The report published last month found that while drug industry outsourcing spend is growing - the market was worth $13.4bn (€10.1bn) in 2012 and is expected to be worth $18.5bn by 2017 - the number of contract manufacturing organisations (CMOs) has fallen to just 450 with less than ten companies entering the market last year.
“The market remains highly fragmented, with many CMOs relying on one client for more than 50% of their revenue,” Frost & Sullivan Life Sciences senior research analyst Aiswariya Chidambaram told Outsourcing-Pharma.com.
“This creates negotiating power for manufacturers and supresses prices throughout the industry,” with 60-80 percent of pharmaceutical companies considering returning to preferred suppliers, she added, based on previous experience, cost, and size.
“Furthermore, CMOs face immense price pressure because of tax incentives and lower inventories for low-volume products,” costs are required to drop to generate tax savings, and “thirty percent of existing market participants are likely to exit the CMO business over the next 10 years.”
One example she used to demonstrate this is the case of Ben Venue Laboratories – a US CMO been plagued with GMP violations – which is set to exit the contract manufacturing business within 5 years.
Consolidation
“As contract manufacturers struggle with profitability, consolidation is expected to help improve returns over the long term and will likely continue for the next 7 to 10 years,” said Chidambaram.
At present three players – Catalent, Patheon and Aenova (with the takeover of the Temmler Group in 2012) – hold a 23 percent share of the global market, the report said, with all three firms extending their offerings through acquisitions and technology-focused investments.
Within the last eighteen months, Catalent, for example, has increased its offerings to include Antibody-drug conjugates (ADCs), and drug delivery services, whilst offloading side-line businesses such as its US packaging unit.
Patheon, too, has been evolving, exiting the the semi-solid dose formulations segment to focus on core operations in sterile and solid manufacturing to, according to Chidambaram, improve profitability. Furthermore, Patheon’s $255m acquisition of Banner Pharmacaps last year has played a part in recent revenue boosts.
However, Chidambaram said consolidation will not just benefit the big players: “Consolidation in the form of acquisitions and strategic alliances to gain access to new, emerging markets and niche segments will likely emerge as a win-win situation for both small and large CMOs.
"Large CMOs can expand their geographic presence, and small CMOs can leverage the technical expertise and resources of large CMOs."