Dispatches from ChemOutsourcing

CMO consolidation: Do biopharma partners see any benefits?

By Zachary Brennan

- Last updated on GMT

Some industry experts are doubting if consolidated companies can provide the same services as their former selves.
Some industry experts are doubting if consolidated companies can provide the same services as their former selves.

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As contract manufacturers continue to consolidate, some in the industry are questioning whether the resulting companies have the ability to offer the same services as the former individual companies. 

Big pharma now seems “more comfortable​” outsourcing their work to CMOs than in the previous decade, but “the jury is still out on one-stop shops​” for contract manufacturing and how effective they are, Alan Walker, VP of marketing and development at Kaneka, said at the ChemOutsourcing conference in New Jersey on Tuesday.

The challenge in any M&A is how you fully integrate a company. It’s very easy to buy a company but how you manage that fully integrated company is not an easy task​,” Walker added, noting the layoffs are all but expected with any M&A, though he didn’t think there is as much consolidation in the CMO space as there is with Big Pharma.

And in terms of transforming a bolt-on acquisition into a core competency, he said he thought it would be even more difficult for CMOs.

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M&A, especially by the top CMOs such as Patheon,​ grab headlines and generate conversations on improved efficiencies, experts here said, but rarely do pharma and biotech partners reveal if the consolidation has led to actual improvements.

Michael Cannarsa, director of business development at Almac, said that suppliers have to be careful with claims made on acquired technologies. Although Cannarsa didn’t cite any specific examples, he told Outsourcing-Pharma.com that because consolidation usually involves layoffs and because the CMO industry is such a people-intensive industry, it can sometimes be difficult resurrecting particular technologies once they’ve been acquired without the proper employee base.

The fundamental question is: Is there any financial benefit in our space to just consolidate – I think it’s going to cost you more to deliver on projects after you consolidate…if the combined group got rid of some people, I’m sorry but I think the delivery will be worse​,” Cannarsa said.

And some experts believe that new formulation or API services that some CMOs are adding to boost their offerings might be diluting what the companies formerly excelled in.

It’s not bad to be a niche supplier​,” Walker added.

Greg Reid, principal at ChemDev Solutions, offered more advice: “If you’re really good with APIs, stick with it. Don’t drag your brand down​” with all sorts of new services. “It’s good to offer new services but only if you’re good​,” he said.

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