The Changing Contract Services Landscape

Transcription

1 The Changing Contract Services Landscape Jim Miller President, PharmSource March 19,

2 The Changing Contract Services Landscape Pharmaceutical services industry will realign itself in the face of evolving market opportunities Development services consolidation driven by growth opportunities Manufacturing services consolidation driven by lack of growth opportunities 2

3 Dose CMO market CMO penetration not increasing 80% 70% 60% 50% 40% 30% 20% 10% 0% Outsourced NDA Approvals NME Non-NME NDAs averaging 40% outsourced for 8 years 25-30% share of COGS Global bio/pharma companies focus on asset utilization No global bio/pharma NDAs outsourced in 2013 Evidence of mid-size companies building/buying facilities, moving from outsource to in-house Source: PharmSource STRATEGIC ADVANTAGE database 3

4 Dose CMO market CMOs need to improve profitability 35% 30% 25% 20% 15% 10% 5% 0% Average EBITDA CMO Size Source: PharmSource research Contributing factors Low barriers to entry lead to price competition Lack of differentiation Low utilization, especially in solid dose Declining volumes Legacy facilities are suboptimal 4

5 Dose CMO market Deals drive inorganic growth Year Buyer Target Implications 2014 Patheon DSM NA Injectables, API, biomanufacturing $1.4 billion CMO 2013 Patheon Banner Pharmacaps Softgels, Propriety OTCs $1 billion CMO 2013 Aenova Haupt RX market $1 billion CMO 2013 Aenova EuroVital Pharma 2013 Catalent Relthy Zhejiang PCI Anderson- Brecon Proprietary OTCs OTCs, emerging mkts $1.3 billion CMO $500 million packager 2012 Aenova Temmler Semisolid OTCs $700 million CMO 2011/ 12 Renaissance Pharma DPT Labs Confab Rx semisolid leader $250 CMO Acquiring proprietary products Reflects lack of organic growth in CMO business Scale should increase profitability Proprietary products improve margins, enhances control 5

6 Dose CMO market How much will dose CMOs consolidate? Ownership, business models will limit CMO consolidation Proprietary products are an alternative Dose CMO Market Shares $14.7 B market 195 companies 180 others Baxter Catalent Patheon Aenova/ Haupt Famar Source: PharmSource research Vetter Recipharm Fareva Corden Pharma Hospira LTS Lohmann Nipro Pharma 6

7 Development services market Bio/pharma funding drives growth $ Raised (bn) Debt & mixed Private equity placement Secondary public offering IPO completed Venture capital investment VC and PE have remained consistent IPO way up but overall contribution is small IPO significance is access to secondary offerings and bolstering VC confidence Global partnering funds equal external financing When externally-funded companies are confident they can get more funding, they will spend Source: PharmSource Lead Sheet 7

8 Development services market Global bio/pharma needs pipeline Share of NME approvals in-licensed or acquired Growing share of approvals come from partnered and acquired candidates % 20% 40% 60% 80% NME Source Global bio/pharma allocating major share of R&D spend to partnering to maintain flow of NMEs External Co. acquisition Source: PharmSource analysis of FDA data 8

9 Go/ No Go/ License Regulatory Approval Development services market POC changes roles in development Proof of Concept Validation Precln P1 P2 A P2 B P3 Commercial API Process development, CTM Tech Transfer, Scale-up, CTM Market supply Process improvement Drug Product Powder in bottle/ capsule Preformulation, Commercial formulation, CTM, Tech Transfer Market supply, New formulations Analytical Characterization, API methods, CTM release & stability, raw materials DP methods, CTM release & stability, reg. stability, validation, raw materials Release, raw materials, new form. methods 9

10 Development services market Market battle for CTM revenues CTM Manufacturers Total = 93 CTM Revenues Total = $1,675 M Clin Pkgrs, 3 Delivery, 7 Bio API, 10 Delivery, $158 Clin Pkgrs, $100 Bio API, $175 CDMO, 46 CMO, 27 CDMO, $708 CMO, $580 Source: PharmSource analysis 10

11 Lots of deal-making opportunities Target Buyer Rationale Dose CMO API CMO Vertical integration API CMO Dose CMO One-stop API+clinical Dose CMO Dose CMO Scale, cost savings CDMO Dose CMO Vertical integration, clinical to commercial CDMO CDMO More capability, geography, scale CDMO Contract lab Vertical integration Contract lab Contract lab More capability, geography, scale Contract lab CDMO Deepen capability Contract lab CMO Deepen capability CDMO, contract lab Private equity Financial return Dose CMO Bio/pharma Captive capacity 11

12 Final thoughts The Changing Contract Services Landscape Financial rationale customer value M&A will not fix CMO business model Legacy capabilities not appropriate to future opportunities Customer needs go beyond capacity M&A in development services can create customer value Customers demand simpler sourcing models that can deliver speed 12

13 Special thanks to program sponsors 13