs of customers and their strategies for partnering with companies: either through integrated service providers, or by using multiple specialized suppliers to meet their developmental milestones,” Henderson says.
Bill Vincent, chairman and CEO at Genezen agrees that consolidation in the CDMO/CMO market will continue during the next five years. “Companies that were in one segment are now looking to expand into other segments and there is continued interest in expanding into other geographic regions as well. I also believe we will also see further development of niche or boutique CDMOs that specialize in unique services or cater to special needs,” he says.
Bio/pharmaceutical companies will be looking to partner with CMOs and CDMOs for technology innovations, risk mitigation, and overflow management, according to Choi. “We’re also going to see more M&A as more CMO/CDMO companies look for opportunities to expand their portfolio of services,” Choi says. “The great thing about strategic CDMO partners is that they can buffer the supply chain. The right ones have higher buying power and supply reliability built in that partners can leverage when trying to secure scarce or high demand raw materials and components. Strong CDMO partners can also help implement more effective supply chain strategies. Samsung Biologics establishing itself regionally in the bio cluster hub in South Korea is a good example of the added value CDMOs are capable of delivering post pandemic,” adds Choi.
“Compared with other sub-sectors in the healthcare industry, the CMO/CDMO competitive landscape remains highly fragmented, with the top 10 companies accounting for around 20% of the $90–100 billion market. This proportion has increased over the past decade and will continue to do so for the foreseeable future,” says Barker. “However, we expect M&A to be more targeted in coming years. Acquiring companies should have a clear rationale if entering an adjacency, with a high value placed on specialist areas of expertise that help customers overcome complex formulation and development challenges,” he adds.
“Acquisitions have been following a trend as CDMOs look to build platform service and end-to-end capabilities. Companies and CDMOs will focus more on platform development, acquiring companies and technologies that will give them advantages across cell line, media, and formulations, upstream and downstream operations and intellectual property. They will be seeking to drive customer benefit by offering both technologically advanced, and diversified services, ultimately saving customers time and money,” says Sinclair.
In addition to market consolidation, Vincent sees capacity as an ongoing challenge for the pharmaceutical industry. “We will see continued physical and technological expansion as a result so capacity will increase through investment in new facilities as well as new technologies that increase throughput and yields on each production batch. These technologies will also lower the overheads and material costs for each batch,” says Vincent.
Assistance with regulatory matters is an area Nakagawa sees potential in. He also believes the need for sterile fill will continue to remain high. “Novel technologies with new delivery systems, sterile fill and high potency products, have been areas of rising demand and growth for CDMOs,” says Nakagawa. “We expect this trend to continue.”
Technology will also be a trend for the pharmaceutical outsourcing market in the future. “For CDMOs, there is a push towards digitization, and exploring the potential value of technologies such as artificial intelligence and machine learning in a way that can improve manufacturing by reducing project timelines, while at the same time enhancing process efficiency and minimizing costs, as well as ensuring product quality,” says Henderson.
As a result of the quick development and production of COVID-19 vaccines, Britton Jimenez, vice president, business development at Metrics Contract Services, anticipates that sponsor companies will be looking at what lessons can be learned from the pandemic to increase speed to market. “Sponsors are going to be much more selective in choosing their partners as they are going to want to ensure risk mitigation plans are in place as well as truly evaluate the region in which they should perform their development work,” Jimenez says. “One thing many companies learned is having a risk mitigation plan is critical to ensure that supply of their therapies does not get interrupted.Many organizations were exposed during this time due to not having risk mitigation plans in place or redundancies built in to ensure continuity of supply.Some sponsors were also put in a very tough place as they had chosen to go into low-cost markets for services, which made it very difficult to get their products out of these markets into primary markets where clinical trials are run due to COVID,” says Jimenez.
Wilson believes outsourcing partnerships will continue to grow in the future. “CDMOs offer a range of expertise and capabilities that are in high demand from sponsor companies to help them meet their goals and ensure that medicines reach the patients who need them. The past year has demonstrated the power of collaboration in the industry and these partnerships are here to stay,” Wilson says.
1. AMRI, “AMRI Becomes Curia,” Press Release, July 12, 2021.
2. Curia, “Curia to Acquire Integrity Bio, Expanding Biologic Formulation and Fill-Finish Capabilities,” Press Release, July 13, 2021.
3. Curia, “Curia to Acquire US-Based LakePharma, Expanding End-to-End R&D Capabilities and Scale for Biologics,” Press Release, July 14, 2021.
4. Thermo Fisher Scientific, “Thermo Fisher Scientific to Acquire PPD, Inc., a Leading Clinical Research Organization,” Press Release, April 15, 2021. PT
Susan Haigney is managing editor of Pharmaceutical Technology.
Pharmaceutical Technology Outsourcing Resources
Supplement to Pharmaceutical Technology
Vol. 45, No. 8
When referring to this article, please cite it as S. Haigney, “CMOs and CDMOs Adjust to Pandemic Response and Beyond," Pharmaceutical Technology Outsourcing Resources (August 2021).