Table of contents
The European CDMO market comprises companies providing outsourced drug development and/or manufacturing services. The industry can be split based on players’ offerings. As such, we segmented the European market into: (i) multidisciplinary, (ii) active pharmaceutical ingredients, (iii) finished dosage forms - generalist and (iv) finished dosage forms - speciality.
The European market has a fragmented nature and is comprised of players with different offerings in terms of value chain coverage and modalities provided (e.g. small molecules, biologics, advanced therapies). However, the industry is on a consolidating track, as clients increasingly prefer to outsource their drug development and manufacturing activities to one full service CDMO rather than several niche providers. This simplifies the supply chain and is more time-efficient from a customer’s perspective.
Sponsor-led interest has been considerable, with ~50% of identified assets being backed by financial sponsors (March 2023). Private equity investors are primarily attracted by the pharmaceutical megatrends (e.g. ageing population, rising incidence of chronic illnesses), attractive growth rates in new therapy areas (e.g. biosimilars) and overall high revenue visibility of identified business models.
Relevant ESG topics mainly revolve around environmental and social challenges. On the environmental side, limiting the usage of plastic packaging as well as reducing the carbon footprint of manufacturing activities are on top of stakeholders’ minds. From a social perspective, ensuring occupational health and safety as well as preventing drug misuse and abuse by patients are the most important considerations. CDMOs also need to be mindful of information-related governance, as they store sensitive patient-related data (e.g. from clinical trials) and intellectual property (e.g. malware attack on Siegfried’s IT systems in 2021).
According to Mantel Associates (August 2021), the global biologics CDMO market was valued at ~$9.93bn in 2020 and was set to reach ~$18bn by 2026, registering a CAGR of ~12.6%
Siegfried (AR2021) estimated the value of the global CDMO market at ~$58bn in 2014, with the expectation that it will reach ~$105bn by 2024 (~6.1% CAGR), thereby simultaneously exceeding the prescription pharmaceuticals market’s growth (+4.8% CAGR)
According to Lonza’s head of drug product services, the global CDMO market for fill-finish production will grow at a ~6% CAGR from 2023-2030, reaching a size of ~$14bn in 2030 (Bioprocess International, December 2022)
Switch from blockbuster drugs and primary care medications towards niche, smaller population orphan drugs (i.e. treating rarer conditions). Latter drugs are sold at higher prices and are expected to boost demand for CDMOs. As traditional manufacturers are accustomed to high-volume production, CDMOs come to the rescue with their specific infrastructure, capabilities and flexibility for lower-volume niche production (RBC Capital Markets; Technavio, November 2022)
European CDMOs are well-positioned to lock in potential customers that are increasingly moving away from Chinese suppliers. After experiencing various COVID-related supply chain issues, this group of potential clients is more willing to pay a premium for secure and reliable local manufacturing (RBC Capital Markets; interviews by Gain.pro)
Ageing populations, increasing global obesity and diagnosis of related chronic illnesses will drive the development of blockbuster biologics (e.g. antibodies, immunosuppressants, anticancer, etc.). Herein, CDMOs will serve an instrumental role in the introduction of these novelty drugs as well as biosimilars (i.e. identical copies of biologics), which are on the rise due to patent expiration of traditional biologics (BioProcess International, December 2022; Bourne Partners, February 2019
Tightening regulations are expected to increase required operational requirements, entailing time- and cost-intensive efforts from identified incumbents without any pricing upside due to regulatory price caps. This development is expected to squeeze margins in the long term (interviews by Gain.pro)
Shortage of trained and skilled staff, with experience in manufacturing high-quality biologics under GMP conditions, may curb mid-term growth potential (Pharma’s Almanac, January 2023). Furthermore, European players might be at a disadvantage in relation to their Indian counterparts that can leverage significantly larger workforces (World Pharma Today, January 2020)
Given that the final responsibility for drug performance resides with the manufacturer, the rising quality demands represent a growing risk of existence-threatening compensation claims in case of faulty batches. One example is German biotechnology company Cytotools suing its CDMO after a defective batch (Cytotools, AR2016-2019)
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