A healthy time for CDMOsBy Matthew Moorcroft, Cambrex Corporation - 12th August 2019
Dr Matthew Moorcroft, Vice President of Global Marketing & Intelligence at Cambrex, shares his views on the Contract Development and Manufacturing Organization (CDMO) sector in this insightful interview.
Q: How would you describe the pharmaceutical CDMO market at the moment?
Moorcroft: No matter how you look at it, more people are taking more medicine. Many estimate the global pharmaceutical market to have exceeded $1 trillion, but often sales revenue can be misleading due to pricing fluctuations complicating the picture (e.g. recent launches of highly priced drugs, patent expiries for mature products and generic entry). Topline sales are usually an inadequate measure of consumption, which are vital data for CDMOs who sell MT or kg of white powder or sterile liquids shipped in drums and vials. Therefore, when you deconstruct the data for units (tablets, capsules, vials) it becomes obvious that the volumes are increasing, and consumers are reaching for the medicine cabinet.
In addition to this more medicine-focused consumer, patients are also demanding more research and development into safer, more efficacious treatments, as well as access to newly approved drugs. For example, we have seen a dramatic increase in orphan indication treatments that were once considered unprofitable for pharmaceutical companies to target.
CDMOs have been at the receiving end of this growth because it has caused an increased reliance on outsourcing for drug substance and finished drug product needs. Pharmaceutical companies are manufacturing less of their own products compared to 20 years ago and have been busy divesting or mothballing antiquated drug substance and drug product facilities that were tolling out the blockbusters of the past. There is now more money being invested with CDMOS for research, development and process efficiencies, as well as an uptick in the use of CROs for drug discovery and clinical trial needs because these companies are focused on offering the latest and greatest technology, and this removes a great deal of pressure from the drug manufacturer.
In terms of the nature of the products, small molecule drugs continue to dominate commercial products as well as account for the majority of R&D pipelines with more small molecules in clinical trials than ever before. The number of small molecule drugs approved in 2018 by the FDA is at a 20-year high and the industry is currently enjoying one of the most buoyant periods of venture capital funding for early-stage companies at any time in recent history.
At the same time, competition can be fierce. At the beginning, there were just a handful of small molecule CDMOs operating on the market in the early 1980s, but this number has drastically increased in today’s market. During the late 1990s and early 2000s, drug manufacturers started to migrate to low-cost countries for production as blockbusters began to fall off. However, this came with a cost, and in the last 5 years alone, there has been a strong return of business to the US and EU due to quality concerns and the customers increasing preference of projects being located closer-to-home. Western-based CDMOs have started showing strong growth again and are benefiting by the surge of new products and clinical pipelines.
Large molecule drugs continually punch above their weight in terms of the numbers of headlines they generate, but their CDMO market is an order of magnitude smaller in terms of revenues and the number of commercial products available to manufacture. The competitive space is less crowded but outsourcing by big pharma is dominated by CDMOs who have a track record, access to the capital and can afford to build and maintain $150-200 million plants with exorbitant running costs (Lonza, Samsung and Celltrion for example).
To summarize, the on-going high tide in new drug approvals and a robust clinical pipeline, coupled with the decline in captive manufacturing and increasing dominance of the pipeline by virtual and venture-capital funded companies, has led to a healthy and sustained period of growth for CDMOs.
Q: The CDMO industry has been an attractive sector for M&A in recent years – Cambrex itself recently acquired Avista Pharma Solutions – what is driving this consolidation in the industry?
Moorcroft: The customer base for CDMOs has seen an interesting shift, moving away from just the traditional big pharma companies to included smaller or virtual companies. These smaller companies typically lack the manufacturing assets required to produce the quantities required for clinical or commercial supply and must outsource to be successful from a procurement and production perspective. The companies do not have the bandwidth to manage an army of suppliers across the different parts of the supply chain, which has led to the rise of the ‘full service CDMO’ model.
At Cambrex, we acquired Halo Pharma in 2018 and Avista Pharma Solutions in 2019 to add drug product manufacturing and analytical services to complement the existing drug substance expertise. Through these acquisitions, we have added hundreds of new customers, and now have the capabilities that allow us to offer our customers virtually all the services they need to develop and manufacture their small molecule therapeutics from start to finish.
As a CDMO, this allows our team to maintain the customer relationships over a broader range of the product lifecycle than in the past. We can get to know their process better, while improving delivery timelines through efficient transfer models. As they move along in their process, we can more easily shift resources across our network of facilities to accelerate development, manufacturing and testing services with a seamless experience for the customer.
Now we can work with early stage customers who are focused on creating a broad pipeline of clinical candidates through to the large-scale drug substance and drug product customers that want to take advantage of our late stage or commercial manufacturing capabilities. This also allows us to grow with a customer as they move along the process themselves, or to step in at any point in the process to deliver that one-stop provider experience.
Q: Largely as a result of M&A, one-stop shops are on the rise: how important is it to diversify your service offerings?
Moorcroft: The concept is certainly in vogue right now. If you look at the list of the recent M&A activity over the last 3 years including Cambrex/Halo/Avista, Lonza/Capsugel, Thermo/Patheon and Catalent/Accucaps we see a race toward offering more products and services to customers ‘under one brand’. It is common sense that using one CDMO for your drug substance, drug product and analytical service needs saves time and effort.
From the customer perspective, we can surmise that only a small handful of CDMOs (Cambrex, Patheon, Lonza and Catalent) are operating along a similar model so there is a growing requirement to differentiate to the customer. For other CDMOS, reputations are based on the brand or fiscal strength, but for Cambrex we are building our reputation on expertise and the molecule type. We think of ourselves as the leading small molecule company—we are the only full service CDMO to be dedicated to small molecule drugs, whereas others have either discounted the small molecules business completely, or their activity is somewhat labouring under their heavy investments on the biologics CDMO market.
Q: How do you choose which new technologies deserve investment?
Moorcroft: Most CDMOs know it is important to listen to their customers. Particularly those that have strategic relationships with large pharmaceutical companies and are uniquely privy to a first mover advantage on the new molecules that are coming down the pipeline – whether they require advanced chemistry, highly potent manufacturing, continuous flow chemistry, or cover new modalities such as cell therapies or oligonucleotides. This allows the CDMOs to make informed, often stepwise, investments into the next generation of technologies required.
Aside from customer input, other CDMOs that have invested in marketing intelligence teams, whose function is to routinely interpret the industry trends and assess the industry pipelines for the next opportunity. It is easy to scan industry headlines and monitor competitor trends, but this information is of no use if it is not being analyzed effectively to avoid the pitfalls of over-investing, investing too late or even investing too little in technology and capacity.
Cambrex Corporation, One Meadowlands Plaza East Rutherford, NJ 07073, USA