Consolidation in the CDMO Industry
With an ageing population worldwide, the demand for pharma products has been progressively growing. Another reason for this trend is the rising healthcare standards in developing nations. To cope with these changing market trends, the Contract Development and Manufacturing Organizations (CDMOs) ecosystem are also transforming to fulfil the growing customer expectations.
CDMOs on the Rise
The CDMO industry is presently a disintegrated sector. The top five firms occupy about 15% market share. On the other hand, in the Contract Research Organization (CRO) market, the top five businesses own 70% of the market. This trend is changing, as mergers and acquisitions (M&A) are happening throughout the CDMO industry, with major consolidation anticipated in the coming years. This is in accordance with the inclinations of several pharma firms.
Today, more customers are opting to outsource to a single full-service CDMO instead of several niche suppliers, as this streamlines the supply chain and cuts time to market. Additionally, to help strengthen and grow their competencies, many large CDMOs are purchasing smaller, niche facilities in various locations, a trend which is likely to continue.
Factors Driving Consolidation in the CDMO Sector
There are several factors that push consolidation in the contract manufacturing sector. Specialty CDMOs concentrate exclusively on a single service segment. For instance, specialty CDMOs in the Finished Dosage Formulations (FDF) segment are engaged only in offering Finished Dosage development services and they invest in similar areas only. This allows specialty CDMOs to earn reputation globally in their domain.
There are several businesses that seek to be an exclusive place for all kinds of services needed by a pharma client throughout the drug life cycle, such as drug substance and drug product offerings, discovery services while overseeing internationally dispersed teams and mandatory project timelines. The unified model permits deeper client relationships, cross-selling, better marketing story, and client lock-ins. CDMOs also obtain spots to enlarge the development footprint across regions to obtain new customers. It is, however, important that CDMOs maintain a balance between service and science to be the preferred partner for their customers.
Emerging and Continuing Trends in the CDMO Market
In the past few years, the pharma market has gone through major changes, which has substantially squeezed the CDMO industry and its demand. The pharmaceutical sector was worth $1.2 trillion two years back, but it is anticipated that it will be easily over $1.5 trillion by 2023.
Several pharmaceutical firms are looking at innovative supply chain prospects to augment molecule development. This is leading to several firms forming partnerships with a CDMO as against investing in infrastructure.
Another major trend in the outsourcing segment is the spread of M&A policies. Research shows the speeding up of M&A activities since 2012, which is growing by roughly 12% annually. As such, we may see the strengthening of CDMOs in the future that will, in turn, improve lead times, enhance supply chain efficiencies, advance capabilities, and enlarge geographical reach.
Industry consolidation has been partially propelled by the wish to differentiate capabilities so that CDMOs can efficiently offer customers complete end-to-end manufacturing and drug product formulation development services while lowering operating costs. This happens as drug developers are eager to bring their drug product to market quickly, without any major supply chain complexity. Also, switching service providers in the middle of development leads to heavy outlay and so full-service providers are habitually seen as means to cut overall costs.
One more factor that impacts the creation of M&A policies is the prevailing disjointed state of the industry. As industrial activities are actively being outsourced, firms are merging in an attempt to fulfil customer demand and sustain a profitable position in the sector. In obtaining new capabilities and technologies, contract service providers can simplify their service covering commercial product to drug development.
Pharma businesses that leverage the virtues of CDMO's amalgamated offerings are still struggling to completely streamline their supply chain, as they depend on a large number of providers and suppliers. Consequently, there is a rising demand for cohesive, one-stop-shop service providers. By forming a tactical relationship with a service provider, firms can concentrate on their core skills, control costs, access specialized expertise and substantially speed up molecule commercialization. As a result, there is a larger propensity to rely on outsourcing partners who offer a wide range of services.
