The recent acquisition of Oso Biopharmaceuticals (Albuquerque, NM) by Albany Molecular Research Inc. (AMRI – Albany, NY) gave AMRI the ability to offer bio/pharma companies a single source for supply of a product’s API and dosage form. This turnkey product offering is becoming more common in the contract manufacturing industry, and the desire to build such a “one-stop shop” may drive a lot of merger and acquisition activity in the CMO industry.
In fact, there is a growing number of CMOs with both API and dose manufacturing capabilities (see Table 1). The model is common in the large molecule CMO sector, where at least 4 major CMOs can offer both drug product manufacture and filling into injectable delivery systems. Now, market forces are driving the trend among small molecule CMOs:
Table 1. Examples of CMOs with API and Dose Manufacturing Capabilities
- Global bio/pharma companies are actively exploring how to reduce the number of contract manufacturing arrangements they currently maintain. Combining drug substance and drug product supply at a single CMO is one strategy for reducing the number of CMO relationships and simplifying supply chain management for clinical and commercial supplies.
- With organic growth limited, especially for small molecule pharmaceuticals, acquisitions have become an important growth strategy for large CMOs, especially those backed by private equity firms. Acquisitions are a means of creating large-scale operations with global capabilities, positioning CMOs as global partners for large bio/pharma companies while achieving cost savings.
AMRI is going “all in” on the one-stop, turnkey CMO strategy. CEO William Marth stated that the company’s goal is to have manufacturing revenues of $1.35 billion in 5 years. Given that AMRI’s manufacturing revenues were $210 million in 2013, that is a very ambitious goal, requiring more acquisitions like that of Oso and API manufacturer Cedarburg Pharmaceuticals, which AMRI completed earlier this year. AMRI wants to focus on “complex” APIs and dose forms, which Marth says includes highly potent and controlled APIs, and specialty dose forms like inhalation and transdermal products. It will be a challenge to identify enough specialty businesses to feed the acquisition requirement.
There is not yet much evidence regarding customer acceptance of the one-stop model; it runs contrary to the way drug manufacture has been sourced traditionally, and the convenience factor may not offset cost and technology shortcomings that a CMO has in one or the other of its offerings relative to best-in-class manufacturers. Further, the model could be a strain on the CMO’s typically tight cash flow, because both API and dose manufacturing are capital-intensive businesses. Nevertheless, it is trend worth watching closely to see if it changes competitive dynamics in the CMO industry.