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The Outlook for the CMO Industry
Jim Miller President, PharmSource
September 2014
Where is the CMO industry headed?
• Drivers – Propensity to outsource – Formulary acceptance for new drugs – Industry consolidation
• Outlook – Future depends on new approvals for small and mid-size
companies – Injectables CMOs to benefit from tight capacity – M&A will consolidate industry but competition for most
desirable assets – Mixed models (proprietary + contract) will be more
common
www.pharmsource.com 2
CMO success depends on small & mid-size bio/pharma
0%
10%
20%
30%
40%
50%
60%
NME Non-‐NME
% of N
DA s Using dose CM
O
Outsourced NDAs by Type
2004-‐2008 2009-‐2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Generic Small Global Mid-‐size % of N
DAs U
sing Dose CM
O
Outsourced NDAs by Company Type
www.pharmsource.com 3
Source: PharmSource Strategic Advantage database
Global bio/pharma cherry-picking winners from smaller companies
Generic, 5%
Small, 21%
Global, 43%
Mid, 30%
Share of NME Approvals 2004-‐2013
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0% 20% 40% 60% 80%
2006
2007
2008
2009
2010
2011
2012
2013
NME Source
Share of NME approvals in-licensed or acquired
External Co. acquisition Generic, 26%
Small, 20%
Global, 28%
Mid, 26%
Share of Non-‐NME Approvals 2004-‐2013
• Global bio/pharma in-licensing most promising NMEs
• Non-NMEs are smaller volume products
Source: PharmSource Strategic Advantage database
Global & generic bio/pharma invest strategically in captive manufacturing
$-‐
$5.0
$10.0
$15.0
$20.0
$ bi
llion
Bio/Pharma CapEx Spending 2010-‐2013
DS-‐large mole
Inject Solid dose
R&D
Other
Manufacturing Investments 2012-‐2016
N=84
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Global bio/pharma capex = 11% of cash flow
Biopharmaceuticals: 52% of projects Emerging markets: 43% of projects
Source: Bio/Pharma Capital Expenditure Trends 2010-2013 and Implications for CMOs, PharmSource, September 2014
CapEx consumes CMO cashflow
0%
20%
40%
60%
80%
100%
CapEx % OperaUng Cash Flow 2012/2013 average
• CapEx constrained by cash availability
– Little room for innovative technology
– Customers must provide capital
• CapEx limits ability to reward investors, re-pay debt, attract new capital
• M&A less risky than CapEx
– Known cashflow – Readily financed
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Global bio/pharma average 2010-‐2014 Source: PharmSource analysis of financial reports
Coverage decisions impact CMO revenues
• Coverage decisions in EU costing CMOs $500-1000 M p.a.
– NICE (UK) and IQWIG (Germany) drive rest of Europe
• Insurers in US taking harder line
• CMO impact – Unit volumes – Pricing
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45%
17%
41% 34%
21%
51% 8% 11%
34% 32%
51% 55%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2002-2008 2009-2014 2002-2008 2009-2014
% D
ecis
ions
Coverage Decisions by UK’s NICE
Recommended Not Recommended Conditional Recommendation
Oncology All Other TAs
Source: Not So NICE: How Market Access Schemes Impact the CMO Sector, PharmSource, July 2014
Injectables CMOs in best situation
-‐
5,000
10,000
15,000
20,000
25,000
2013 2014 2015 2016 2017 2018 2019
Projected Lyo Capacity UUlizaUon
CommiSed New Demand Available
• Growing demand from biologics makes injectables capacity tight
– Except PFS, which is ample
• But high cost of capacity and commercial uncertainty make investment very risky
– Few new investments announced
• Cyto supply even tighter but even more risky
• Pricing should be firm for injectables
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CMO exits tighten capacity
CMO Target Services Reason Pharmalucence DP-injectables Acquired by Sun Pharmaceuticals;
announced CMO exit
SCM Pharma DP-injectables Acquired by Shire following loss of license for compliance issues
Exemplar Pharmaceuticals
DP-inhalation Acquired by Allergan following product approval problems
Genhelix DS-large molecule Acquired by mABxience for capacity
Medreich DP-injectables, solid Acquired by Meiji Seika Pharma for capacity
Bayer Contract Manufacturing
DP-multiple dose forms Need capacity for own products
B-I Contract Manufacturing*
DP-multiple dose forms Need capacity for own products
Ben Venue Laboratories
DP-injectables Compliance issues
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* Not BioXcellence biologics CMO Source: Bio/PharmaceuXcal Outsourcing Report
M&A consolidating CMO industry
Strategic Acquisitions 2012-2014 Acquirer Target Target Services Patheon Gallus Biopharma DS-large molecule
Patheon Banner Pharmacaps DP-softgel
Recipharm Corvette DP-Injectables
AMRI Oso Bio DP-Injectables
AMRI Cedarburg Hauser DS-small molecule
Packaging Coordinators Penn Pharma DP-High potency solid
Aenova Haupt Pharma DP-injectables/solid/liq
Catalent Relthy Laboratorios DP-softgel
Gallus Biopharmaceuticals
Laureate DS-large molecule
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30 largest dose CMOs ≈ 70% of the market
M&A drivers • Grow enterprise value
– Size for the sake of size – Offset challenges of organic growth
• Position for emerging opportunities and technologies – Biologics/injectables – Solubility-enhancing technologies
• New service combinations
• Geographic market access
• Less risky than building capacity
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The outlook
• Near-term positive outlook for CMOs – Funding environment means more development,
more CTM, more potential commercial
• Commercial CMO volume depends on: – Number of small/mid-size pharma approvals – Formulary access in US and Europe
• Injectables and biologics API CMOs benefit from tight capacity – Better pricing and terms – But risk increases if CMOs must finance more capacity
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The outlook
• Hunger for acquisitions will benefit CMOs with specialty capabilities – Deal values will be driven up by competition among
strategic buyers for limited number of targets
• New business models to fuel profit growth – API + dose manufacturing – Shared capacity proprietary products – “Pure play CMO” will be a niche
www.pharmsource.com 13
Market intelligence services
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• The definiXve source for targeted new business opportuniXes in the global Bio/Pharma industry
• Receive fresh, targeted leads plus contact informaXon and the latest market intelligence
• Know the changing pipeline status of bio/pharmaceuXcal products, what companies have new funding, and which execuXves are on the move
The industry’s premier informaXon resource, which includes:
• Contract services database
• Bio/PharmaceuXcal Outsourcing Report
• Emerging Markets Outsourcing Report
• In-‐depth Analyses
• Trend Reports
