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With changing customer demand, CDMOs are adjusting their business model and setting a clear course toward technology leadership, which will become an important factor in the coming years.
FREMONT, CA:As flexible third-party service providers, CDMOs support pharmaceutical companies at every stage of the process of making medicines, such as by providing services in the research and development stages, providing support in manufacturing, and offering to formulate and finish processes. CDMOs have been rising in an increasingly dynamic mergers and acquisitions (M&A) landscape driven by consolidation. New developments are likely to continually change the CDMOs’ position.
Earlier CDMOs operated on a business model that predominantly focused on serving as external service providers for manufacturing advanced pharmaceuticals. This model included capacity addition through the acquisition of manufacturing facilities from pharmaceutical companies. However, CDMOs have increasingly become innovation leaders, covering more pharmaceutical business sectors and adding new revenue streams. Through acquisitions, CDMOs can rapidly expand their capabilities and thereby be able to deliver advanced services at scale.
This change of focus has been accompanied by a transformation in the M&A landscape in the market. In the last decade, for example, the rise of novel modalities such as cell, gene, or mRNA therapies and innovative vaccines necessitated a significant investment in new additive manufacturing capabilities for viral vectors, cell manipulation, nucleic acids, and lipid-based formulations.
Well-positioned CDMOs can flexibly alter their production lines to meet the increasing demand for smaller, more diverse projects. New partnerships have arisen, enabling CDMO players to fuel the rapid growth of capacities and capabilities, helping the industry succeed in ramping up in areas such as vaccine production.
CDMOS needs to be a trusted partner for mature pharmaceuticals and contribute technical knowledge to maintain a competitive edge in manufacturing innovative products. This is especially true in the case of novel modalities, which account for the vast majority of M&A transactions, such as cell and gene therapies and novel nucleic acid therapies.
The expansion of the capability of CDMOs is occurring along three main axes, including value chains within a modality, new modalities, and a focus on product offerings toward providing additional complementing service categories such as clinical trial services. In comparison to the CDMO M&A activities examined in previous years, investment firms appear to have developed a desire to become more active players in the field. This trend will continue to prevail in the future. CDMOs offer an option to enter the life sciences and pharmaceutical markets by investing in continuous service revenues, while still benefiting from high growth rates in new therapy fields.
CDMOs are likely to foster their new role as technology innovators. Major businesses increasingly integrate smaller startups and technology leaders. Product-focused companies will continue to move toward the CDMO service market, while CDMOs will move toward an extended product offering. Additionally, the integration of clinical trial services could be a new trend for CDMOs to enter high-value, low-volume segments such as personalised medicine. However, a particular business model will differ from a traditional volume-first business model. CDMOs are likely to become strong contributors to innovation in the pharmaceutical industry. They will be key partners for pharmaceutical companies and will gain further relevance through their increasing technological expertise and know-how along the value chain.