Contract Manufacturing Industry Outlook
Contract Manufacturing Industry Outlook Jim Miller, President PharmSource, A GlobalData Company
GlobalData:
2
Who we are
GlobalData is a leading data & insights solution provider who, for over 40 years, has been helping over 4,000 companies worldwide to make better and more timely decisions
OUR PEOPLE • 1,700 employees in 23 offices worldwide • 740 global analysts supporting clients 1-on-1 more than 315,000 times a year • 145 client services and account managers globally driving 90% renewal rates
OUR DATA & INSIGHTS • Real time tracking of 500,000+ companies, 181,000 M&A deals, 25,000 industry opinion leaders and 2M new product innovations across 80 countries & 2,000 cities • Publishing 2,265 reports annually • Quoted c.10,000/year by business press e.g. FT, SKYnews & Bloomberg
OUR CLIENTS • • • •
Serving 4,000 clients in 160 countries 73% of the FTSE 100 companies 60% of Fortune 100 companies 66% of DJ Asian Titans 50 index
Our mission is to help our clients succeed by decoding the future and reducing the noise & uncertainties surrounding the world of today
Agenda Recent industry performance CDMO results R&D spending NDA approvals Implications of M&A activity in CMC services Recent activity metrics Major deals What’s next? Concluding comments
3
Strong CMO performance continuing in 2017 • API leads the way thanks to high value products, broad outsourcing • Development reflects growing clinical pipeline • Dose hurt by lower value products, stagnant penetration Dose CMOs
Development
60%
60%
50%
50%
50%
40% 30% 20%
Revenue Growth
60%
Revenue Growth
Revenue Growth
Custom API CMOs
40% 30% 20%
40% 30% 20%
10%
10%
10%
0%
0%
0%
H1 2017
FY 2016
H1 2017
FY 2016
H1 2017
FY 2016
Source: public filings 4
Emerging Biopharma funding drives development activity
R&D Spend by Emerging Biopharma
Equity Funding for Emerging Biopharma $25.0
$3.9
$4.0 $3.6
R&D Spend - $ billion
$3.5
$3.3
$3.0 $2.5
$2.7
$3.7
$3.8
$3.9
$3.4
$2.8
$2.5
$2.0 $1.5
Funds Raised - $ billion
$4.5
$20.0 $15.0 $14
$10.0 $5.0 $-
$3 $3
H1 2014
$1.0
$0.5
$12
$7 $2
$3 $1
$1
$4
$4
$4
H1 2015
H1 2016
H1 2017
Secondary Public Offering
$-
Initial Public Offering Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 15 15 15 15 16 16 16 16 17 17
Source: Public filings
Venture Capital
Source: PharmSource Lead Sheet 5
CDMO penetration has remained constant despite market growth
140
70%
120
60%
100
50%
80
40%
60
30%
40
20%
20
10%
0
% Dose Forms Outsourced
Number of NDA Approvals
NDA Approvals and Share of Dose Form Contract Manufactured
In only In+Out Out Only % Out
0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 6 mo
6
CMO industry showing signs of consolidation Small number of CMOs benefit from NMEs but wide participation in new formulations
Outsourced NME Approvals
1 NDA 21 CMOs 5+ NDAs 3 CMOs 2-4 NDAs 13 CMOs
Outsourced New Form NME Approvals
5+ NDAs 3 CMOs
1 NDA 60 CMOs
2-4 NDAs 28 CMOs
Outsourced SM API NME Approvals
1 NDA 29 CMOs
2-4 NDAs 14 CMOs
5+ NDAs 8 CMOs
Source: PharmSource STRATEGIC ADVANTAGE
7
CMC Services M&A Activity 2016-2017 CMC has been principal buyer focus • • •
$40 billion in value Strong demand Fragmented supply base
Pharma Services M&A 2016-17
Strategic buyers predominate •
PE buyers shut out
Average multiples very high • •
2.7 x revenue 13.4 x EBITDA
Dose, 16
Discovery, 19 CMC, 59 Clinical, 23
Buyer Motivation Private equity
Bio API, 11 SM API, 13 Develop, 19
11
Strategic
89
0
50
100
Source: PharmSource STRATEGIC ADVANTAGE 8
Major deals re-shaping CMC services industry Buyer
Target
Price
Multiple
Thermo Fisher
Patheon
$ 7,200 M
22x
Lonza
Capsugel
$ 5,500 M
16x
Asahi Glass
CMC Bio Biomeva
$
600 M
10x
Carlyle Group
AMRI
$
570 M
9x
Catalent
Cook Pharmica
$
950 M
17x
Eurofins
6 CDMOs
≈$
300 M*
?
