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www.pharmsource.com 1
The CMO Landscape:
Trends Update
Jim Miller
Contract Pharma 2016
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Agenda
• How is the drug product (DP) CMO
industry doing?
• Is the DP CMO industry
consolidating?
• What is the outlook for the DP CMO
industry?
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How is the drug product (DP)
CMO industry doing?
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How is the DP CMO industry doing?
Dose CMO industry had modest growth in 2015
0%
1%
2%
3%
4%
5%
6%
7%
8%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2009 2010 2011 2012 2013 2014 2015
Gro
wth
ra
te(%
)
Ma
rke
t S
ize
($
billio
n)
Market SizeAssuming ConstantExchange Rate
Estimated MarketSize
Annual Growth Rate
Annual Growth RateAssuming ConstantExchange Rate
PharmSource, Dose CMOs by the Numbers, 2016 Edition
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How is the DP CMO industry doing?
What happened to growth rate?
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
2010 2011 2012 2013 2014 2015
Average US$/Euro • Strong US$ hurt revenue
translation of global
CMOS
– Catalent, Patheon,
Baxter
• Customer losses
• Compliance issues
• Big wins haven’t kicked
in yet
• Flat performance in
many EU CMOs
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How is the DP CMO industry doing?
Total NDAs up but outsourced NDAs flat
8 7 13 11 7 9 16 10
19 18 5 2
6 8 7 7
4 4
11 8
34
25 17
27 30 23
36
25
28 29
99
75 80
89
98 96
91 92
104
121
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Nu
mb
er
of
ND
A A
pp
rova
ls
NDAs using Drug Product CMO
New Forms
Biologic NME
Small Molecule NME
All Approvals
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PharmSource, CMO Scorecard 2016 Edition
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How is the DP CMO industry doing?
Who gets NDAs is a key to outlook
37 30
23 36 31
24 27 27 38
49
39
28 37 21 27
22 25
33 23
28
10
3 8
20 17
15
19 13
22
23
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
NDA Approvals by Sponsor Type
Global Mid Size Small Generic
• Global bio/pharma
share of NDAs at 40%
in 2014/15 vs. 25-30%
earlier years
• At least half of those
approvals were in-
licensed or acquired
from smaller
companies
• But global bio/pharma
propensity to
outsourced has
declined
www.pharmsource.com 7
PharmSource, CMO Scorecard 2016 Edition
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Share of NDA Approvals Outsourced
% ChemOutsourced
% Bio Outsourced
% Non-NMEOutsourced
How is the DP CMO industry doing?
CMO share of approvals stagnant
Global bio/pharma outsourcing fewer biologics
even as number of biologics rising
PharmSource, CMO
Scorecard 2016 Edition
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Is the DP CMO industry
consolidating?
www.pharmsource.com 9
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Is the DP CMO industry consolidating
DP CMO market share more concentrated
$500 M+ (8)
$250 M-$499 M
(11)
$100 M-$249 M
(14)
$50 M-$99 M
$25 M-$49 M
<$25 M
DP CMO Market Share by Revenue
280 companies $18.8 B revenues
• Share of 8 largest CMOs
grew from 32% to 36%
• Organic growth modest in
2015
• Facility and CMO
acquisitions key growth
drivers
Source: PharmSource analysis PharmSource, Dose CMOs by the
Numbers, 2016 Edition
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Patheon
Catalent
Vetter
Baxter DPT
Pfizer B-I
CPL Emergent
3M
140 Others
DP CMOs Receiving NDA Approvals
2006-2015
• 10 companies account for
55% of NDAs with
outsourced DP
manufacture
• 7 of the 10 manufacture
just one dose form
• Most of the other 140
CMOs received just 1
NDA in 10 years
www.pharmsource.com 11
Is the DP CMO industry consolidating?
A few DP CMOs dominate outsourced NDAs
PharmSource, CMO Scorecard 2016 Edition
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Is the DP CMO industry consolidating?
CMO capacity moving to proprietary products
Law of CMO Dynamics
“Manufacturing capacity will migrate to its
highest and best use”
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• Patheon-DSM was last big DP-DP deal – Recipharm-Kemwell has less industry impact
• Few DP-DP big deals that would make sense – Most attractive targets aren’t for sale
– Most EU industry participants unattractive; undifferentiated capacity in over-capacity market
– Emerging markets are high risk
• Most recent major deals have combined drug substance with drug product – This is where the action will be
• Private equity still very interested in sector
www.pharmsource.com 13
Is the DP CMO industry consolidating?
