Biologic drugs have become increasingly prevalent on the market and in the development pipeline over the last decade. They tend to offer more targeted treatments with fewer adverse effects than their small-molecule counterparts, which improves efficacy and patient compliance.

Biologic drugs 2019

Additionally, biologics are also more profitable than small molecule drugs, which is the most significant factor in rising drug prices. Constructing or acquiring biopharmaceutical manufacturing facilities can be prohibitively expensive for many smaller pharma companies; therefore, CMOs investing in increasing capacity and enhancing capabilities for biologic API manufacturing is a prudent choice.

Pharmsource ’s Trend Report entitled M&A in the Contract Manufacturing Industry: Implications and Outlook – 2018 Edition predicted eight potential API – Biologic Service Providers as acquisition targets. Since its publication in December 2018, two of those CMOs have been acquired.

Thermo Fisher Scientific Inc. (Waltham, MA, US) acquired Brammer Bio (Cambridge, MA, US), a leading viral vector producer, for $1.7 billion in May 2019. Catalent (Somerset, NJ, US) acquired Paragon Bioservices (Baltimore, MD, US), a vector development and manufacturing partner for gene therapies, for $1.2 billion, announced in April 2019. The multiples paid for biologics CMOs during the 2015–2017 period were among the highest of all CMO deals. High margins, tight industry capacity, and the fact that biologics dominate the new drugs pipeline make these CMOs particularly attractive.

The largest CMOs in the industry have been the buyers in high-value deals targeting viral vector capabilities used to produce gene and cell therapies. The success of CAR-T cell therapies has no doubt played a role in the decision-making, with Kymriah gaining sales of $76 million and Yescarta sales of $264M in 2018, despite being relatively new approvals (GlobalData Pharma Intelligence Center Drugs Database, accessed 13 May 2019). Viral vector manufacturing is an established bottleneck for the manufacture of cell and gene therapies, as their production is complex, costly, and highly regulated.

There is a shortage of both related manufacturing facilities and appropriately qualified staff, which has meant that demand has outstripped supply, especially in recent times as gene and cell therapies require commercial-scale production (rather than just clinical). The table below outlines the capabilities acquired by Catalent and Thermo Fisher.

Table 1: Characterising capabilities acquired by Catalent and Thermo Fisher

Source: GlobalData Pharma Intelligence Center, Contract Service Provider Database (accessed 13 May 2019)

As shown in Table 1, two of the three Brammer Bio facilities and the one Paragon Bioservices facility acquired manufacture viral vectors and use a wide variety of viral vectors for transfection. All Brammer Bio and Paragon Bioservices facilities have commercial-scale virus manufacturing. The Paragon Bioservices acquisition will finally enable Catalent to produce viral vectors, virus-like particles, and gene therapies.

John Chiminski, CEO of Catalent, said: “Paragon brings to Catalent a complementary capability that will fundamentally enhance our biologics business and our end-to-end integrated biopharmaceutical solutions for customers.”

For Thermo Fisher, its acquisition of Brammer Bio and its three facilities will give it the capability to manufacture viral vectors, cell therapy, and gene therapies, an ability it and its subsidiaries previously did not possess. Discussing Thermo Fisher’s motivations for the acquisition, Marc N. Casper, CEO of Thermo Fisher Scientific, said: “Gene therapy is an area of increasing focus for our customers and is fast-evolving given its potential to treat a range of genetic disorders. The combination of Brammer Bio’s viral vector capabilities with our GMP production expertise and proprietary bioprocessing and cell culture technologies uniquely positions us to partner with our customers to drive the evolution of this incredibly fast-growing market.”

There are 116 dedicated contract CMO facilities involved in either gene, cell, or virus manufacturing recorded in GlobalData’s Contract Service Providers Database, but only 35 facilities involved in the manufacture of viral vectors. In the context of these figures, both Catalent and Thermo Fisher have gained a significant edge in assisting their clients with a major rate-limiting step for manufacturing the relatively new and emerging field of cell and gene therapies.

All four facilities gained through the aforementioned acquisitions are based in the US. As Figure 1 shows, the US contains 51% of dedicated contract sites related to viral vector manufacturing, with Belgium and the UK having the next largest number of related facilities. The heavy presence of these facilities in the US indicates that CMOs particularly anticipate demand from this market.

Figure 1: Viral vector manufacturing facility locations (dedicated contract only)

Source: GlobalData Pharma Intelligence Center, Contract Service Provider Database (accessed 13 May 2019)
Note: Dedicated contract CMOs offer only outsourced contract services and are not marketing authorization holders (MAHs)