Adapting to Support the Resurgence in R&D
Back to business, differently
The CDMO segment remains one of the industry’s buzziest fields in life sciences. Data from analytics firm Evaluate supports this statement, showcasing that the segment is poised to outperform the rest of the life sciences industry through until 2028. In recent months, clinical studies have ramped up across many indications, as regulators, innovators, and manufacturers move on from the COVID-19 focus. The numerous phase 2 and 3 trials that were delayed by a couple of years are now live, with drugs nearing the approval stage, representing a formidable growth opportunity for the CDMO segment. Overall, 2021 and 2022 were dormant years for clinical trials and coincided with sluggish years for biotech funding. The robust innovation pipeline, along with the uptick in both scientific progress and investor appetite seen in early 2024, are great markers for a positive outlook ahead for CDMOs.
As the COVID induced innovation freeze begins to thaw and pharma firms rebuild their capacity, CDMOs will undoubtedly see diverse (and plenty) of work coming their way. Jeff Butler, head of small molecule, North America, SK pharmteco, said: “Companies that were severely exposed to COVID therapies certainly had a soft year in 2023, and I see them using 2024 as a realignment and rebuilding of some of the capacity that was used for COVID drugs. There is still the COVID bubble rolling through the clinic, but we are seeing strong demand for new clinical materials, and biotechs starting to bring on more pipelines, which certainly benefits the CDMO space.”
Large molecules driving large capex investments and consolidation
Biologics and advanced therapeutics (ATs) are emerging as a dominant force, estimated to be valued at over US$500 billion by 2030. The latter field encompasses targeted drug delivery, CGTs, and personalized medicines aimed at improving patients’ quality of life. The swift development and launch of COVID-19 vaccines significantly impacted the biologics and ATs sector by accelerating momentum for the regulatory approval of innovative therapies unrelated to COVID-19, and deal making has gathered momentum. Since 2022, several deals occurred in the AT space, with Resilience producing gene therapies for Opus; WuXi Advanced Therapies manufacturing CAR-Ts for Chimeric, and Fujifilm producing RNA oncology candidates for Chimeron. As summed up by Dipharma’s Catalogue APIs BU leader, Roberto Fanelli: “The growing demand for personalized medicine and specialty drugs presents avenues and opportunities for innovation.”
“There has been great M&A activity over the past months with large innovator companies having a strong appetite for buying pipeline, but it will be exciting to see the next round of innovation coming through, with biotechs receiving the funding they require to develop their technologies.”
Jeff Butler, Head of Small Molecule, North America, SK pharmteco
CDMOs and CROs are making the large capex investments needed to grow their biologics business. Aragen invested in a manufacturing facility that will come online at the end of 2024 and will allow customers to go all the way to Phase 2 and beyond, with the end of becoming an ”end-to-end service provider from gene to GMP”. Cytovance Biologics invested in a 200-liter stainless steel vessel to provide more capacity for microbial clients, while Lotte Biologics entered the US market with its first CDMO plant (which includes BMS’ facility in New York) in 2024. Jueon Kang, Lotte’s chief strategy officer, explained the US$80 million strategic move would allow the Korean firm to expand its ADC offering before being GMP-ready by 2025.
Such growth is likely to drive more consolidation for production juggernauts eager to dominate the next-generation medicines space. Protein-based biologics are projected to remain dominant, capturing 80% of the market, while ATs are anticipated to expand to 9%. A significant trend is the increasing demand for viral vector manufacturing, leading to substantial investments by CDMOs and impactful acquisitions reinforcing strengths in cell, gene, and oncology segments notably. In November 2023, Ajinomoto acquired Forge Biologics for US$620 million, leveraging the latter’s expertise in gene therapy manufacturing to bolster its regenerative medicine, ADCs, and oligonucleotide drug capabilities. In March 2024, Lonza picked up one of the largest biologics manufacturing facilities from compatriot Roche for US$1.2 billion to enhance large-scale capacity for biologics manufacturing, encompassing commercial-scale mammalian contract manufacturing and clinical-stage projects
Looking ahead, the growth of personalized medicine and advanced therapies will increase the need for specialized CDMOs capable of managing complex modalities like mRNA, lentiviral vectors, and plasmid DNA. The R&D landscape might even shift further towards biologics with the repercussions of the IRA, which could be harmful to small molecule development as detailed in the previous “Regulatory Landscape” article. Tom Ross, president and CEO of CDMO GRAM, witnessed the change: “Our clientele demonstrates a diversified portfolio, with a discernible inclination towards biologics and a diminishing emphasis on small molecules.”