Recipharm
Kemwell
$
92 M
15x
UPS
Marken
$
570 M
?
*PharmSource estimate Source: public filings
Major deals better position CMOs to service Global Bio/Pharma • Scale to absorb large volumes of work • Scope of services to handle broad range of projects • Financial stability • Innovation and executive leadership 9
Scale and scope critical to serving Global Bio/Pharma • • • •
Top 25 Bio/Pharma are the big growth opportunity for CMOs • Greatest spend • Least penetrated Successful CMOs will need to take on much more work w/o increasing risk M&A adds scale and scope to take on bigger share of COGs Large CMOs drive business model innovation
% Dose Manufacture Outsourced
% of NDAs Outsourced 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Small Bio/pharma
Mid-size Bio/pharma
Global Bio/pharma
Sourcing Economics $20 B Global Bio/Pharma Company COGs (18%)
$ 3,600 M
Outsourced @ 20%
$
720 M
Per CMO @ 125
$
6M
Outsourced at 40%
$ 1,440 M
Per CMO @ 50
$
CMO size if 10% of revenue
$ 300 M
30 M
Source: PharmSource STRATEGIC ADVANTAGE
10
Deal close-up: Thermo Fisher acquires Patheon • • • •
Creates $3 billion CDMO, plugs big hole in Patheon offering Potential to leverage Fisher Clinical dominance to build CTM business Potential to leverage TMO scale in pharma sourcing/supply Upside from recent Patheon NDA approvals Thermo Fisher
Patheon Portfolio $3,500
$1,000
$20,000 $15,000
$3,000
$3,668
$3,668
$3,339
$3,339
Revenues - $ million
Revenues-$ million
$25,000
$10,000 $5,000
$11,000
$3,000 $2,500 $2,000 $1,500
$-
After Patheon Acquisition
Life Sciences
Diagnostics
Instruments
Pharma Services
$495
$1,152
$1,000
$11,000
$500
Before Patheon Acquisition
$1,152
$-
$1,220
$495 $220 Before Acquisition Development
After Acquisition API
Dose
Source: public filings 11
Deal close-up: Lonza acquires Capsugel
Lonza
•
Re-weights Lonza portfolio back to bio/pharma
•
Substantially increases Lonza importance in pharma supply chain
Revenues – $ billion
$6,000 $5,000
$250
$800
– Increased leverage as strategic supplier
$4,000 $3,000
$1,849
$1,849
•
$2,000 $1,000
$2,250
– Solubility technologies (softgel, spray-dry, liquid-filled capsules) – Added micronization
$2,250
$-
Before Capsugel After Capsugel Acquisition Acquisition Specialty Ingredients
Custom APIs
Capsules
Drug Delivery
Accelerates downstream move into drug delivery and dose form
•
Next steps? – Injectables buy or build – Excipients manufacturer
Source: public filings 12
Major Japanese corporations investing in advanced therapy CMOs Parent
CMO
Manufacturing Services
Year
Fujifilm
Fujifilm Diosynth (US, UK)
Biologics API,
2011
Althea Technologies (US)
Biologics API, injectables
2013
Omnichem (Belgium)
Small molecule API
GeneDesign (Japan)
Oligonucleotide API
2016
Biomeva (Germany)
Biologics API
2016
CMC Biologics (US, Denmark)
Biologics API
Kaneka
Eurogentec (Netherlands)
Biologics API
2010
JSR
KBI Biopharma (US)
Biologics API
2015
Hitachi Chemical
PCT Cell Therapy Services (US)
Cell therapy
Nitto Denko Avecia (US)
Oligonucleotide API
2011
Irvine Analytical/Avrio
Analytical, injectables
2016
Bushu Pharmaceuticals (Japan)
Solid dose, injectables
Ajinomoto
Asahi Glass
Nitto Denko
Baring Private Equity
2016
2017
2014
Source: PharmSource STRATEGIC ADVANTAGE 13
Private equity deals are few Buyer Ardian Capvest Partners Great Point Partners
Target Unither Pharmaceuticals NextPharma Technologies CSM - Clinical Supplies Management Inc.
