An overview of the US pharma landscape

BACKGROUND

Over the past 10+ years the pharmaceutical Industry has utilized CDMO’s at an increasing level from year to year never seen prior to this period. The reasons are multidimensional involving a combination of new complex molecules for drug therapies such as NASH, antivirals (e.g. Hepatitis and most recently CoVID) as well as the ever expanding Oncology sector, all with small molecules being still dominant

REASONS

While biologics continue to grow, and it was thought by many that small molecules would eventually become a small sector of the overall NCE market, but this has not been the case. In the US NDAs for small molecules still account for approximately 70-75% of the total NDA approvals. For example, during 2017-2021 an average of 51 NDAs were approved per year by the FDA of which an average of 38 were small molecules and 18 were biologics. While there are many reasons for this but certainly cost drivers will continue to ensure small molecule APIs will continue to be a major segment of new therapies. For CDMOs (especially those without Biologics capabilities) this is vital since it is this sector (small molecules) of the market that fuels the majority of the outsourcing opportunities.

Another dimension is the Biotech/Virtual Pharma sector where the US is still the largest market worldwide for this group (76% in 2019). With over 6000 different biotech companies, and what was the original 3 biotech hotbeds: Genetown (Boston), Biotech Bay (San Francisco) and Biotech Beach (San Diego) are now augmented by 5 others: BioForest (Seattle/Northwest US), Lone Star Bio (Texas), Pharm Country (NYC/NJ), BioCapital (Wash DC) and Bio NC (North Carolina). These new regions support the expanding presence and importance of the Biotech sector for the CDMO providers.

As we all know these companies generally have no manufacturing capabilities and rely on external partners to provide necessary services to advance their pipelines. This sector is also less inclined to use potential CDMOs from “Developing countries” (e.g., China, India) since timely delivery, communication and more recently the geopolitical risk factors tend to outweigh the attractive cost component. As a result, those CDMOs based in the US and Europe have seen the dominant increase in growth based on these factors. The US which traditionally had not been a mecca for API CDMO’s has now seen companies like Curia, Cambrex, and Evonik grow and have all made major expansions in the US for small molecule API manufacturing in order to support primarily the domestic market. Certainly, legacy companies whose origins are outside the US such as Lonza, Esteve, and FIS also have been enjoying the current boom in the CDMO small molecule market and have implemented various strategies to support their growth and position in the market.

A WORD ABOUT ANGELINI PHARMA

Many companies such as Angelini Pharma have expanded into different technologies that are perceived to be potential growth opportunities. For example, Angelini Pharma invested in flow chemistry approximately five years ago and have successfully developed various compounds on both the R&D to commercial scale, even filing several processes with the FDA and AIFA.

A second technology that is a more recent expansion at Angelini Pharma’s Aprilia plant, the API manufacturing facility, is for high potent API’s or HPAPI’s. Obviously, Oncology as previously stated continues to grow and provide NCE opportunities. Many of these compounds are considered highly potent and require special handling capabilities within the manufacturing process. Angelini Pharma has recently installed several HPAPI “hubs” to augment a larger manufacturing unit (Unit D).

These hubs can reach containment levels of OEB5 and even OEB6 at the 5-250gm gram scale. The larger containment facility, Unit D, can produce batches of 25 kilos at OEB4 containment levels and 1-5 kilos at OEB 5.

FUTURE CONSIDERATIONS

One question that is often asked and discussed within our industry is: how long will this continued growth in the CDMO market especially in the US continue?

Certainly, there can be many “answers” but if we look at the “fuel” for the growth we see it has come primarily from the biotech/emerging pharma market. Further as we know this sector is also particularly reliant on their ability to raise capital (since most of the companies in this class have products still in the clinical phase and are not generating self-sustaining cash) they are totally reliant on external sources for funding their pipelines. The two primary vehicles that these companies generate capital is either through sale of stock or venture capital investment (e.g. Third Rock Capital and Flagship Pioneering in the U.S.). As an example eight biotechs raised $1.3 billion in funding through the first quarter of 2022..... but VC contributions have slowed significantly in Q2.

Therefore, as long as the economic conditions continue to provide for stock growth, IPOs and venture capital investment, this will continue to allow the biotech sector to expand multiple programs simultaneously which create the growing opportunities for the CDMOs.

However, should economic conditions change drastically as they did in 2008 (some data is pointing in this direction albeit perhaps not as drastic) biotech firms may find themselves in a position where based on limited funds they can only develop a lead compound in lieu of multiple programs.

During the economic crash in 2008 a term widely used among the emerging Pharma industry was “burn rate”. This was referring to the amount of money that a biotech company had on hand in order to sustain their clinical programwithout needed further capital. During that period many of these companies did not have enough cash on hand to manage multiple programs so they tended to focus on only 1 or maybe 2 most advanced compounds which obviously reduced the CDMO opportunities and consequently the CDMO sector suffered as well.

Therefore, if the same economic conditions were to repeat itself one could argue that the Biotech sector would experience the same limitations which would again potentially reduce the number of opportunities available for the CDMOs and certainly affect the upward growth curve that has been enjoyed over the past decade.

So, one answer to how long will the CDMO boon last…. may very well depend on the financial market as much as it is dependent on the number of NCEs being generated by Pharma R&D.