Pfizer-Allergan deal: what next for contract manufacturers?

By Fiona BARRY contact

- Last updated on GMT

CMOs will need to be giant, or small and specialised, to survive the coming years, says an M&A expert
CMOs will need to be giant, or small and specialised, to survive the coming years, says an M&A expert

Related tags: Manufacturing

As CMOs wait to see the short-term fallout of the Pfizer-Allergan deal, an M&A expert says contract manufacturing will follow the CRO industry in embracing strategic alliances and consolidation.

Christoph Bieri, an M&A advisor at Kurmann Partners, told the effects of last weekend’s merger​ will be felt later in the contract manufacturing industry than in contract research.

Technology transfer between manufacturing plants takes longer than switching CROs, so contract manufacturing organisations working with Pfizer or Allergan are probably safe for now, Bieri said.

By contrast, analysts predict CROs may suffer in the short-term​ as Pfizer reassesses its research contracts.

CMOs: the medium-term outlook

But Sunday’s megamerger is one of several recent deals reshaping contract manufacturing in the medium- to long-term, said Kurmann Partners’ expert.  

As Pfizer looks for synergies with Allergan, and big pharma in general increasingly seeks to cut costs by outsourcing drug production, CMOs will have more opportunities to bid for business. But the news isn’t all good.

Massive overcap​acity” – from post-merger synergies and in contract houses’ own plants – “is likely to lead to extreme competition​” and underbidding for contracts, Bieri said.

He predicted the resulting struggle will lead to a division among CMOs: the larger, acquisitive organisations will become “one of the very big players you can’t get around​” – mimicking the growth and strategic partnerships of mega-CROs like Quintiles and ICON – while others will survive by specialising.

Already, some of the biggest CMOs and CDMOs – like Catalent (with annual revenue of $1.8bn), Fareva ($1.8bn), and Patheon ($1bn) – have bulked out with aflurryofcompanyacquisitions​ in the last ten years.

Many smaller CMOs (with revenue under $100m) are likely to be swallowed up by the larger ones, or turn into specialists, Bieri said. Last year the Swiss Siegfried acquired Hameln​ to become a major sterile injectables outsourcer. In 2012, Aenova bought Temmler Pharma and its extended release technology.

Big pharma is also looking for CMOs skilled in combining specific delivery methods with an API, such as patch manufacturing, so we may expect acquisitions in this area, Bieri told us.

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