The CMO Landscape: Trends Update - PharmSource · The CMO Landscape: Trends Update Jim Miller ......

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The CMO Landscape:

Trends Update

Jim Miller

Contract Pharma 2016

Agenda

• How is the drug product (DP) CMO

industry doing?

• Is the DP CMO industry

consolidating?

• What is the outlook for the DP CMO

industry?

How is the drug product (DP)

CMO industry doing?


How is the DP CMO industry doing?

Dose CMO industry had modest growth in 2015

0%

1%

2%

3%

4%

5%

6%

7%

8%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2009 2010 2011 2012 2013 2014 2015

Gro

wth

ra

te(%

)

Ma

rke

t S

ize

($

billio

n)

Market SizeAssuming ConstantExchange Rate

Estimated MarketSize

Annual Growth Rate

Annual Growth RateAssuming ConstantExchange Rate

PharmSource, Dose CMOs by the Numbers, 2016 Edition


What happened to growth rate?

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

2010 2011 2012 2013 2014 2015

Average US$/Euro • Strong US$ hurt revenue

translation of global

CMOS

– Catalent, Patheon,

Baxter

• Customer losses

• Compliance issues

• Big wins haven’t kicked

in yet

• Flat performance in

many EU CMOs


Total NDAs up but outsourced NDAs flat

8 7 13 11 7 9 16 10

19 18 5 2

6 8 7 7

4 4

11 8

34

25 17

27 30 23

36

25

28 29

99

75 80

89

98 96

91 92

104

121

0

20

40

60

80

100

120

140

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Nu

mb

er

of

ND

A A

pp

rova

ls

NDAs using Drug Product CMO

New Forms

Biologic NME

Small Molecule NME

All Approvals


PharmSource, CMO Scorecard 2016 Edition


Who gets NDAs is a key to outlook

37 30

23 36 31

24 27 27 38

49

39

28 37 21 27

22 25

33 23

28

10

3 8

20 17

15

19 13

22

23

0

20

40

60

80

100

120

140

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

NDA Approvals by Sponsor Type

Global Mid Size Small Generic

• Global bio/pharma

share of NDAs at 40%

in 2014/15 vs. 25-30%

earlier years

• At least half of those

approvals were in-

licensed or acquired

from smaller

companies

• But global bio/pharma

propensity to

outsourced has

declined




0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Share of NDA Approvals Outsourced

% ChemOutsourced

% Bio Outsourced

% Non-NMEOutsourced


CMO share of approvals stagnant

Global bio/pharma outsourcing fewer biologics

even as number of biologics rising

PharmSource, CMO

Scorecard 2016 Edition

Is the DP CMO industry

consolidating?


Is the DP CMO industry consolidating

DP CMO market share more concentrated

$500 M+ (8)

$250 M-$499 M

(11)

$100 M-$249 M

(14)

$50 M-$99 M

$25 M-$49 M

<$25 M

DP CMO Market Share by Revenue

280 companies $18.8 B revenues

• Share of 8 largest CMOs

grew from 32% to 36%

• Organic growth modest in

2015

• Facility and CMO

acquisitions key growth

drivers

Source: PharmSource analysis PharmSource, Dose CMOs by the

Numbers, 2016 Edition

Patheon

Catalent

Vetter

Baxter DPT

Pfizer B-I

CPL Emergent

3M

140 Others

DP CMOs Receiving NDA Approvals

2006-2015

• 10 companies account for

55% of NDAs with

outsourced DP

manufacture

• 7 of the 10 manufacture

just one dose form

• Most of the other 140

CMOs received just 1

NDA in 10 years


Is the DP CMO industry consolidating?