Roth, PBOA’s president, expressed in early 2024: “The R&D landscape might strongly shift toward biologics at the expense of small molecules, to extend product lifespan before price negotiations.”
“The growth in biologic development has brought investment in R&D across a wide range of therapeutic classes, the rise in the burden of chronic diseases such as oncology, the loss of patent exclusivity of the leading biologic drugs, and growing demand and higher acceptability for novel therapies.”
Brad Payne, COO, PCI Pharma Services
A marriage in tune with the times: The new CDMO model
To meet the new requirements of their pharma and biotech clients, CDMOs are adapting beyond being classic service providers, to become technology partners at the forefront of pharmaceutical innovation. Aside from technological help at the earlier stages of molecule development, pharma firms now expect CDMOs to provide expertise along the entire manufacturing process, including commercial launch, according to an EY study. This trend further strengthened in 2023-2024, notably as the customer base of CDMOs broadens from big pharma to small biotechs. In that sense, the future will likely resemble one of an integrated model for CDMOs, with “one-stop-shop” slogans at the heart of their manufacturing mission.
Pharma companies are outsourcing more, not less, and this trend only shows signs of continuing. With the recent market downturn and efforts to bring drugs to market cheaper and quicker, drugmakers are focusing on drug discovery and marketing, while increasingly entrusting CDMOs with the development and manufacturing of their product. The sixfold growth in the global value of pharmaceutical goods in the past decade is pushing drugmakers to focus on their core competencies and in turn, is driving opportunities for CDMOs. The coming years are therefore likely to see a “natural selection” in the extremely competitive CDMO space, and firms that are at the cutting edge of technology are those that shall survive. Tim Tyson, CEO of TriRx Pharmaceuticals, noted: “There is a significant growth in demand for CDMO services, mostly driven by the trend of companies outsourcing development and manufacturing capabilities to focus on their core competencies.”
Going forward, the CDMO-drugmakers relationship will move from a rather transactional (or fee-for-service) relationship to one resembling a long-term marriage. Today, over 50% of products developed and commercialized are being outsourced in the US pharmaceutical industry, which is leading to a change in the relationship between drugmakers and their CDMO partners. As put by Anil Kane, executive director, and global head of technical & scientific affairs at Thermo Fisher Scientific: “The expectation is now that CDMOs must deliver transformational value, have access to cutting-edge technologies, have critical data-driven insights, have access to advanced materials, have innovative manufacturing processes, and also invest in resources and skilled individuals in different fields of science.”
In finding the perfect marriage partner, pharma companies are now putting more effort into the earlier stages of the dating process. Leaders of the 40+ CDMOs interviewed in recent months have noted a more rigorous due diligence process for the CDMO selection. “This involves multiple on-site meetings and audits, fostering a deeper understanding of expectations, and cultivating trust from the outset” explained PCI’s COO Brad Payne.
Pfizer CentreOne’s Thomas Wilson noticed the same trend in the earlier stages of the relationship: “The dating period is significantly more exploratory than it used to be and the engagement period – setting up the contract - is greatly focused on collaborative approaches, balance and alignment, and fairness in both directions. Companies are picking a partner in their early stages, but recognize that you can only afford to pick a partner once.”
As funding, innovation, and clinical trials recover post-pandemic, contract manufacturing and research organizations will only get busier in the years to come. The growth in biologics is likely to drive investment along with organic and inorganic growth in the future. More than ever, choosing the right partner from the onset will be fundamental for Big Pharma firms and biotechs alike. As concluded by Ramesh Subramanian, Aragen’s CCO: “We expect the segment to be in a growth mode and to do a lot better than in 2023. We are convinced that externalization and CROs/CDMOs are going to be ever more present.”
Article header image courtesy of Kindeva Drug Delivery