M&A not really a factor in consolidation
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What is the outlook for
the DP CMO industry?
www.pharmsource.com 14
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Innovation focus • Support higher-value
NMEs (NAS) and novel delivery forms
• Strong pharmaceutics capabilities
• Regulatory and QA to support global registration and approval
• Long NDA/NME/NAS approvals record
• Enhanced profit margins
Capacity focus • Mostly late lifecycle and
generic products
• Tech transfer and simple formulation capabilities
• Single-region regulatory and QA, esp. Europe and Japan
• Limited NDA/NME/NAS approvals record
• Tight profit margins
www.pharmsource.com 15
What is the outlook for the DP CMO industry?
Outlook depends on strategic segment
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CMO evolution
20 innovation-focused CMOs out-perform
58%
42%
CMO Segments Share of NDA Approvals
N=445
Innovation-focused
Capacity-focused
37% 63%
CMO Segments Company Revenues
N=$18.8 billion
Innovation-focused
Capacity-focused
Innovation-focus
Success depends on
• Small & mid-size bio/pharma
• Technology capabilities
• Service performance
www.pharmsource.com 16
Capacity-focus
Will suffer from
• Lack of differentiation
• Tendering
• Inability to invest
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What is the outlook for the DP CMO industry?
Innovation-focused CMO outlook is positive
Revenue Variables Trend
Number of products NME/NAS/new forms increasing • Positive if more come from small & mid-size
X
% outsourced Unchanged to down • Global bio/pharma investing in captive capacity
• Old assets don’t fit new products
• Success will depend on
• Flexible business model
• Constant technology capex
X
Units per product Likely to decline • Niche/orphan/targeted products
X
$ per unit Increasing • More sophisticated processing requirements
(e.g. cyto/high potency; device assembly)
• Expensive APIs
• Smaller batch sizes
www.pharmsource.com 17
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What is the outlook for the DP CMO industry?
Funding still available but not so free flowing
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2010 2011 2012 2013 2014 2015 20166 mo.
Fu
nd
s R
ais
ed
$ B
illio
n
Funding for Emerging Bio/Pharma
VC IPO Secondary Upfront
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$2.7 $2.9
$3.0
$3.5 $3.5 $3.6
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
Q115
Q215
Q315
Q415
Q116
Q216
% E
me
rgin
g B
iop
ha
rma
Co
mp
an
ies
>2
ye
ars
of
ca
sh
R&
D S
pe
nd
($
billio
n)
Emerging Bio/Pharma R&D Spend and Cash Status
R&D Spend ($bn)
% Companies with >2 years cash
Source: PharmSource analysis
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What is the outlook for the DP CMO industry?
Well-stocked pipeline but more novel therapies
645 426
584
192
689
525
731
300
0
200
400
600
800
1000
1200
1400
1600
Nu
mb
er
of
Can
did
ate
s
Drug Development Pipeline
Biologics SmallMolecule
Biologics by Type
www.pharmsource.com 19
Source: IMS Lifecycle R&D Focus
MAb/
Recomb
Protein
Gene/Cell
Therapy/
Therapeutic
Vaccine
ADCs
Source: PharmSource Lead Sheet
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What is the outlook for the DP CMO industry?
Capacity-focused CMO outlook is difficult
• European CMOs most vulnerable
– Too much of the wrong capacity
• Especially in solid dose
– Not enough of the right capacity
• Especially aseptic fill in vials and PFS
– Government policies and tendering lower pricing and
volumes
• Some promising opportunities, however
– Generic injectables
• Product shortages, compliance issues, capacity exits
– Semisolids
• General lack of capacity, potential loss of capacity
www.pharmsource.com 20
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Final thoughts
• DP CMO industry continues to mature – Modest growth
– Clear market leadership
– Clearly-demarcated battle lines
• Benefits of funding surge have yet to be felt
• Performance is the key differentiator – FDA approvals, strategic sourcing arrangements
– Innovative sourcing models will gain importance
• Senior management as a difference-maker
www.pharmsource.com 21