Pharma Outsourcing: The Numbers, Trends, and Partnership ... · BioAPI Small API Dose CMC...

Pharma Outsourcing:

The Numbers, Trends, and Partnership

Strategies

Jim Miller, President

PharmSource, A GlobalData Company

DCAT Week 2017

www.PharmSource.com 1

Contents

• CMO industry performance

• M&A trends

• Industry outlook

Thanks to Saul Richmond, PharmSource Director of Market Intelligence,

for his contributions to this presentation


CMO Industry Performance


CMO industry performance

API CMOs are outperforming dose CMOs

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%R

eve

nu

e

Gro

wth

20

15

-2016

CMO Organic Revenue Growth FY 2016

Orange bars are dose CMOs; blue bars are API CMOs

Source: Public filings www.PharmSource.com 4


API outsourcing moving in different directions

57% 56% 64%

0%

10%

20%

30%

40%

50%

60%

70%

0

5

10

15

20

25

30

35

40

2007-13Average

2014-15average

2016

Sh

are

of A

pp

rova

ls O

uts

ou

rce

d

Nu

mb

er

of

FD

A

Ap

pro

vals

Small Molecule NME API Sourcing 2007-16

Outsourced In Only Undetermined % Outsourced

49%

35%

25%

0%

10%

20%

30%

40%

50%

60%

70%

0

5

10

15

20

25

30

35

40

2007-13Average

2014-15Average

2016

Sh

are

of A

pp

rova

ls O

uts

ou

rce

d

Nu

mb

er

of

FD

A A

pp

rova

ls

Large Molecule NME API Sourcing 2007-16

Outsourced In Only Undetermined % Outsourced

Source: PharmSource STRATEGIC ADVANTAGE database



Drug product outsourcing remains ≈ 50%

50%

45%

63%

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

60

70

80

2007-13 2014-15 2016

Nu

mb

er

of

FD

A

Ap

pro

va

ls

Non-NME Drug Product Sourcing 2007-16

Outsourced In Only % Outsourced

52% 53%

46%

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

60

70

80

2007-2013 2014-15 2016

NME Drug Product Sourcing 2007-16


NDAs account for only 1/3 of dose CMO launches;

tech transfers of marketed products account for 2/3




Small & Mid-size highly penetrated by CM

79%

63%

83% 85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011-2015 2016

Drug Product Sourcing Small Bio/Pharma

NME New Forms

64%

86%

60%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011-2015 2016

Drug Product Sourcing Mid-Size Bio/Pharma

NME New Forms




Global Bio/Pharma staying in-house

48%

18%

14%

0%

10%

20%

30%

40%

50%

60%

0

1

2

3

4

5

6

7

8

9

2007-13 2014-15 2016

Global Bio/Pharma Large Molecule NME

Dose Sourcing 2007-16


39%

24%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

1

2

3

4

5

6

7

8

9

2007-13 2014-15 2016

Global Bio/Pharma Large Molecule NME API Sourcing 2007-16





Global Bio/Pharma investing heavily in captive capacity

$-

$5.0

$10.0

$15.0

$20.0

$25.0

2010 2011 2012 2013 2014 2015

Cap

ex

$ B

illi

on

Global Bio/pharma Capex Projects

Completed

2013-2015

Projects

Completed

After 2015

Total projects identified 75 70

Dose manufacturing 29 29

Injectable 12 9

Solid/Semi/Liq 13 17

Other dose forms 4 3

API-Large Molecule 15 20

API-Small Molecule 4 6

Tissue/Gene/Cell Therapy 1 2

Packaging 4 2

Global bio/pharma companies have

spent over $100 billion on capex

Source: public filings and news releases www.PharmSource.com 9

CMC M&A activity

101 deals in past 3 years

0 10 20 30 40

Multi-service

Packaging

Formulation

Analytical

BioAPI

Small API

Dose

CMC Acquisitions 2014-1016 M&A drivers

• Growth for its own sake

• Economies of scale

• Capability/process

technology

• Customer access

• Buying into CDMO

market



M&A in CMC Services Business


CMC M&A activity

Targets are generally small and private

0 20 40 60

$250-499

$100-249

$50-99

$25-49

$0-24

CMC Acquisitions by Target Revenues

$ million

Private-Mgmt

49 Private Equity

37

Public 12

Other 3

CMC Acquisitions by Target Ownership


Small deals still add capability/technology/geographic presence


CMC M&A activity

Buyers from all industry segments

0 10 20 30 40 50 60

Private-Management…

Private Equitydirectly

PE-backedcompany

Public

Number of Deals by Buyer Ownership

Other 9

Pharma 9

Private Equity

14

Pkg/ Logistics

5 Bio API

5

Form 6

Analytical 8

Small API 11

Dose 13

Multi-Service

21

Deals by Buyer Primary Business

• Most buyers are “strategic,” i.e., operate

related businesses

• Private equity have been net sellers



CMC M&A activity

Little consolidation from M&A

• Consolidation only when segment participant buys another

• Only 4.5% of dose CMO industry revenues have actually been consolidated

• Only the merger of two large CMOs is likely to have significant effect on industry

fragmentation

Significant Consolidating Acquisitions

Buyer Target Segment

Patheon DSM Dose + API

Piramal Ash Stevens Small API

AMRI Gadea Small API

AMRI Euticals Small API

Catalent Accucaps Dose

Recipharm Kemwell Dose

Asahi Glass Biomeva, CMC Bio Bio API

Non-Consolidating Acquisitions

Buyer Target

Lonza Capsugel

Mylan DPT

SK Capital Halo

Pfizer Hospira

Trilantic Doppel

Sucampo R-Tech Ueno


CMC M&A activity

Facility acquisitions may be more common

Buyer Seller Type

Avara AstraZeneca DP

Avara Astellas DP

Delpharm Sanofi

Famar Bayer DP

Frontida Sun Pharma DP

Recipharm Alcon, Inc. DP

Recipharm Flamel DP

Recro Pharma Alkermes, plc DP

Ropack Forest Labs DP

Patheon Roche DS

Avara UCB DS

Avara Merck (MSD) DS

Corden Sandoz DS

0 5 10 15

Analytical/form

Bio API

Small API

Dose

Facility Acquisitions 2014-16 CMO Dose

Facility Acquisitions 2014-16

Facility acquisitions offer

• Capacity to grow

• Immediate new business



CMC M&A activity

What’s Next in M&A?

