Contract Manufacturing Industry Outlook · Contract Manufacturing Industry Outlook Jim Miller,...
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Contract Manufacturing Industry Outlook Jim Miller, President PharmSource, A GlobalData Company
Transcript of Contract Manufacturing Industry Outlook · Contract Manufacturing Industry Outlook Jim Miller,...
Contract Manufacturing Industry Outlook
Jim Miller, President PharmSource, A GlobalData Company
GlobalData: Who we are 2
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Our mission is to help our clients succeed by decoding the future and reducing the noise & uncertainties surrounding the world of today
Recent industry performance
CDMO results
R&D spending
NDA approvals
Implications of M&A activity in CMC services
Recent activity metrics
Major deals
What’s next?
Concluding comments
Agenda
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Strong CMO performance continuing in 2017
0%
10%
20%
30%
40%
50%
60%
Reve
nu
e G
row
th
Dose CMOs
H1 2017 FY 2016
0%
10%
20%
30%
40%
50%
60%
Reve
nu
e G
row
th
Development
H1 2017 FY 2016
0%
10%
20%
30%
40%
50%
60%
Reve
nu
e G
row
th
Custom API CMOs
H1 2017 FY 2016
Source: public filings
• API leads the way thanks to high value products, broad outsourcing
• Development reflects growing clinical pipeline
• Dose hurt by lower value products, stagnant penetration
Emerging Biopharma funding drives development activity
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$3 $4 $4 $4
$3 $2 $1 $1
$7
$14
$3
$12
$-
$5.0
$10.0
$15.0
$20.0
$25.0
H12014
H12015
H12016
H12017
Fu
nd
s R
ais
ed
- $
bil
lio
n
Equity Funding for Emerging Biopharma
Secondary Public Offering
Initial Public Offering
Venture Capital
Source: PharmSource Lead Sheet Source: Public filings
$2.5 $2.7
$2.8
$3.3 $3.4
$3.6 $3.7
$3.9 $3.8
$3.9
$-
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
Q115
Q215
Q315
Q415
Q116
Q216
Q316
Q416
Q117
Q217
R&
D
Sp
en
d -
$ b
illi
on
R&D Spend by Emerging Biopharma
CDMO penetration has remained constant despite market growth
NDA Approvals and Share of Dose Form Contract Manufactured
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0%
10%
20%
30%
40%
50%
60%
70%
0
20
40
60
80
100
120
140
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20176 mo
% D
ose F
orm
s O
uts
ou
rce
d N
um
ber
of
ND
A A
pp
rova
ls
In only
In+Out
Out Only
% Out
5+ NDAs
3 CMOs
2-4 NDAs
13 CMOs
1 NDA 21
CMOs
Outsourced NME Approvals
Small number of CMOs benefit from NMEs
but wide participation in new formulations
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CMO industry showing signs of consolidation
5+ NDAs
3 CMOs
2-4 NDAs
28 CMOs
1 NDA 60
CMOs
Outsourced New Form NME Approvals
5+ NDAs
8 CMOs 2-4
NDAs 14
CMOs
1 NDA 29
CMOs
Outsourced SM API NME Approvals
Source: PharmSource STRATEGIC ADVANTAGE
89
11
0 50 100
Strategic
Private equity
Buyer Motivation
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CMC Services M&A Activity 2016-2017
Clinical, 23
Discovery, 19
Dose, 16
Bio API, 11
SM API, 13
Develop, 19
CMC, 59
Pharma Services M&A 2016-17 CMC has been principal buyer focus
• $40 billion in value
• Strong demand
• Fragmented supply base
Strategic buyers predominate • PE buyers shut out
Average multiples very high • 2.7 x revenue
• 13.4 x EBITDA
Source: PharmSource STRATEGIC ADVANTAGE
Buyer Target Price Multiple
Thermo Fisher Patheon $ 7,200 M 22x
Lonza Capsugel $ 5,500 M 16x
Asahi Glass CMC Bio
Biomeva
$ 600 M 10x
Carlyle Group AMRI $ 570 M 9x
Catalent Cook Pharmica $ 950 M 17x
Eurofins 6 CDMOs ≈$ 300 M* ?
Recipharm Kemwell $ 92 M 15x
UPS Marken $ 570 M ?