Mandarin Capital Mipharm Partners PCI Pharma Partners Group Services
Seller PE flip
•
PE firms want badly to into CDMO space, even at high multiples
•
PE firms participate as direct buyers and by backing acquisitions by portfolio companies
•
Major sources of deals – Other PE firms looking to exit – Founders – Divestitures
•
PE firms want platform acquisitions to add to, but shy away from green field investment
PE flip Founder Founder PE flip Founder
Permira
LSNE
SK Capital
Perrigo API business
Divestiture
SK Capital
Noramco
Divestiture
The Carlyle Group
AMRI
Go private
Source: PharmSource STRATEGIC ADVANTAGE 14
What’s next in CMC services M&A?
Where will big “needle-moving” deals come from? • •
• •
Few truly attractive targets available Large PE-owned CDMOs need restructuring, investment – Low margin – Old technology, limited capabilities Industry fragmentation limits big deals High valuation expectation
What to look for • • • •
Bolt-on smaller deals to add capability Private equity “flips” PE buying smaller companies Buyers from outside industry
Service Providers Owned 4+ Years by PE Firms Entering 2017 Company Accupac
Status Sold
Aenova Group
Alcami Aphena Pharma Solutions Aptuit Inc.
Sold
Denison Pharmaceuticals EAG Laboratories
Sold
LSNE
Sold
NextPharma Technologies
Sold
Novasep Ritedose ShangPharma Synerlab Group Unither
Sold Planning IPO Refinanced Sold
Source: PharmSource STRATEGIC ADVANTAGE 15
Summary and conclusion • CMO industry enjoy strong revenue growth and profitability thanks to demand from emerging bio/pharma companies • Industry performance and outlook are driving M&A activity, with many deals and high valuations • Major deals are positioning some major CMOs/CDMOs to more strategic suppliers for global bio/pharma companies • High valuations and small number of attractive targets may dampen M&A activity • Biggest potential risk to industry performance would be a downturn in external funding to emerging bio/pharma, especially reversals in public equity markets
16
Questions and more information [email protected]
17
GlobalData:
2
Who we are
GlobalData is a leading data & insights solution provider who, for over 40 years, has been helping over 4,000 companies worldwide to make better and more timely decisions
OUR PEOPLE • 1,700 employees in 23 offices worldwide • 740 global analysts supporting clients 1-on-1 more than 315,000 times a year • 145 client services and account managers globally driving 90% renewal rates
OUR DATA & INSIGHTS • Real time tracking of 500,000+ companies, 181,000 M&A deals, 25,000 industry opinion leaders and 2M new product innovations across 80 countries & 2,000 cities • Publishing 2,265 reports annually • Quoted c.10,000/year by business press e.g. FT, SKYnews & Bloomberg
OUR CLIENTS • • • •
Serving 4,000 clients in 160 countries 73% of the FTSE 100 companies 60% of Fortune 100 companies 66% of DJ Asian Titans 50 index
Our mission is to help our clients succeed by decoding the future and reducing the noise & uncertainties surrounding the world of today
Agenda Recent industry performance CDMO results R&D spending NDA approvals Implications of M&A activity in CMC services Recent activity metrics Major deals What’s next? Concluding comments
3
Strong CMO performance continuing in 2017 • API leads the way thanks to high value products, broad outsourcing • Development reflects growing clinical pipeline • Dose hurt by lower value products, stagnant penetration Dose CMOs
Development
60%
60%
50%
50%
50%
40% 30% 20%
Revenue Growth
60%
Revenue Growth
Revenue Growth
Custom API CMOs
40% 30% 20%
40% 30% 20%
10%
10%
10%
0%
0%
0%
H1 2017
FY 2016
H1 2017
FY 2016
H1 2017
FY 2016
Source: public filings 4
Emerging Biopharma funding drives development activity
