CDMO Industry Consolidation


CDMO market expected to continue to grow at a rapid clip over the next several years…
The CDMO sector is sizable, fragmented, and growing, with hundreds of outsourced providers around the world furnishing contract development, formulation, manufacturing, and packaging services for biopharmaceutical, medical device, animal health, OTC, and consumer health products. Strong tailwinds propel the sector given increased outsourcing trends, as well as aging populations, heightened prevalence of chronic diseases, and persistent threat of global pandemics, with the corresponding need to ensure rapid production of life-saving medications, therapies, and vaccines for humans and animals.

Life science companies have deepened their relationships with CDMOs over the years given the specialized capabilities, advanced production technologies, high containment facilities, and resultant cost savings that they provide. Further, life science companies must ensure that they maintain backup supply and production capabilities in varied geographies around the world. In addition, for a number of reasons, life science companies have become much more willing to outsource non-core functions to quality providers that boast deep domain expertise, including competencies around specialized manufacturing, regulatory compliance, and quality assurance.

Given these trends, the CDMO market is expected to grow at a high single-digit CAGR to reach ~$250B by 2025. The FDF segment is growing faster than the API segment due to the rapid build-out of FDF manufacturing capabilities in Asia. The gene and cell therapy segments are outpacing all other segments, with the market for these services expected to expand at a mid-teens CAGR to reach ~$8B and ~$2B, respectively, by 2025.

M&A and Investment Implications:
Consolidation is continuing at a steady clip, with transaction volumes and aggregate transaction value remaining at a consistently high level over the past decade, and quality CDMO assets are continuing to trade at relatively elevated multiples even in today’s volatile macroeconomic environment. There remains strong industrial logic for consolidation in order to achieve greater economies of scale, enhanced capabilities for clients, and realizable cost and revenue synergies, including significant cross-selling potential. Moreover, the industry remains highly fragmented; the top 10 biopharmaceutical CDMOs account for less than 15% of the overall global market, holding only 1 – 4% market share each. Privately owned targets now represent the bulk of CDMO acquisitions today.

As such, with strong industry tailwinds, significant market fragmentation, constrained supply in key areas, and industrial logic for consolidation, the sector should continue to see a high level of M&A activity from both strategic players and financial sponsors alike over the next few years.

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