Last fall marked 25 years(!) since I entered the CMO sector, before it even had a “D” and became CDMO. I helped launch Contract Pharma magazine as its founding editor in the fall of 1999, and almost 15 years later I left that role to launch the Pharma & Biopharma Outsourcing Association (PBOA) so I could help CMO/CDMOs work with regulators and legislators, and better understand their peers in the industry.

Some things have stayed the same for CDMOs over that quarter-century, like private equity pressures driving M&A, and deranged product forecasts from customers. But this past year has brought some new wrinkles; whether they have staying power and signal long-term trends is the bazillion-dollar question. (The fallout of the 2024 U.S. elections is a multi-bazillion-dollar question.)

Some of the issues I covered last year remain in effect for the CDMO space. R&D funding remains constrained. While reports indicate that dollars are flowing back to late-stage assets, there is little evidence that early-stage pipeline products are receiving funding. This means that the lifeblood of CDMOs—projects moving through the development pipeline and smaller customers sticking with key service providers—remains hobbled.

Also, supply chain transparency and resiliency continue to be key concerns for FDA and other regulators and governmental bodies. FDA wants to increase its authority to compel reporting by API and finished dosage form manufacturers with the goal of better mapping the supply chain and understanding global and regional manufacturing capacities and flow.

In 2024 the U.S. Administration for Strategic Preparedness and Response (ASPR) and Department of Commerce engaged in an assessment of the U.S. Public Health Industrial Base supply chain, an initiative that includes a survey focused on API and Key Starting Materials (KSM) suppliers of a number of FDA-designated essential medicines. In this case, the goal is to both gain supply chain transparency and promote onshoring of manufacturing, another key post-COVID trend I wrote about last year.

BIOSECURE Implications

So, what has 2024 wrought, and where do we go from here? Last year, I wrote, “When it comes to China, CDMOs, and the larger pharma sector, my Magic 8-Ball is murky. The most recent U.S. rhetoric has moved away from talk of ‘decoupling,’ but there are still trade barriers that both countries are exercising.”

Murky, it turns out, was an understatement. By early 2024, the U.S. Congress was discussing the BIOSECURE Act, which would forbid certain key government contracts, grants and loans going to companies that do business with certain China-based companies, including WuXi AppTec and WuXi Bio. By the end of 2024, the House passed BIOSECURE, but it failed to come up for a vote in the Senate and never became enacted.

In its House-passed incarnation, the bill gave companies until January 1, 2032 to cease working with any of the named firms (as well as other companies that could get added to the list), lest they become ineligible to receive certain contracts and grants under Federal Acquisition Regulations. While the “smart money” contended that it would hitch a ride with the National Defense Authorization Act, it never came up, after concerns raised in the House about due process for the named companies were echoed in the Senate.

The trajectory of BIOSECURE—from “never gonna happen” (my words, when I first heard about it in February 2024), to a rush of drug companies reaching out to alternative service providers to potentially shift work from the named companies, to “never gonna happen”—was remarkable, and even without it being enacted, its impact could be far-reaching.

The uncertainty isn’t just BIOSECURE itself, but what comes after, in terms of further U.S. steps, potential Chinese response, and other regions’ behavior. Will there be new disincentives or penalties proposed by U.S. legislators? Will there be carrots to go along with these sticks, incentivizing investment in manufacturing and services elsewhere? These and other responses will do much to shape the landscape for CDMOs and their customers.

One aspect of this that I will note is that, when BIOSECURE was first being floated, it was India-based CDMOs who drew my attention to it. And as I started outreach on it, CDMOs from that country seemed much better informed about the bill than their western counterparts. They only knew what was publicly available, but were *very* well versed in its particulars. That information-advantage dissipated over the spring trade show season, with more CDMOs telling me about increasing calls from potential customers, but I was intrigued by the notion that Indian CDMOs—and the manufacturing base overall in that country—may see BIOSECURE as an inflection point for their own position in the biopharma manufacturing ecosystem.

This all ties back to my earlier comments around supply chains and onshoring. The U.S. and other countries have been realistic about how much manufacturing can be onshored, and how much local-only manufacturing may add fragility, not resilience, to supply chains. To that end, we may see multi-regional activity to bolster supply: friend-shoring. 

In June of 2024, the U.S. White House announced the formation of the Biopharma Coalition (Bio-5), including the U.S., EU, India, Japan, and South Korea. It was intended to strengthen biopharma supply chain resilience, and “will focus on building resilient supply chains for APIs currently sourced primarily from the People’s Republic of China,” per a White House statement, which went on to say, “The five countries will seek opportunities for their governments and the private sector to deepen coordination on policy, regulations, R&D capabilities, and other tools to enhance the resilience of this vital sector.”

