CMO Industry Update

Contract Pharma 2015

Jim Miller

September 17, 2015

www.pharmsource.com 1

Agenda

Presentation• Dose CMO industry

size and growth

• Growth drivers

• Mitigating factors

• Industry outlook

• Longer-term issues

Key Points• Robust recent growth in

CMO industry

• Strong tailwinds driving industry

• Headwinds will slow growth

• Outlook still positive

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Impressive growth for Dose CMO industry

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• Growth rate 2x

bio/pharma

revenues

• CMOs = 33% of

industry COGS

• Facility acquisitions

account for 25% of

growth

Source: PharmSource, Contract Dose

Manufacturing by The Numbers, 2015 Edition

Dose CMO consolidation continues

$500m+36%

$250-$499m

12%

$100-$249m

19%

$50-$99m14%

$25-$49m11%

<$25m8%

Dose CMO Market Shares

• 30 largest CMOs = 67%

• M&A and organic growth

drivers

• Smaller CMOs exiting

– Capacity acquired devoted

to proprietary products

– Excess capacity CMOs

withdrawing

– Outright failures

• Any big acquisitions left?

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Source: PharmSource, Contract Dose

Manufacturing by The Numbers, 2015 Edition

What’s the outlook for CMOs?

Tailwinds

• Financing

• R&D spend

• IND filings

• NDA applications

• Capacity constraints

Headwinds

• Outsource propensity

• CapEx

• Units per product

• Payer acceptance

• Capacity constraints

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Tailwinds

Financing and R&D spending are strong

$-

$5

$10

$15

$20

$25

$30

$35

2008 2009-12 2013/14

$ B

illi

on

Funding to Early Stage Companies

Other Private equity

IPO Secondary offering

Venture capital Upfront license fees

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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

R&

D S

pe

nd

CA

GR

R&D Spending Growth 2010-2014

Source: PharmSource Lead Sheet; public financial reports

Tailwinds

IND filings up sharply

0

100

200

300

400

500

600

700

800

900

2009 2010 2011 2012 2013 2014

Commercial IND Filings

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• Funding bonanza

enabling more

candidates to reach

clinical development

• But Phase 2/3 trial

registrations have

been flat

Source: PharmSource analysis of FDA data

Tailwinds

NDA applications are up

0

10

20

30

40

50

60

70

80

2013 2014 2015

Mid-Year NDA Activity

Applications Approvals

0

20

40

60

80

100

120

NDA Approvals 2006-2014

NME Chemical NME Biological

Non NME NDA

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Source: PharmSource analysis of FDA data

Tailwinds

Company results reflect early phase activity

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

H1 2015 Revenue Growth

• API driven by early

projects plus launches

• Discovery and preclinical

very strong

• Clinical CROs and dose

CMOs not yet benefitting

– Waiting for early phase

candidates to mature

– Dose CMOs benefit most at

approval

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Source: Public financial reports

What’s the outlook for CMOs?

Tailwinds

• Financing

• R&D spend

• IND filings

• NDA applications

• Capacity constraints

Headwinds

• Outsource propensity

• CapEx

• Units per product

• Payer acceptance

• Capacity constraints

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Headwinds

Investment growing for captive capacity

$-

$5

$10

$15

$20

$25

2010 2011 2012 2013 2014

$ B

illi

on

CapEx by Global Bio/Pharma

$-

$100

$200

$300

$400

$500

$600

$ M

illi

on

CapEx by Mid-Size Bio/Pharma

2010-13 average 2014

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• Profits and low interest rates driving capital investment

• R&D, large molecule assets are the focus

• Mid-size bio/pharma investment is major concern

Headwinds

Unit volumes are falling

0

50

100

150

200

250

H1 2013 H1 2014 H1 2015

Orphan Drug Designations

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• Multi-year trend continues

• Orphan drug approvals growing– Higher outsource

propensity

• Targeted therapies– Drug/diagnostic

combinations

– Autologous therapies

Source: PharmSource analysis of FDA data

Headwinds

Payers less willing to pay

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• Excluded products

growing

• NICE/IQWIG

restricting coverage in

Europe

• Commodity generics

replacing branded

generics in Europe

• Tendering driving

down prices

• Likely to impact CMO

pricing

Outlook

Tailwinds

• Financing

• R&D spend

• IND filings

• NDA applications

• Capacity constraints

Headwinds

• Outsource propensity

• CapEx

• Units per product

• Payer acceptance

• Capacity constraints

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• Dose CMO industry will grow at overall industry rate

• Consolidation via acquisition will slow

• Alternative business models will expand

• API + dose offering

• Drug delivery/value added services

Longer-term topics

• CDMOs adopting formalized

approaches to service

• Strengthening dollar/ Forex trends

• Continuous manufacturing as long-

term threat to CDMOs

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For more in-depth analysis

This report provides an important expert quantitative analysis on the contract dose manufacturing industry. PharmSource is the most definitive, trustworthy source of strategic insight on this topic in the bio/pharmaceutical realm.

This report characterizes the contract dose manufacturing industry along a number of quantitative dimensions, including number and type of participants, market size, market shares of the top CMOs and profitability, and provides PharmSource’s expert outlook for the industry.

For more information click here.

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Dose CMOs by the Numbers – 2015 Edition: Composition, Size, Market Share, Profitability and Outlook