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MAY / JUN 2024
Is small still beautiful ?
In March , I attended DCAT Week for the first time since 2019 . There is nowhere quite like DCAT Week for taking the temperature and the mood in the pharmaceutical and CDMO markets from the C-suite and so it was again this year . There is a full report from the event on pages 22-30 and reader feedback is welcome , as ever . This one took a long time to write !
The COVID pandemic had largely shaped the market ever since the first vaccines were developed : a massive spike in demand in those therapies , but patchier demand in other fields as the industry prioritised getting the vaccines to market ; then a relatively muted couple of years as customers destocked and biotechs struggled to obtain funding . Not all CDMOs suffered , but the knock-on effects were unmistakeable .
From late 2023 and into 2024 , almost everyone we spoke with agreed , the market has come back and the markers are broadly positive : rising stock prices , a slowdown in inflation , stabilising interest rates , lower borrowing costs and improved general confidence . This – and private equity ’ s growing cash pile - has translated into greater M & A activity in pharma and probably , in due course , among CDMOs too . Projections are for growth in the revenues and margins for CROs and CDMOs .
( There has also been the almost unprecedented acquisition of a very large CDMO , Catalent , by a pharma company needing to guarantee manufacturing capacity for a blockbuster that it can barely get out of the door fast enough . The shape of things to come or a ‘ dead cat bounce ’ in the continuing decline of the blockbuster model ? I really have no idea …)
That leaves a few open questions . First , will the continued predominance of biotechs in early-stage drug development and a consequent preference for full-service ‘ onestop shop ’ CDMOs lead to a consolidation in the market ? Keynote speaker Michael Cohen certainly thought so and some of the big players seem to be trying to become experts in almost everything .
Then again , we have been here before . Remember the infamous Deutsche Bank report in the late 1990s that predicted the same thing in the fine chemicals industry and sent companies paying high multiples to buy their way into a sector they did not really understand and getting their fingers burned horribly ? That was the talk of the industry events I attended when I first started this job in 2002 .
Another is the ( apparent ) trend towards biologics of all kinds . There is no doubt that both the growth and the major technology developments of recent years have been here rather than in small molecules , and biologics dominate the therapies that drive global growth . This was reflected in the big announcements made by member companies at DCAT Week and others at or around the same time .
At the same time , small molecules are still most of the market . Indeed , might pharma companies actually increase their outsourcing of small molecule manufacturing as they diversify more into the ‘ sexier ’ biologics that attract funding ? Some major CDMOs are staying out of an increasingly crowded field where paying to play costs much more .
The other big question is the extent to which payers will be ready to fund these extraordinary - and extraordinarily expensive - new treatments when pressure on healthcare costs is more intense than ever . That – like the travails of Chinese CDMOs in the wake of the US Inflation Reduction Act – will be the result of political choices that can always upend the predictions of the best analysts .
Dr Andrew Warmington
EDITOR – SPECIALITY CHEMICALS MAGAZINE
SPECCHEMONLINE
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