I can neither confirm nor deny attending the Bio-5’s kickoff event, but the announced goal of building parallel API supply chains across regions could be a huge step. Whether this or another coalition will arise during the new administration is another of those bazillion-dollar questions.

The GLP-1 Boom

BIOSECURE and geopolitics weren’t the only major factor in the CDMO space. In my previous piece, I also alluded to “a potential $50 billion market for weight-loss drugs springing up virtually overnight,” without expanding on the impact of GLP-1s on the CDMO space. Now I have to revise that to “maybe a $150 billion market,” and “that has reshaped the CDMO sector.”

The biggest direct CDMO story in 2024 was Novo Holdings’ $16.5 billion acquisition of Catalent, one of the world’s largest pure-play CDMOs, in order to sell its three fill/finish sites to Novo Nordisk for $11.5 billion, presumably for use in internal manufacturing of Wegovy and/or Ozempic or their successors. Announced in February, the deal closed 10 months later, and will (presumably) remove three large fill/finish plants from the CDMO sector—Novo Nordisk said it would honor existing contracts at those sites, but I assume they do not plan to renew those contracts. It also takes the remaining Catalent business off the public equity market, as that has become part of Novo Holdings.

That means no more quarterly financial reports from Catalent, resulting in less public information that can be gleaned—or misread or distorted, as is often the case—about the CDMO sector. And while I pride myself on the strength of my vibe-checks of the sector, this industry functions better when there’s reliable public data.

One of the questions that arose in the wake of Novo’s acquisition is whether it would lead to other biopharma companies acquiring CDMOs to capture their capacity.

While we’ve seen limited versions of this happen, especially with acquisition of CGT manufacturing capacity, I don’t believe Novo-Catalent will presage a wave of CDMO buyouts by biopharma. This move feels exceptional in terms of the specific capabilities and capacity Novo Nordisk needed, coupled with the truly mind-bending growth rate of the GLP-1 market.

Lilly has looked to build internal manufacturing to complement its current infrastructure and CDMO relationships, along with its purchase of Nexus Pharma, a non-CDMO asset, to advance its GLP-1 products, and—again, vibes—I suspect it’s too late in the game to acquire another significant source of manufacturing capacity that could become a Monjauro/Zepbound dosage-form site.

Clearly, GLP-1s have been a net positive for the CDMO sector. At a conference I attended in August, the CEO of a new-ish CDMO that’s very tech-driven admitted that his company’s move into fill/finish and GLP-1 products “saved the company.” (He’s no longer the CEO.)

But CDMOs are benefiting from more than just GLP-1 volume. While some are manufacturing these products or their competitors, and others are providing packaging and distribution services, we’re also seeing the growth in the market for products that are being displaced by GLP-1s. 

Not every product needs massive scale and a prefilled syringe (PFS) dosage form. In fact, Lilly made the move to market Zepbound in a single-dose vial through its direct-to-consumer platform, which should be easier to process than PFS doses. Its CEO also speculated about marketing multi-dose vials fill/finish CDMOs in the vial space, as well as those that manufacture smaller volumes, may find themselves in high demand, especially if the customers in the Catalent facilities intended to transfer to Novo must find new CDMOs.

In the wake of the Catalent acquisition announcement, many CDMOs in the fill/finish space issued press releases about their new lines, expansion plans, and other services tied to their facilities, getting word out that the capacity exists (or will soon come online) to absorb a lot of projects, even if that capacity isn’t evenly distributed.

Uneven distribution has been a hallmark of this sector for the 25 years I’ve been around it. While the threat of another BIOSECURE (or a trade war, tariffs, and the like), the promise of GLP-1s, and the restructuring of the Catalent-Novo deal may create opportunities for some CDMOs, others may find themselves in rougher waters.

The economics of the U.S. generic market continues to create pressures for commodity oral solid dosage products, while on the high-value end, advanced modalities like cell and gene therapies continue to face hurdles with clinical results, regulatory approval and market reimbursement, pressuring CDMOs who have invested in that area. 

Even with the potential for governments to (co-)invest in shifting supply chains, the CDMOs most positioned to benefit will be the ones that focus on capability over capacity, and are able to meet their customers’ needs without over-promising.

Gil Roth is the President of the Pharma & Biopharma Outsourcing Association (PBOA), a non-profit trade association advocating for the regulatory, legislative and general business interests of the CMO/CDMO sector. To learn more about PBOA, visit pharma-bio.org and contact Gil at gil.roth@pharma-bio.org.