R&D Spend by Emerging Biopharma
Equity Funding for Emerging Biopharma $25.0
$3.9
$4.0 $3.6
R&D Spend - $ billion
$3.5
$3.3
$3.0 $2.5
$2.7
$3.7
$3.8
$3.9
$3.4
$2.8
$2.5
$2.0 $1.5
Funds Raised - $ billion
$4.5
$20.0 $15.0 $14
$10.0 $5.0 $-
$3 $3
H1 2014
$1.0
$0.5
$12
$7 $2
$3 $1
$1
$4
$4
$4
H1 2015
H1 2016
H1 2017
Secondary Public Offering
$-
Initial Public Offering Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 15 15 15 15 16 16 16 16 17 17
Source: Public filings
Venture Capital
Source: PharmSource Lead Sheet 5
CDMO penetration has remained constant despite market growth
140
70%
120
60%
100
50%
80
40%
60
30%
40
20%
20
10%
0
% Dose Forms Outsourced
Number of NDA Approvals
NDA Approvals and Share of Dose Form Contract Manufactured
In only In+Out Out Only % Out
0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 6 mo
6
CMO industry showing signs of consolidation Small number of CMOs benefit from NMEs but wide participation in new formulations
Outsourced NME Approvals
1 NDA 21 CMOs 5+ NDAs 3 CMOs 2-4 NDAs 13 CMOs
Outsourced New Form NME Approvals
5+ NDAs 3 CMOs
1 NDA 60 CMOs
2-4 NDAs 28 CMOs
Outsourced SM API NME Approvals
1 NDA 29 CMOs
2-4 NDAs 14 CMOs
5+ NDAs 8 CMOs
Source: PharmSource STRATEGIC ADVANTAGE
7
CMC Services M&A Activity 2016-2017 CMC has been principal buyer focus • • •
$40 billion in value Strong demand Fragmented supply base
Pharma Services M&A 2016-17
Strategic buyers predominate •
PE buyers shut out
Average multiples very high • •
2.7 x revenue 13.4 x EBITDA
Dose, 16
Discovery, 19 CMC, 59 Clinical, 23
Buyer Motivation Private equity
Bio API, 11 SM API, 13 Develop, 19
11
Strategic
89
0
50
100
Source: PharmSource STRATEGIC ADVANTAGE 8
Major deals re-shaping CMC services industry Buyer
Target
Price
Multiple
Thermo Fisher
Patheon
$ 7,200 M
22x
Lonza
Capsugel
$ 5,500 M
16x
Asahi Glass
CMC Bio Biomeva
$
600 M
10x
Carlyle Group
AMRI
$
570 M
9x
Catalent
Cook Pharmica
$
950 M
17x
Eurofins
6 CDMOs
≈$
300 M*
?
Recipharm
Kemwell
$
92 M
15x
UPS
Marken
$
570 M
?
*PharmSource estimate Source: public filings
Major deals better position CMOs to service Global Bio/Pharma • Scale to absorb large volumes of work • Scope of services to handle broad range of projects • Financial stability • Innovation and executive leadership 9
Scale and scope critical to serving Global Bio/Pharma • • • •
Top 25 Bio/Pharma are the big growth opportunity for CMOs • Greatest spend • Least penetrated Successful CMOs will need to take on much more work w/o increasing risk M&A adds scale and scope to take on bigger share of COGs Large CMOs drive business model innovation
% Dose Manufacture Outsourced
% of NDAs Outsourced 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Small Bio/pharma
Mid-size Bio/pharma
Global Bio/pharma
Sourcing Economics $20 B Global Bio/Pharma Company COGs (18%)
$ 3,600 M
Outsourced @ 20%
$
720 M
Per CMO @ 125
$
6M
Outsourced at 40%
$ 1,440 M
Per CMO @ 50
$
CMO size if 10% of revenue
$ 300 M
30 M
Source: PharmSource STRATEGIC ADVANTAGE
10
Deal close-up: Thermo Fisher acquires Patheon • • • •
Creates $3 billion CDMO, plugs big hole in Patheon offering Potential to leverage Fisher Clinical dominance to build CTM business Potential to leverage TMO scale in pharma sourcing/supply Upside from recent Patheon NDA approvals Thermo Fisher
Patheon Portfolio $3,500
$1,000
$20,000 $15,000
$3,000
$3,668
$3,668
$3,339
$3,339
Revenues - $ million
Revenues-$ million
$25,000
$10,000 $5,000
$11,000
$3,000 $2,500 $2,000 $1,500
$-
After Patheon Acquisition
Life Sciences
Diagnostics
Instruments
Pharma Services
$495
$1,152
$1,000
$11,000
$500
Before Patheon Acquisition
$1,152
$-
$1,220
$495 $220 Before Acquisition Development
After Acquisition API
Dose
