CPhI Annual Report Highlights Unpredictability in CDMO Growth Over Next Five Years

CPhI Worldwide has released the findings of Part I of the fifth edition of the CPhI Annual Report, which focuses on the immediate and long-term trends in pharmaceutical outsourcing. Part I of the report features contributions from industry experts Gil Roth, president of Pharma and Biopharma Outsourcing Association (PBOA); Vivek Sharma, CEO of Piramal Pharma Solutions; BSV Prasad, senior vice-president and head of Biocon’s Small Molecules Business; and STA Pharmaceutical’s executive director Sam Tadayon and CEO Minzhang Chen.

A continuing trend noted by the experts is the integration of pharmaceutical outsourcing, with single-source providers specializing in drug development increasingly sought. Future acquisitions, however, will not be dominated by big deals and large mergers, but rather smaller complementary services and niche technologies to fill specific technology asset gaps. The industry is anticipating a large increase in the use of flow chemistry and fermentation technologies, but resistance to change could slow their adoption. Experts have highlighted that the CDMO sector faces unknown risks such as the new US government administration, the longer-term implications of drug pricing, and big pharma income repartitions. 

Gil Roth, PBOA president, suggests that the consolidation expected of the CMO/CDMO sector to improve outsourcing efficiency has not yet panned out in 2017-his commentary was written prior to Catalent's acquisition of Cook Pharmica. The only large merger with the intention of creating a more integrated outsourcing model was Lonza’s acquisition of Capsugel. Roth, however, predicts that smaller scale buys to expand current capabilities are far more likely by CDMOs, whilst “ex-US CDMOs” may try to boost their US presence by acquiring an existing provider or an available pharma facility.

According to Roth, the current outlook of the pharmaceutical industry remains unpredictable because of the unclear plans of the current US administration. He notes that there has been a keen political desire in the US to reduce drug prices, but due to the lack of policy details, pharmaceutical companies and CDMOs have little clue on the decisions that could disrupt their business models.  

Another knock-on industry effect could result from a “tax holiday” in which big pharma reinvests large amounts of repatriated capital in its own domestic facilities, particularly biologics sites, with negative connotations for the growing CDMO industry. Roth adds, “Given the focus on reducing legal immigration in the US, there is additionally the strong possibility of a shift in the talent pool of pharma employees to other more welcoming nations, which may impact the domestic wages.” 

Vivek Sharma, CEO at Piramal Pharma Solutions, forecasts that the long heralded one-stop-shop CDMO is now becoming a reality. The biotech industry is a clear beneficiary of this trend, he says. He believes that the next few years will see CDMOs in niche areas offering more integrated value chains to customers. In fact, by simplifying the supply chain, CDMOs enable venture capitalists to have a longer run for their investments and the potential for faster returns, while also reducing risk.

“From pharma’s perspective, this enables them to concentrate on broadening the number of drug discovery programs they work on simultaneously and should expedite new drugs to market. In fact, over the next 2–5 years, we will increasingly see more symbiotic relationships between pharma and CDMOs with even capital and risk sharing deals” Sharma says. In terms of specific products classes, oncology continues to be an area of quick growth in the near future. Sharma explains that it is, therefore, likely that CDMOs will invest in parallel areas such as high potency API manufacture, lyophilized/injectable products, and antibody drug conjugation as the sector arms itself for the next wave of drug candidates.

Sam Tadayon, executive director and Minzhang Chen, CEO at STA Pharmaceutical, point out that flow chemistry has the potential to revolutionize and modernize pharmaceutical processes, but cautions that overall, the industry is still a full 50-years behind the bulk chemicals industry on the implementation of this technology. They note that implementing changes at the commercial stage can be limited by regulatory challenges. However, companies that invest early in this technology will benefit from more environmentally friendly production, and potentially double digit cost savings at commercial scale, according to them. To expedite the process and advance the technology more quickly, an increased number of specialized chemical engineering teams will be needed. Initial development of flow chemistry production occurred at big pharma facilities, but increasingly, we will see these activities outsourced by the pioneers to their strategic CDMO partners. 

BSV Prasad, senior vice-president and head of Biocon’s Small Molecules Business highlighted the role of fermentation in helping to commercialize new vaccines, biologics, as well as new antibiotics that overcome antimicrobial resistance. In particular, the technology holds the key to fully leveraging the advances in recombinant DNA and will be beneficial to drug discovery programs involving stem cells and even gene therapy vectors. The resurgence of interest in antibiotic development and therapeutic vaccines is also forecast to drive increased demand over the medium term.

Source: CPhI Annual Report