Cost control in the time of biopharma consolidation & globalization
Industry observers know that biopharma and healthcare at large has had several banner years when it comes to condolidations. 2015 saw the single largest healthcare deal of all time announced with the proposed Pfizer-Allergan merger, following a 2014 that busted its own M&A records.
These deals are clearly changing the face of global pharmaceutical firms, from tax domicile shifts to job cuts to changes in pricing and R&D plans. But that also means major shifts in other healthcare supply chain sectors, including contract manufacturing and packaging.
Contract firms follow biopharma's consolidation trend...
Packaging Digest points to one telling example of the manufacturing changes which have accompanied biopharma's rapid consolidation and globalization clip. PCI Pharma Services executive director Justin Schroeder explained that, alongside industry consolidation, biopharma firms are expected to achieve further efficiencies by culling their ranks of CROs, CDMOs, and CPOs.
One consequence of this market trend is that contract organizations have been ramping up their own consolidation efforts to increase their own leverage when negotiating with clients.
For instance, Schroeder delineates the sequence of acquisitions which led to his firm's current structure, including: a Frazier Healthcare-Catalent deal from 2012; a deal with AndersonBrecon in 2013; and several other 2014 buyouts, eventually concluding in the launch of new storage and distribution facilities.
...But is there room for even more?
PCI is just one instance of the biopharma manufacturing sector responding to shifting market dynamics. But some argue that this clip of consolidations will have to pick up across the contract life sciences industry in order for it to truly stay ahead of the curve.
Several firms' executives assert that CDMOs and CROs, in particular, must combine forces in order to provide optimal value to biopharma clients. With larger and larger firms focused across the globe, drugmakers will likely continue to demand contract firms which can provide services over the long-term and not just for niche operations.
"Traditionally, there has been a vertical approach to early phase drug development and discovery—manufacturing and testing—which can be split equally into CDMO and CRO activities," Quotient Clinical CEO Mark Egerton told Outsourcing-Pharma in an interview back in 2012.
That's proven to be fairly prescient, but there's plenty of room for further combinations. While several big-name firms such as Catalent, Aevona, and Lonza dominate the CDMO sphere, more than a majority of the market is spread out across nearly 200 firms, according to 2014 data.
Outreach to developing nations breeds cost control opportunities
China, India, and other Asian (or Eurasian) countries have been piquing biopharma's interest as most ambitious firms in the sector aims for a global distribution model. As BioPharma Dive has previously reported, Indian and Chinese manufacturing plants have been under severe U.S. and E.U. scrutiny over quality control issues, presenting one of the most pressing issues that must be addressed by the industry in the age of globalization.
But other nations represent opportunities for growth (and, admittedly, added risks) for biopharma, too--especially when it comes to nations that are particularly hungry for the business potential. For instance, a McKinsey report from last summer highlighted the promise that African countries can hold for biopharma R&D.
"[G]overnments have introduced price controls and import restrictions to encourage domestic drug manufacture; required country-specific labeling to reduce counterfeiting and parallel imports; and tightened laws on import, wholesale, and retail margins," wrote the authors.
"In the pharma industry, meanwhile, pharmacy chains are consolidating, horizontal and vertical integration is on the rise, and manufacturing is expanding. A flurry of mergers and acquisitions, joint ventures, strategic alliances, partnerships, and private-equity deals are further extending Africa’s markets."
That's in addition to countries such as Russia, Thailand, and others in Asia, Africa, and the Middle East which have expressed major interest in becoming R&D and manufacturing hubs.
The problem, of course, lies in the very quality control and sociopolitical concerns which have plagued other facets of international development. But in a time of change, there are plenty of potential targets for drugmakers to scour when it comes to the nuts and bolts of creating therapies.