Small molecule drugs continue to dominate approvals by the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA), despite commercial interest in biologics, which represent four of the five top-selling drugs globally in 2018, according to the GlobaData Pharma Intelligence Center Drugs Database.

NME approvals 2018

GlobalData’s recently published PharmSource report, CMO Scorecard: Outsourcing of NDA Approvals and CMO Performance, states that 64% of New Molecule Entity (NME) approvals in 2018 were small molecules.

The report further reveals that over the last decade, there has been an industry-wide decline in the proportion of Biologics License Approval (BLA) manufacturing outsourced, while biologic contract manufacturing overall has increased.

The relative decline can be attributed to the majority of biologic sponsors being large market capitalisation companies, which are less likely to outsource manufacture than small companies. This factor, as well as the high number of small molecule NME approvals, highlights the importance of small molecule API manufacture for CMOs.

As the demand for API contract manufacturing is continuously growing, contract manufacturing revenues of publicly traded dedicated CMOs with small-molecule API manufacturing facilities continue to increase.

Figure 1 shows revenue band distribution across 41 dedicated contract and public CMOs with small molecule API manufacturing facilities with either FDA or EMA regulatory approval. The revenue bands show a fairly even distribution among bands, despite the increasing consolidation of the CMO industry in recent years.

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According to experts in the GlobalData PharmSource Trend Report M&A in the Contract Manufacturing Industry: Implications and Outlook – 2018 Edition (December 2018), the current CMO marketplace is highly fragmented, and significant consolidation would be expected in the near future, especially of CMOs with revenue greater than $5 million per year.

Figure 1’s equal distribution among bands can also be explained by the fact that private company revenue estimates are not included and, as the majority of CMOs are small privately owned companies, the number of CMOs in the lower revenue ranges would be much larger had these been included in the analysis.

Figure 1: Revenue band distribution across 41 dedicated contract and public CMOs with small molecule API manufacturing facilities

Source: GlobalData Pharma Intelligence Center Contract Service Provider Database, accessed 15 May 2019

The top three companies by revenue, Lonza Group Ltd (Basel, Switzerland), Catalent Inc. (Somerset, NJ, US), and Apeloa (Jinhua, China), achieved revenue growth of 22%, 19% and 15%, respectively, from 2017 to 2018.

They are continuing to invest heavily in their API operations: for example, Lonza has invested $100 million in two major small molecule manufacturing projects based at its Visp, Switzerland site (B/POR, March 2019). The investment will fund two manufacturing lines at four cubic meter scale for highly potent active pharmaceutical ingredients (HPAPI), and small molecule manufacturing automation.

Likewise, Catalent has strengthened its small molecule API business unit through its $133 million acquisition of Juniper Pharmaceuticals (Boston, MA, US) and its plans to invest $5 million at the company’s Somerset, NJ drug development Center of Excellence, where it will expand its OptiMelt hot melt extrusion capabilities.

Apeloa, a Chinese CMO, has seven commercial API/chemical facilities across several Chinese provinces, of which only one is approved by the FDA and EMA.

Smaller CMOs are also looking to invest and expand their API operations. For example, in January 2019 Cambrex Corp (East Rutherford, NJ, US) acquired the small molecule CMO Avista Pharma Solutions Inc. (Durham, NC, US), from Ampersand Capital Partners (Wellesley, MA, US) (B/POR, January 2019). Figure 2 shows the geographic distribution by headquarter location of 41 public CMOs with small molecule API manufacturing facilities.

Figure 2: Geographic distribution by headquarters of 41 public dedicated contract CMOs with small molecule API manufacturing facilities

Source: GlobalData Pharma Intelligence Center Contract Service Provider database, accessed 15 May 2019.

Despite the UK, France, and Germany being home to large economies, between them they do not have any public dedicated contract CMOs with small molecule API manufacturing facilities with revenue over $500 million.

In comparison, Switzerland, which is a much smaller economy and a smaller player within the Pharma world, has two >$500 million small molecule API CMOs, including the largest CMO, Lonza Group (Basel, Switzerland), as well as Siegfried Holding AG (Zofingen, Switzerland).

Asia-Pacific is a significant geographic region which boasts several emerging countries in terms of API manufacturing.

As seen in Figure 2, India has 15 public CMOs with small molecule API facilities as a result of its position as a low-cost supplier, providing low labour costs as well as plentiful raw material readily available to make API. However, GlobalData PharmSource previously reported the Indian CMO market may face challenges as the US government considers withdrawing the Generalised System of Preferences (GSP) from India, leading to tariffs on Indian exports to the US (E/MOR, March 2019). This may reduce the demand for outsourcing raw material procurement and manufacturing activities from CMOs in India.