First, the consolidation.
This week’s exemplar is Catalent acquiring Cook Pharmica. A few weeks back it was Thermo Fisher Scientific of Patheon. The activity comes at a rat-a-tat pace, doesn’t it? We don’t need to go through the litany of mergers and acquisitions in the CMO industry to prove a point, although a chart from my colleagues at ISR Reports captures the activity into 2016 quite nicely.
Today, we are also witnessing a widening variety of activity. In fact, news crosses my screen as I write this that illustrates how deals are becoming increasingly creative. Recipharm says it’s signing a long-term manufacturing agreement for solid dose products with Roche, and acquiring a Roche manufacturing facility outside of Madrid licensed to supply products to more than 95 countries.
The fact is, we’ve been calling for this type of activity. Regarding market formation, many in the industry have repeated that our supply chain of CROs, CDMOs and CMOs is “immature”; too much fragmentation, too many small players, too little consolidation.
But while we have been looking for change, when it actually happens it takes us by surprise. None perhaps more surprising than last month’s acquisition by Thermo Fisher Scientific of Patheon, for a cool $7.2 billion. That deal came on the heels of Lonza’s (just as cool) $5.5 billion for Capsugel.
But there’s more to teaming up than sheer industry momentum. CEOs, boards and stakeholders know there have to be the right motivations. Plenty of potential targets are out there, but do these deals make business sense?
More than ever they do. One reason is because of what may be the most important factor regarding motivations, and the needs of outsourcing customers: the bigger-provider model is now clearly ascendant. It may not be the full “one-stop-shop” ideal, but more capabilities under one roof is winning more and more converts ... even in an era when specialized technologies for advanced sciences and therapies are on the march.
We’ve gleaned all this recently in Outsourced Pharma articles, including just last week when Phil Roberts, Senior Vice President, Technical Operations, Orexigen, said: “These CDMOs are only getting bigger, right? … The integrated service model allows you to move more quickly, and doesn’t require as many internal resources to oversee.”
In short, we hear less of “Nobody can be good at everything,” and more of “Work with a partner where you can stay put for the long term.” That’s driving business behaviors and market realities.
Importantly, these long-term partners may increasingly be the CMO operations of Big Pharma. And this brings us to our second topic. Big Pharma operations are going through their own convergence – or maybe transcendence is a better word. We are witnessing – hold your breath – a crossing within Big Pharma of its pharma and contracting operations.
Boehringer Ingelheim with BioXcellence contract biology facilities around the world; Pfizer with Pfizer CentreOne. These are just two of many examples of the components of the pharmaceutical and CDMO arms having grown closer together ... in order to serve customers better. Let me explain.
First, Big Pharma increasingly pulls pharma-side executives over to its CDMOs to run those growing business. Thomas Wilson of Pfizer now describes his job thus: “Reporting to the VP Pharmaceutical Manufacturing Operations, this role is the liaison between the manufacturing sites and the CMO organization in Pfizer Global Established Products (GEP). I serve as a member of the Pharma Ops Leadership Team and the CMO Leadership team in GEP, and represent CMO business into PGS and PGS to the CMO.”
Jens Vogel, a long-tenured executive in Boehringer Ingelheim’s pharma business, now runs BI’s biologics contract manufacturing plant in Fremont, California. He told me for an upcoming article in Outsourced Pharma: “To us it makes a lot of sense, because we can leverage everything we’ve learned in bringing our own products to market. We can leverage that for customers to help them do the same with their products. That’s something our customers appreciate today, as you can imagine.”
Imagine is probably the right word here. Vogel’s is not quite the image held by some biotechs and pharma who remain hesitant to work with the contract arms of bigger pharma companies. But while some of those concerns remain in place, the market is clearly moving to a higher appreciation – and acceptance – of the technology and experience a Big-Pharma contract shop can provide customers. And pharma is more open about promoting this experience.
We might even ask: What leader of a CMO today can afford not to fully understand the buyer side of the outsourcing equation?
And that doesn’t just go for pharma-affiliated service providers. The next time you are reviewing top leadership at candidate CDMOs, chances are you’ll see plenty of sell-side biotech and pharma experiences racked up by these executives prior to moving into their current positions. We’ve seen this in the worker ranks for years, with scientists, engineers and managers going back and forth between CDMOs and drug owners.
So while at risk of pushing this point a bit too far, at least when considering attitudes and mindsets, the “buy and sell” sides have come together to form the ultimate customer-supplier relationships. There is more mutual understanding than ever, more mixing of assets, objectives and knowhow, and simply more mingling of people and businesses.
Activity is picking up, and we seem comfortable with both consolidation and convergence.