CPhI Reports Strong Outlook for Outsourced Services in Near Future

The first part of the 2021 CPhI Annual Report has been published, as announced in a Sep. 23, 2021 press release, and predicts a strong outlook for contract development and manufacturing organizations (CDMOs) over the next few years.

In part one of the report, experts Kevin Bottomley (partner at Results Healthcare) and Adam Bradbury (analyst at GlobalData PharmSource) highlight the pandemic, coupled with record investments in the discovery pipeline as catalysts for the CDMO growth. Additionally, the experts specify that these factors will positively impact M&A activity.

According to the findings in the report, there is a drive from the largest CDMOs to expand quickly so that they can meet both current and anticipated future demand. Financially, private equity (PE) is a major factor for growth as a result of the attractiveness of the CDMO industry for investment, particularly for high-margin products such as biologics.

“Scale is a major contributor to valuation across the sector due to the scarcity of scale assets. Companies with an EV (Enterprise Value) >$200 million command a premium over smaller players. We don’t see a significant difference in median valuation between pureplay API vs. drug product CDMOs,” said Bottomley in the press release. “However, there appears to be an investor premium for full-service CDMOs (development services, API, and drug product) who on average receive a higher valuation compared with pureplay API or drug product CDMOs. Deal activity in this sector is strongly driven by private equity. Over 60% of deals in 2020 and 2021 YTD (year-to-date) have been executed by PE or PE-backed companies.”

Analysis from GlobalData, reported in the press release, has further emphasized the confidence in the market as the number of PE houses buying CDMOs is greater than the number selling CDMOs. However, market preferences are shifting more towards specialist CDMOs and biologicals.

“There is no reason why this M&A activity cannot continue over the next two to three years,” added Bradbury, in the press release. “COVID-19 vaccine developers signed contract manufacturing agreements at an unprecedented rate during 2020/21 because many of these sponsors are small companies or non-profit institutions that lack manufacturing capabilities. Even the largest companies require extra capacity to supply billions of doses.”

The full report will be released during CPhI Worldwide, which is taking place in-person between November 9–11, 2021 in Milan, Italy, and online between October 25 and November 19, 2021.

Source: CPhI