M&A activity vigorous in CDMO arena: CPhI

The drug development field has seen a flurry of mergers and acquisitions, and notable partnerships, in the last several months. Several industry leaders are wondering if this trend will continue, and during the 2021 iteration of CPhI North America (scheduled online and in Philadelphia August 10-12), a group of experts are tackling the issue.

During “US Market Outlook 2021: CDMO deal-making in a pandemic and beyond”, a quartet of experts from various corners are examining past, current, and future activity:

• Ramesh Subramanian, chief commercial officer of Aragen
• James Gale, managing director of Signet Healthcare Partners
• Robert Bloder, chief business officer of Ascendia Pharmaceuticals INC.
• Jason Spizer, journalist with Global Business Reports

Subramanian spoke with Outsourcing-Pharma about the event. He offered an overview of the roundtable and thoughts on the likely future of the CDMO field.

OSP: How do you think the American CDMO market is going to change in the next 12 months?​

RS: Externalization has become a core element of all customer strategies, and hence all good CDMO’s are doing well, across geographies. What we are seeing as a trend is a drive towards doing more locally; what that means is that companies are looking at ways to localize the supply chain.

The challenge is that there’s not enough capacity to bring all the products back to the US, so instead, what we see is a mixed approach with CDMOs (principally based in the US) doing the final steps in-house locally and sourcing earlier steps in Asia. That allows the innovator to be comfortable that the API is finished in the US while allowing flexibility to part manufacture in Asia.

At Aragen we had our best year ever, and this follows our best-ever year in the preceding year. In fact, the target we had for the previous year on our manufacturing business, we pre-booked before even starting the current year.

Our strong brand within the biotech community, coupled with the capital environment with significant fund raises in the sector have catalyzed our growth. Around 15 years ago, an IPO of a biotech was at $100m and now a Series A can be $100m.

We are also seeing that companies located in India benefiting from a trend of geo diversification – essentially a China plus one strategy – that has been put on pause due to COVID related travel restrictions, and we expect this to grow as the industry and restrictions loosen

And finally, the pandemic itself has shown that outsourcing is vital and should be a core element of every company’s strategy. Every company that didn’t have an externalization strategy is now developing one and every new company coming up will have one. It’s a really vibrant time for outsourcing, particularly for innovation-focused and customer-centric CRO/CDMOs like us.

OSP: Could you please share insights about M&A and investment activity in the CDMO arena before the COVID-19 pandemic landed on us?​

RS: The life sciences industry generates great returns, so investment was already occurring, even pre-pandemic. Service providers are an integral part of the pharma ecosystem and the growth in the pharma industry has, in turn, led to capital inflow and consolidation among the CROs and CDMOs.

Examples of increasing capabilities were driven behind with Brammer Bio/Thermo Fisher and Catalent/Paragon (augmenting biologics footprint) while Cambrex buying Halo provided them with an opportunity to enter the integrated space. Private equity firms have seen these trends and have taken investment bets in this space, be it Carlyle/AMRI (now Curia), Madison Dearborn/Alcami, or Permira/Cambrex, to potentially inject equity and drive growth.

Recently, Indian service providers have seen blue-chip PE interest; During the pandemic, for example, Carlyle acquired a stake in Piramal, while Goldman stake took a significant minority stake in my firm, Aragen. Private equity players have recognized that the CDMO space is a great space to be involved in, one that’s ripe for consolidation and where they can build scale through intellectual and financial capital.

OSP: How did the level of activity change (if at all) after the pandemic arrived?​

RS: At the start of the pandemic, the pharma industry as a whole was very concerned. No one had a blueprint on the path forward in a pandemic setting and all the complexity that brought, but we quickly found investor interest in the life sciences sector increased, and the pharma industry was seen favorably, in part due to its role in overcoming the global healthcare challenge.

But also, since a number of our customers had to either shut down or run with a virtual workforce, they looked to their service partners for advancing preclinical and clinical programs. The end result was a fertile market that benefited good CROs and CDMOs.  

OSP: How do you expect that activity might look in the coming months and years?

RS: The pandemic has ushered a drive for externalization, whether it’s research, development, or manufacturing. In terms of the level of activity change, I expect to see customers increasingly looking at externalization, especially since it’s their only path towards advancing pre-clinical and clinical assets. I expect CDMOs and CROs to continue to invest in new capabilities, acquire new sites, or build new sites, with demand for externalization expected to exceed the current supply. We expect the market for the service sector to continue to be extremely robust.

Customers continue to look to ID strategic partners that can wear more than one hat and wear it well. As just one example, Aragen’s customers in biologics want us to not just work with them in complex cell line development programs, but also forward integrated into manufacturing. We have listened and are building a manufacturing facility for biologics in the US.