Source: public filings 11
Deal close-up: Lonza acquires Capsugel
Lonza
•
Re-weights Lonza portfolio back to bio/pharma
•
Substantially increases Lonza importance in pharma supply chain
Revenues – $ billion
$6,000 $5,000
$250
$800
– Increased leverage as strategic supplier
$4,000 $3,000
$1,849
$1,849
•
$2,000 $1,000
$2,250
– Solubility technologies (softgel, spray-dry, liquid-filled capsules) – Added micronization
$2,250
$-
Before Capsugel After Capsugel Acquisition Acquisition Specialty Ingredients
Custom APIs
Capsules
Drug Delivery
Accelerates downstream move into drug delivery and dose form
•
Next steps? – Injectables buy or build – Excipients manufacturer
Source: public filings 12
Major Japanese corporations investing in advanced therapy CMOs Parent
CMO
Manufacturing Services
Year
Fujifilm
Fujifilm Diosynth (US, UK)
Biologics API,
2011
Althea Technologies (US)
Biologics API, injectables
2013
Omnichem (Belgium)
Small molecule API
GeneDesign (Japan)
Oligonucleotide API
2016
Biomeva (Germany)
Biologics API
2016
CMC Biologics (US, Denmark)
Biologics API
Kaneka
Eurogentec (Netherlands)
Biologics API
2010
JSR
KBI Biopharma (US)
Biologics API
2015
Hitachi Chemical
PCT Cell Therapy Services (US)
Cell therapy
Nitto Denko Avecia (US)
Oligonucleotide API
2011
Irvine Analytical/Avrio
Analytical, injectables
2016
Bushu Pharmaceuticals (Japan)
Solid dose, injectables
Ajinomoto
Asahi Glass
Nitto Denko
Baring Private Equity
2016
2017
2014
Source: PharmSource STRATEGIC ADVANTAGE 13
Private equity deals are few Buyer Ardian Capvest Partners Great Point Partners
Target Unither Pharmaceuticals NextPharma Technologies CSM - Clinical Supplies Management Inc.
Mandarin Capital Mipharm Partners PCI Pharma Partners Group Services
Seller PE flip
•
PE firms want badly to into CDMO space, even at high multiples
•
PE firms participate as direct buyers and by backing acquisitions by portfolio companies
•
Major sources of deals – Other PE firms looking to exit – Founders – Divestitures
•
PE firms want platform acquisitions to add to, but shy away from green field investment
PE flip Founder Founder PE flip Founder
Permira
LSNE
SK Capital
Perrigo API business
Divestiture
SK Capital
Noramco
Divestiture
The Carlyle Group
AMRI
Go private
Source: PharmSource STRATEGIC ADVANTAGE 14
What’s next in CMC services M&A?
Where will big “needle-moving” deals come from? • •
• •
Few truly attractive targets available Large PE-owned CDMOs need restructuring, investment – Low margin – Old technology, limited capabilities Industry fragmentation limits big deals High valuation expectation
What to look for • • • •
Bolt-on smaller deals to add capability Private equity “flips” PE buying smaller companies Buyers from outside industry
Service Providers Owned 4+ Years by PE Firms Entering 2017 Company Accupac
Status Sold
Aenova Group
Alcami Aphena Pharma Solutions Aptuit Inc.
Sold
Denison Pharmaceuticals EAG Laboratories
Sold
LSNE
Sold
NextPharma Technologies
Sold
Novasep Ritedose ShangPharma Synerlab Group Unither
Sold Planning IPO Refinanced Sold
Source: PharmSource STRATEGIC ADVANTAGE 15
Summary and conclusion • CMO industry enjoy strong revenue growth and profitability thanks to demand from emerging bio/pharma companies • Industry performance and outlook are driving M&A activity, with many deals and high valuations • Major deals are positioning some major CMOs/CDMOs to more strategic suppliers for global bio/pharma companies • High valuations and small number of attractive targets may dampen M&A activity • Biggest potential risk to industry performance would be a downturn in external funding to emerging bio/pharma, especially reversals in public equity markets
16
Questions and more information [email protected]
17
