CDMO M&A and Investment

Hunger for services drives valuations

Prior to the arrival of COVID, the CDMO space in the US was fertile. Multiples for CDMOs had risen considerably over historical levels, reflecting the extreme need for reliable companies to outsource to. Investment and consolidation followed, reshaping the nature of the industry and the offerings of many of its companies. One aspect was that mega deals were done to acquire specific technological capabilities. Catalent’s acquisition Paragon Bioservices for US$1.2 billion, and Thermo Fisher Scientific’s acquisition of Brammer Bio for US$1.7 billion are examples of this strategy at work, as both wanted access to the cell and gene space without having to build from nothing. While much attention has been paid to acquiring capabilities in the cell and gene and large molecule biologics area, small molecules still play a prominent role in looking at FDA approvals as they more frequently obtain orphan designation and fast-track status.

Dipharma Francis has been building on its’ specialization in the small molecule custom synthesis market in recent years. The company acquired Kalexsyn, a CRO based in Kalamazoo, Michigan in 2018, and rapidly expanded on their capabilities. Since the acquisition, Dipharma has built a brand-new state-of-the-art GMP suite, which has been fully operational since early 2020. On the back of this progress, the company modified its business model creating two distinct business units: one fully dedicated to APIs for generics, and another exclusively focused on CDMO activities. “This strategic move was intended to expand our operational platform in North America. We have since been integrating our Kalamazoo facilities and capabilities into our project development network in Italy in order to optimize our company’s value proposition. As a result, all our sites across different locations work closely together,” affirmed Jorge Nogueira, CEO of Dipharma Francis.

There has been an increase in activity and innovation in the oral drug delivery space, thus several important deals have been made to enhance competitive positioning. Notably, in 2017, Lonza closed its acquisition of Capsugel for US$5.5 billion. Four years later, the legacy Capsugel business (now called Capsules, Health and Ingredients (CHI)) has been successfully integrated into Lonza’s broader business, and the company is now capable of providing CDMO services to help customers develop the API while its CHI unit assists in the development of the right delivery solution.

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“We are finding that delivery dosage is a critical component of the overall API, and the delivery form you choose impacts the efficacy of either the drug or health supplement. For example, if you are taking a probiotic, the location and timing of release become very critical. We work with our customers to find the right polymers so that the ingredients do not prematurely release in the gut where the probiotic would be killed. We develop them to release at the right location and in a particular timing profile. Some customers might want immediate release, others might prefer a designed release,” noted Ramin Cyrus, vice president marketing at Lonza Capsules and Health Ingredients.

On the heels of this deal, in 2020 Frazier Healthcare Partners teamed up with Thomas H Lee Partners to acquire Adare Pharma Solutions, a CDMO specializing in oral solid dose products with a set of proprietary manufacturing technologies.

In its pursuit of becoming an end-to-end CDMO partner to pharmaceutical companies, Adare has remained active, acquiring Orbis Biosciences in May of 2020. According to Adare CEO Vivek Sharma: “Through our acquisition of Orbis, we have expanded the solutions we can offer our customers to include oral liquid for extended release and taste masked formulations and, most exciting, injectable forms.”

With Adare’s renewed focus on pharma service and technological capabilities, it has been adding more capabilities in the solubility enhancement area, including its Optimµm technology from the Orbis acquisition. Sharma added: “We can help patients take less drug due to an optimized solubility profile or provide them the flexibility to take a drug with or without food. With our customized solutions we can help patients ingest a prescribed drug, which improves compliance and has corresponding health benefits.”

A strong start in 2021

The string of investments has continued thus far into 2021, with Signet Healthcare Partners investing in Ascendia Pharmaceuticals, a company known for its expertise in providing custom sterile and non-sterile enabling formulations and analytical methods for new chemical entities, complex dosage forms, and 505(B)(2) product development. This investment will enable further innovation to meet the companies growing production needs for early and late phases of product development. “Ascendia has been bootstrapping for the past nine years with a friends and family round. Our growth strategy includes a strategic partner and we are pleased to have just announced that we received a growth PE investment from the esteemed Signet Healthcare Partners to grow and expand our people, capabilities and facilities to meet and exceed customer expectations from early to late state development,” affirmed Robert Bloder, Ascendia’s chief business officer.

To illustrate the impact Ascendia can have on a client Bloder mentioned that in the past year, it has worked with an oncology startup, moving very quickly with a product that was working well on cancer as a target. Unfortunately, it required 50 to 60 pills per day after the patients had failed three rounds of chemotherapy. Bloder expounded: “The company was about to lose their funding because it was not a viable option for these patients despite the dire straits they were in. Ascendia was able to improve the bioavailability and decrease the dose to 10 to 12 pills per dosing, which has provided for the project to continue with funding.”

“While blow-fill-seal technology has been long been established in Europe, its introduction in the US and Asia is accelerating. Even though the production equipment is costly to purchase and maintain, it provides excellent economy of scale through its high production rate, exquisite quality and low labor requirements. It enables highly automated, precision manufacturing which in the end delivers quality products in a very cost effective manner.”

Alan Petro, CEO of New Vision Pharmaceuticals

Blow-Fill-Seal

The Blow-Fill-Seal (BFS) space has also seen action from investors over the past year. To start 2021, SK Capital Partners closed an acquisition of Catalent Pharma Solutions’ Blow-Fill-Seal Sterile CDMO business and changed its name to Woodstock Sterile Solutions. Alan Petro, CEO of New Vision Pharmaceuticals, a company with deep expertise working with Blow-Fill-Seal technology, believes there are a number of reasons why the technology is being adopted more widely today. “Drugs are becoming more potent and doses are getting smaller, therefore, the doses must be more precise. At the same time, the global population is getting older and drug packaging must become more patient-centric and easier to use. BFS packaging is ideally suited to meet these needs,” he says.

This need was particularly important as COVID lockdowns limited access to traditional points of medical care. One of the unique aspects of blow-fill-seal is the single use doses that in many cases are sterile. This helps with issues of overdosing in pediatric cases.

The technology also has concomitant advantages of being significantly lighter in weight than glass containers, unbreakable in transit and it is not subject to spoiling. These factors result in lower shipping costs and fewer potential end-to-end quality concerns.

Image courtesy of Adare Pharma Solutions

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