OSP: Can you share your thoughts on any notable deals among those that have broken since COVID-19’s arrival?​

RS: One move that certainly got me thinking was Thermo Fisher’s acquisition of PPD, a leading global provider of clinical research services to the pharma and biotech industry​. Thermo Fisher (Patheon) is a CDMO, and it will be interesting to see if they can benefit from the clinical connection. Will this be a start of a new trend in the industry – a customer works with a CDMO that supplies the drug product that can also offer clinical trial solutions? It will be an interesting dynamic to observe.

But so far we will see more companies trying to integrate CRO (chemistry and biology services) and/or CDMO capabilities (drug substance/product, small molecules/biologics) to offer a solution portfolio to their partners.

OSP: What else might attendees learn during the “US Market Outlook 2021: CDMO deal-making in a pandemic and beyond” roundtable?​

RS: The session will primarily focus on how the US market evolved throughout the pandemic. Where is the industry going? What are the sectors that are interesting? There will be representatives from both the services side and the capital markets that can talk through the topic from both angles of the equation – in the case of private equity, there will be a deep dive into why this market is of interest while from the CDMO side, there will be a discussion around why the CDMO market is growing at the rate it’s growing at.

The session will also divulge into where money is going, the geographies that are doing well, and what capabilities customers are looking at when looking for a CDMO.

OSP: Could you please share an ‘elevator presentation’ description of Aragen—who you are, what you do, key capabilities, and what sets you apart from the competition?​

RS: Aragen is one of the leading providers of both small and large molecule solutions for CRO to CDMO services. We have 3,200 employees, seven global sites, assist in 10+ IND filings a year, are actively engaged in over 175 discovery programs for our partners, have more than 15 programs in late-stage development, and have supported the launch of 8 medicines. We are a partner of choice for biotech customers.

In the past month and a half, we’ve announced major partnerships with Boehringer Ingelheim in the pharma sector, FMC in the AgChem segment, and Skyhawk in the biotech sector and have grown at around 2.5X versus the market. One of our strengths is that we go where the knowledge is, so in biologics, we decided to acquire an asset in the US recognizing that is where the talent base was.

The recent Goldman Sachs stake in Aragen provides us with both intellectual and financial capital to continue our journey of providing solutions that make an impact for our collaborators. We currently with over 450 customers, 7 out 10 big pharma, over 25 Fierce Biotechs, and the company continues to do well due to its customer-centric approach to business.

OSP: What does Goldman Sachs acquiring a one-third stake in your company say about your company’s potential for growth and advancement, and your future direction?​

RS: The reason Goldman invested is that they share our vision of growing the company to the next level. Having them as partner providers us access to a lot of potential new deals and options to improve our capacity. Customers, whether pharma or biotech want to reduce their reliance on multiple partners, they want a single partner that can do more of the development for them. So, with the strength of our partnership, we are looking to offer the broadest possible services.

OSP: What’s the business strategy of Aragen and what’s your offering to US biotechs and Pharma?​

RS: Our mission is to add value to our customers as reflected in our partnership statement: Your Science. Our Solutions. Together Ahead. We are driving towards becoming a preferred partner for our customers irrespective of whether they are in small molecules or biologics.

OSP: You recently rebranded from GVK Bio; could you share some insight about why the change, and what the new name signifies to customers and potential clients?​

RS: The company’s [GVK] 20th anniversary was in May this year – and while the company had humble beginnings as a chemistry provider, we have grown significantly to become a brand of choice for discovery chemistry and biology and are now rapidly growing our CDMO offerings with both API and drug product services.

The market entry into biologics via an acquisition in the US cemented our reputation as a leader in Biologics R&D. We are now further strengthening that offering by investing in cell culture manufacturing. Over 95% of our revenue comes from outside of India…The Board wanted to acknowledge these developments and felt that a new name that best reflects the firm's current footprint will be apt.

Aragen was chosen as it was a strong name, has “gen” in it, is Western-centric, and reflects where the company so today and where it is going tomorrow. Our purpose is ‘In every molecule is the possibility of better health’, which means we treat every customer large or small with the same level of service and dedication, as every partner we work with is advancing human health. 

Similarly, our tagline of ‘Your science, our solutions, together ahead’ reflects our ethos of a strictly customer-centric approach, which we believe has been a big part of our recent growth.

CPhI North America is a hybrid event taking place online and in Philadelphia, August 10 to 12; the roundtable will be available on demand after the event. For more information, visit bit.ly/3iaXsyB. ​