Pharma CMO M&A Activity Shifts Focus to Scaling in 2023

Merger and acquisition (M&A) activity in the pharmaceutical contract manufacturing industry declined in 2023 compared to 2021-22. High inflation and interest rates along with an uncertain business environment disincentivized investment. Despite fewer deals, the focus shifted towards scaling operations rather than acquiring specialized capabilities, according to GlobalData, a leading data and analytics company.

Adam Bradbury, Pharma Analyst at GlobalData said “In 2023, the largest proportion of acquired contract manufacturing and development organizations (CDMOs) had standard capabilities, whereas in prior years, specialized and biologic acquisitions were higher. As borrowing and inflation have made investment more troublesome and there has been an increased emphasis on solving drug shortages, manufacturers have shifted their focus to increased scale rather than higher value specialized forms of production.”

GlobalData’s report, M&A in the Contract Manufacturing Industry: Implications and Outlook – 2024 Edition, shows that despite a reduction in deal volume, there were still very notable deals in the CMO industry in 2023. The largest deal by value was Advent International and Warburg Pincus’s acquisition of Baxter International Inc.’s BioPharma Solutions business for $4.3 billion.

GlobalData’s analysis found that high-value deals are altering the competitive balance between CMOs, and this activity is continuing into 2024. Earlier this year, Catalent announced that it will be acquired by Novo Holdings A/S, the owner of Novo Nordisk, for $16.5 billion. The news shocked the industry. Mergers of this scale may have the potential anticompetitive effects and affect capacity in the CMO industry.

Bradbury concludes “Acquirers were seeking multi-service companies and facilities in 2023. Most targets also had injectable capabilities. Although demand from COVID-19 vaccines is no longer contributing to the growth of injectable demand, the demand for obesity treatments targeting GLP-1 is a major provider of growth to this segment. The need for commercial production for biologics generally remains high, as an ever-increasing number gain market approval.”

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