CPHI Annual Report: VC Capital Investment and Contract Services Growth in 2024

On Oct. 24, 2023, the CPHI Annual Report 2023 was released during CPHI Barcelona. This report indicates a rise in biotech funding and subsequent growth for pharma contract services. This year’s CPHI Barcelona reportedly sees the largest gathering of contract development and manufacturing organizations (CDMOs).

Analysis on the report was given by CPHI Report expert Brian Scanlan of Edgewater Capital. According to Scanlan, liquidity in the biotech and mid-sized pharma market is typically a proxy of growth for the contract research organization (CRO)/CDMO sector. Over the past two quarters, funding into the sector has seemingly stabilized at levels last seen right before the pandemic. Total funding in 2023 is trending ahead of 2022, with the exception of initial public offerings (IPOs), which remain weak.

Over the past few years, the spike in market saturation combined with decreased funding led to CDMOs slowing development pipelines. But Scanlan predicts that the market is turning. “There are signs of an improving VC [venture capital] funding environment, but this needs to coincide with increasing pharma M&A and a healthier IPO environment,” he wrote. “We believe softer demand, particularly from emerging pharma and in earlier phases of development, will extend for a period of 12–18 months. However, the investment banking community is already signaling a pickup on deal activity starting in late 2023 and accelerating into 2024.”

The noise around onshoring has slowed, as there are now two competing forces at work. The forces that initially ignited the supply chain re-alignment surge such as COVID-19, geopolitical tensions, and risk mitigation have been partially offset by calming geopolitical tensions, decreasing supply chain disruptions, and renewed focus on cash management (prompted by funding challenges).

Scanlan stated that an important (and positive) factor for CDMOs is the workforce shedding in the industry over 2022 and the early part of 2023, which he predicts will bolster demand for CRO/CDMOs in 2024. He concluded that the long-term fundamentals for CRO/CDMOs are very good, especially given the number of compounds in all phases of development and market dynamics that favor increases in outsourced penetration rates.

Source: CPHI