A few DP CMOs dominate outsourced NDAs



CMO capacity moving to proprietary products

Law of CMO Dynamics

“Manufacturing capacity will migrate to its

highest and best use”

• Patheon-DSM was last big DP-DP deal – Recipharm-Kemwell has less industry impact

• Few DP-DP big deals that would make sense – Most attractive targets aren’t for sale

– Most EU industry participants unattractive; undifferentiated capacity in over-capacity market

– Emerging markets are high risk

• Most recent major deals have combined drug substance with drug product – This is where the action will be

• Private equity still very interested in sector



M&A not really a factor in consolidation

What is the outlook for

the DP CMO industry?


Innovation focus • Support higher-value

NMEs (NAS) and novel delivery forms

• Strong pharmaceutics capabilities

• Regulatory and QA to support global registration and approval

• Long NDA/NME/NAS approvals record

• Enhanced profit margins

Capacity focus • Mostly late lifecycle and

generic products

• Tech transfer and simple formulation capabilities

• Single-region regulatory and QA, esp. Europe and Japan

• Limited NDA/NME/NAS approvals record

• Tight profit margins


What is the outlook for the DP CMO industry?

Outlook depends on strategic segment

CMO evolution

20 innovation-focused CMOs out-perform

58%

42%

CMO Segments Share of NDA Approvals

N=445

Innovation-focused

Capacity-focused

37% 63%

CMO Segments Company Revenues

N=$18.8 billion

Innovation-focused

Capacity-focused

Innovation-focus

Success depends on

• Small & mid-size bio/pharma

• Technology capabilities

• Service performance


Capacity-focus

Will suffer from

• Lack of differentiation

• Tendering

• Inability to invest


Innovation-focused CMO outlook is positive

Revenue Variables Trend

Number of products NME/NAS/new forms increasing • Positive if more come from small & mid-size

X

% outsourced Unchanged to down • Global bio/pharma investing in captive capacity

• Old assets don’t fit new products

• Success will depend on

• Flexible business model

• Constant technology capex

X

Units per product Likely to decline • Niche/orphan/targeted products

X

$ per unit Increasing • More sophisticated processing requirements

(e.g. cyto/high potency; device assembly)

• Expensive APIs

• Smaller batch sizes



Funding still available but not so free flowing

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2010 2011 2012 2013 2014 2015 20166 mo.

Fu

nd

s R

ais

ed

$ B

illio

n

Funding for Emerging Bio/Pharma

VC IPO Secondary Upfront


$2.7 $2.9

$3.0

$3.5 $3.5 $3.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Q115

Q215

Q315

Q415

Q116

Q216

% E

me

rgin

g B

iop

ha

rma

Co

mp

an

ies

>2

ye

ars

of

ca

sh

R&

D S

pe

nd

($

billio

n)

Emerging Bio/Pharma R&D Spend and Cash Status

R&D Spend ($bn)

% Companies with >2 years cash

Source: PharmSource analysis


Well-stocked pipeline but more novel therapies

645 426

584

192

689

525

731

300

0

200

400

600

800

1000

1200

1400

1600

Nu

mb

er

of

Can

did

ate

s

Drug Development Pipeline

Biologics SmallMolecule

Biologics by Type


Source: IMS Lifecycle R&D Focus

MAb/

Recomb

Protein

Gene/Cell

Therapy/

Therapeutic

Vaccine

ADCs

Source: PharmSource Lead Sheet


Capacity-focused CMO outlook is difficult

• European CMOs most vulnerable

– Too much of the wrong capacity

• Especially in solid dose

– Not enough of the right capacity

• Especially aseptic fill in vials and PFS

– Government policies and tendering lower pricing and

volumes

• Some promising opportunities, however

– Generic injectables

• Product shortages, compliance issues, capacity exits

– Semisolids

• General lack of capacity, potential loss of capacity


Final thoughts

• DP CMO industry continues to mature – Modest growth

– Clear market leadership

– Clearly-demarcated battle lines

• Benefits of funding surge have yet to be felt

• Performance is the key differentiator – FDA approvals, strategic sourcing arrangements

– Innovative sourcing models will gain importance

• Senior management as a difference-maker


The CMO Landscape: Trends Update - PharmSource · The CMO Landscape: Trends Update Jim Miller ......

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