Pharma Outsourcing: The Numbers, Trends, and Partnership Strategies - - PowerPoint PPT Presentation

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

www.PharmSource.com 2

CMO Industry Performance

www.PharmSource.com 3

CMO industry performance

API CMOs are outperforming dose CMOs

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Revenue Growth 2015-2016

CMO Organic Revenue Growth FY 2016

Orange bars are dose CMOs; blue bars are API CMOs Source: Public filings www.PharmSource.com 4

CMO industry performance

API outsourcing moving in different directions

57% 56% 64% 0% 10% 20% 30% 40% 50% 60% 70% 5 10 15 20 25 30 35 40 2007-13 Average 2014-15 average 2016 Share of Approvals Outsourced

Number of FDA Approvals

Small Molecule NME API Sourcing 2007-16

Outsourced In Only Undetermined % Outsourced

49% 35% 25% 0% 10% 20% 30% 40% 50% 60% 70% 5 10 15 20 25 30 35 40 2007-13 Average 2014-15 Average 2016

Share of Approvals Outsourced Number of FDA Approvals

Large Molecule NME API Sourcing 2007-16

Outsourced In Only Undetermined % Outsourced Source: PharmSource STRATEGIC ADVANTAGE database

www.PharmSource.com 5

CMO industry performance

Drug product outsourcing remains ≈ 50%

50% 45% 63% 0% 10% 20% 30% 40% 50% 60% 70% 10 20 30 40 50 60 70 80 2007-13 2014-15 2016

Number of FDA Approvals

Non-NME Drug Product Sourcing 2007-16

Outsourced In Only % Outsourced

52% 53% 46% 0% 10% 20% 30% 40% 50% 60% 70% 10 20 30 40 50 60 70 80 2007-2013 2014-15 2016 NME Drug Product Sourcing 2007-16

Outsourced In Only % Outsourced

NDAs account for only 1/3 of dose CMO launches; tech transfers of marketed products account for 2/3

Source: PharmSource STRATEGIC ADVANTAGE database

www.PharmSource.com 6

CMO industry performance

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

Source: PharmSource STRATEGIC ADVANTAGE database

www.PharmSource.com 7

CMO industry performance

Global Bio/Pharma staying in-house

48% 18% 14% 0% 10% 20% 30% 40% 50% 60% 1 2 3 4 5 6 7 8 9 2007-13 2014-15 2016

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

Outsourced In Only % Outsourced 39% 24% 14% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 1 2 3 4 5 6 7 8 9 2007-13 2014-15 2016

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

Outsourced In Only % Outsourced

Source: PharmSource STRATEGIC ADVANTAGE database

www.PharmSource.com 8

CMO industry performance

Global Bio/Pharma investing heavily in captive capacity

$- $5.0 $10.0 $15.0 $20.0 $25.0

2010 2011 2012 2013 2014 2015

Capex $ Billion

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

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

Source: PharmSource STRATEGIC ADVANTAGE database

www.PharmSource.com 10

M&A in CMC Services Business

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CMC M&A activity

Targets are generally small and private

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

Source: PharmSource STRATEGIC ADVANTAGE database

Small deals still add capability/technology/geographic presence

www.PharmSource.com 12

CMC M&A activity

Buyers from all industry segments

10 20 30 40 50 60 Private- Management… Private Equity directly PE-backed company 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

Source: PharmSource STRATEGIC ADVANTAGE database

www.PharmSource.com 13

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

www.PharmSource.com 14

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

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

Source: PharmSource STRATEGIC ADVANTAGE database

www.PharmSource.com 15

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

www.PharmSource.com 16

Industry Outlook

www.PharmSource.com 17

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

www.PharmSource.com 18

Industry Outlook

Near term indicators are holding up

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

$ billion

Equity Funding to Emerging Bio/Pharma VC IPO SPO Upfront

Source: FDA data Source: PharmSource Lead Sheet www.PharmSource.com 19

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

www.PharmSource.com 20

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

www.PharmSource.com 22

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% Hollister Stier 4% 29 Others 39%

CMOs Manufacturing Injectable NME Approvals 2007-16

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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

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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?

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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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