• Prime targets

– PE-owned companies: at least 15 at the 4+ year holding time

– Well-run family-owned companies: especially in Europe

• Running out of attractive niche targets?

– Few companies left with advanced technology

• Large EU-based CMOs have challenges

– Some need restructuring

– Tender-driven market means tight pricing

• Facilities will be an important focus


Industry Outlook


Industry Outlook

Where does the CMO industry go from here?

• Small/mid-size pharma highly penetrated – Growth depends on continuing financial support

• Global bio/pharma is the great challenge – Have complex needs & capital to address them

– Technology and supply chain complexity are windows of opportunity

• Organic growth may require accepting more risk unless CMO has high-value proposition

• Public policy environment creates uncertainty for entire industry


Industry Outlook

Near term indicators are holding up

0

20

40

60

80

100

120

140

160

2013 2014 2015 2016

NDA Filings and Approvals

New NDA/BLA Filings at CDER NDA Approvals

$-

$5

$10

$15

$20

$25

$30

$35

$40

$45

2010 2011 2012 2013 2014 2015 2016

$ b

illi

on

Equity Funding to Emerging Bio/Pharma

VC IPO SPO Upfront

Source: FDA data Source: PharmSource Lead Sheet


CMO industry outlook

Manufacturing strategy must address multiple objectives

Supply chain

• Global supply

• Security of supply

• Cost of goods

• Complexity

Financial

• Unit cost

• Tax planning

• Foreign exchange

• Subsidies

• Cost of capital

• IP protection

• Product approvals

• Local content

• Labor laws

Legal/Regulatory

• Brand equity

• Product line

• Acquisitions

• Core technologies

Strategic

Make?

Buy?

Consolidate?

Global Bio/Pharma Manufacturing Decision Matrix


CMO evolution

Next stage: “adaptive manufacturing”

www.PharmSource.com

Capacity

Provider

• One size fits all

• Shared lines

• Volume drives

price

• Utilization focused

Need for flexibility

• New & complex

technology

• Small volumes

• Uncertain

reimbursement

Examples

Patheon: “condominium” offering at Swindon

Hovione: Vertex continuous manufacturing line

Lonza: Alexion dedicated suites, Sanofi JV

Tailored Solution Provider

Process expertise Supply chain mgmt

Engineering expertise Procurement

Tech transfer/scale-up Project management

Shared overhead Financial engineering

Regulatory expertise Sales

21

Industry Outlook

“One-Stop Shop” as supply chain solution?

Large Molecule Small Molecule

API • <5 process routes and

technologies

• Sterility is principal

environmental requirement

• Multiple possible routes

• Many reaction technologies

• Multiple environmental conditions

Dose form • Mostly injectable

• Limited formulation options

• Many dose forms

• Many formulation options

Analytical • Most assays and instruments

shared

• Specialized assays and instruments for

dose forms

Process complexity and scale are the big limitations to one-stop model • Breadth of technologies limits one-stop model in small molecule

• “One-Stop” biopharmaceutical CMO is not especially complex but has scale mismatch

• Supply chain management offering will accelerate one-stop model


CMO industry outlook

Emerging CMO segmentation

Innovation focus

• Support high-value

NMEs (NAS) and

novel forms

• Strong pharmaceutics

capabilities

• Regulatory/QA

support global

registration

• Long NDA/NME/NAS

approvals record

• Supply chain

expertise

• Enhanced profit

margins

Capacity focus • Mostly late lifecycle

and generic products

• Tech transfer and simple formulation capabilities

• Single-region regulatory and QA, esp. Europe & Japan

• Limited NME/NAS approvals record

• Tight profit margins

www.PharmSource.com

Vetter 18%

Patheon 18%

Baxter 12% Pfizer

9% HollisterStier 4%

29 Others

39%

CMOs Manufacturing Injectable NME Approvals

2007-16

23

Industry Outlook

Manufacturing unlikely to “move back” to US

• Capacity for custom APIs and injectables is tight

• CMOs lack capacity and capital for expansion

• Older facilities not suited to modern drugs

• Most new capacity has been built outside US

• 3-5 year timeframe to design/build/qualify new facility

• Long lead times for processing equipment

• New facilities will incorporate modern labor-saving technologies

• Massive product movements would take armies of staff for tech transfer and regulatory


Industry Outlook

Policy and industry uncertainty cloud outlook

• What direction will US administration really take on pricing,

regulation and manufacturing?

• How will national and global macro economic environment impact

investor sentiment?

• How will sponsors and CMOs evolve their relationships?


Final Thoughts

• CMO industry is growing, but some segments and CMOs are healthier than others

• M&A will remain a growth strategy but performance is still the most significant consolidating factor

• Strategic vision, operating excellence and senior executive leadership are keys to continued success in dominance

• The entire bio/pharma industry is facing an uncertain period and that can create opportunities for CMOs


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