Industry Consolidations, Tightening Capacity, Government Uncertainty


Each year at PCI Synthesis, we develop a list outlining the trends, challenges and issues that we think will shape the coming year for Contract Manufacturing Organizations (CMOs), as well as the generic drug market as a whole. Sometimes the industry pivots and take a completely different direction than what we expected, and other times, like this year, I think we nailed it.

And there’s more good news. The outlook for the future looks extremely bright: There continues to be great innovation, lots of private equity funding and more drugs are securing FDA approval than in the recent past. According to Transparency Market Research, the opportunity in the global active pharmaceutical market was pegged at US$134.7B in 2015 and is poised to rise to US$219.60B by 2023, with North America leading the market growth.

Below is an update on the key trends we saw shaping the market at the beginning of the year and how they are faring today:

Continued industry consolidation.  M&As in the pharmaceutical development space continue to rise.  This spring, Thermo Fisher Scientific announced plans to acquire Patheon for $2.5B; and contract drug manufacturer Albany Molecular was acquired by GTCR and Carlyle Group for $922M in cash. M&A activity continues to occur in the space because of a strong outlook about the economy as a whole, as well as critical and persistent demand for new drugs and therapies to treat illnesses and diseases.

More innovation is being done by small biotechs.  Some of the biggest innovations in drug development are being made by small pharmaceutical companies. Just this summer, a small biotech firm, Agios Pharmaceuticals, got its first cancer drug approved; and firms, such as Aurinia Pharmaceuticals, Axovant Sciences and Esperion Therapeutics include executives who earlier had developed drugs and sold their firms.  By focusing on niche markets and therapeutic areas, smaller companies are making a big impact in treating specific diseases. According to a Boston Consulting Group survey, today about 70 percent of new sales come from drugs initially developed by small companies, up from 30 percent in 1990.

Capacity is tightening. There continues to be manufacturing capacity shortage as demand increases for specific drugs. This continues to plague the industry because of the growing number of virtual biotechs with no manufacturing capability, along with the growth in new drug discovery projects; and many patents coming close to expiration dates.

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Significant uncertainty around the FDA and drug pricing. While the FDA continues to approve more drugs than in the past, there continues to be uncertainty around drug prices and growing FDA regulatory requirements covering drug discovery. Additionally, while President Trump earlier vowed to reduce drug prices and to repeal all or parts of ObamaCare, this has not happened yet and drug prices continue to rise.  Yet the fact that a new health plan has not been put in effect has had little bearing on investment in the sector or drug discovery, since the healthcare debate affects a small segment of the population – approximately 15 percent.

So, for the most part, our 2017 predictions rang true. There is a steady stream of product innovation, driven by the need for generic drugs, an aging society and a healthy economic outlook. The market for CMOs looks brighter than ever thanks to these factors, driving the need for increased manufacturing capacity and outsourced industry expertise. Stay tuned for when we again dust off the crystal ball and see what’s in store for 2018.