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Major deals re-shaping CMC services industry
Major deals better position CMOs to service Global Bio/Pharma
• Scale to absorb large volumes of work
• Scope of services to handle broad range of projects
• Financial stability
• Innovation and executive leadership
*PharmSource estimate
Source: public filings
0%
10%20%
30%
40%50%
60%70%
80%
90%
SmallBio/pharma
Mid-sizeBio/pharma
GlobalBio/pharma
% D
ose
Man
ufa
ctu
re O
uts
ou
rced
% of NDAs Outsourced
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Scale and scope critical to serving Global Bio/Pharma
Sourcing Economics
$20 B Global Bio/Pharma Company
COGs (18%) $ 3,600 M
Outsourced @ 20% $ 720 M
Per CMO @ 125 $ 6 M
Outsourced at 40% $ 1,440 M
Per CMO @ 50 $ 30 M
CMO size if 10% of revenue $ 300 M
• Top 25 Bio/Pharma are the big growth opportunity for CMOs
• Greatest spend
• Least penetrated
• Successful CMOs will need to take on much more work w/o increasing risk
• M&A adds scale and scope to take on bigger share of COGs
• Large CMOs drive business model innovation
Source: PharmSource STRATEGIC ADVANTAGE
$11,000
$11,000
$3,339 $3,339
$3,668 $3,668
$1,000 $3,000
$-
$5,000
$10,000
$15,000
$20,000
$25,000
Before PatheonAcquisition
After PatheonAcquisition
Reven
ues-$
mil
lio
n
Thermo Fisher
Life Sciences Diagnostics
Instruments Pharma Services
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Deal close-up: Thermo Fisher acquires Patheon
$220
$1,220 $495
$495 $1,152
$1,152
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
BeforeAcquisition
AfterAcquisition
Reven
ues -
$ m
illi
on
Patheon Portfolio
Development API Dose
• Creates $3 billion CDMO, plugs big hole in Patheon offering
• Potential to leverage Fisher Clinical dominance to build CTM business
• Potential to leverage TMO scale in pharma sourcing/supply
• Upside from recent Patheon NDA approvals
Source: public filings
$2,250 $2,250
$1,849 $1,849
$800
$250
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Before CapsugelAcquisition
After CapsugelAcquisition
Reve
nu
es –
$ b
illio
n
Lonza
Specialty Ingredients Custom APIs
Capsules Drug Delivery
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Deal close-up: Lonza acquires Capsugel
• Re-weights Lonza portfolio back to
bio/pharma
• Substantially increases Lonza
importance in pharma supply chain
– Increased leverage as strategic
supplier
• Accelerates downstream move
into drug delivery and dose form
– Solubility technologies (softgel,
spray-dry, liquid-filled capsules)
– Added micronization
• Next steps?
– Injectables buy or build
– Excipients manufacturer
Source: public filings
Parent CMO Manufacturing Services Year
Fujifilm Fujifilm Diosynth (US, UK) Biologics API, 2011
Ajinomoto
Althea Technologies (US) Biologics API, injectables 2013
Omnichem (Belgium) Small molecule API
GeneDesign (Japan) Oligonucleotide API 2016
Asahi Glass
Biomeva (Germany) Biologics API 2016
CMC Biologics (US,
Denmark)
Biologics API 2016
Kaneka Eurogentec (Netherlands) Biologics API 2010
JSR KBI Biopharma (US) Biologics API 2015
Hitachi Chemical PCT Cell Therapy Services
(US)
Cell therapy 2017
Nitto Denko Nitto Denko Avecia (US) Oligonucleotide API 2011
Irvine Analytical/Avrio Analytical, injectables 2016
Baring Private Equity Bushu Pharmaceuticals
(Japan)
Solid dose, injectables 2014
Major Japanese corporations
investing in advanced therapy CMOs
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Source: PharmSource STRATEGIC ADVANTAGE
Buyer Target Seller
Ardian Unither
Pharmaceuticals PE flip
Capvest
Partners
NextPharma
Technologies PE flip
Great Point
Partners
CSM - Clinical
Supplies
Management Inc.
Founder
Mandarin Capital
Partners Mipharm Founder
Partners Group PCI Pharma
Services PE flip
Permira LSNE Founder
SK Capital Perrigo API
business Divestiture
SK Capital Noramco Divestiture
The Carlyle
Group AMRI Go private
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Private equity deals are few
• PE firms want badly to into CDMO
space, even at high multiples
• PE firms participate as direct buyers
and by backing acquisitions by portfolio
companies
• Major sources of deals
– Other PE firms looking to exit
– Founders
– Divestitures
• PE firms want platform acquisitions to
add to, but shy away from green field
investment
Source: PharmSource STRATEGIC ADVANTAGE
Where will big “needle-moving”
deals come from?
• Few truly attractive targets available
• Large PE-owned CDMOs need
restructuring, investment
– Low margin
– Old technology, limited capabilities
• Industry fragmentation limits big deals
• High valuation expectation
What to look for
• Bolt-on smaller deals to add capability
• Private equity “flips”
• PE buying smaller companies
• Buyers from outside industry
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What’s next in CMC services M&A?
Company Status
Accupac Sold
Aenova Group
Alcami
Aphena Pharma Solutions
Aptuit Inc. Sold
Denison Pharmaceuticals
EAG Laboratories Sold
LSNE Sold
NextPharma Technologies Sold
Novasep
Ritedose Sold
ShangPharma Planning IPO
Synerlab Group Refinanced
Unither Sold
Service Providers Owned 4+ Years
by PE Firms Entering 2017
Source: PharmSource STRATEGIC ADVANTAGE
• CMO industry enjoy strong revenue growth and profitability thanks to demand
from emerging bio/pharma companies
• Industry performance and outlook are driving M&A activity, with many deals and
high valuations
• Major deals are positioning some major CMOs/CDMOs to more strategic
suppliers for global bio/pharma companies
• High valuations and small number of attractive targets may dampen M&A
activity
• Biggest potential risk to industry performance would be a downturn in external
funding to emerging bio/pharma, especially reversals in public equity markets
Summary and conclusion
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