Integrated CDMO growth will lead to record number of drugs making it to market

It’s undoubtedly a very interesting time for the global Contract Research Organisation (CRO) industry. This is particularly true for CROs with locations across the world who have been able to leverage the talent available globally to support their customers’ projects.

In 2020 alone, the industry attracted over $23 billion in venture investments. India has come a long way in creating world class infrastructure and offering cutting edge research, and is now seen as an attractive destination for companies in the US/EU to outsource to drive their discovery, development, and manufacturing projects.

Demand for outsourcing discovery is rapidly increasing, driven by two complementary factors. Firstly, the rise in the number of R&D projects from small biotechs who contribute a significant potion to the growing product pipeline. Secondly, the global trend in de-risking the over-dependence on China by big pharma companies. They see India as an alternate option which benefits Indian CRO companies.

While it is true that some clinical and commercial manufacturing of APIs is moving back into the West, overall there is not enough capacity within American and European contract providers to manufacture all steps of the APIs. This leads to two scenarios – one where all the synthesis steps of an API is made in India and the second approach where we see starting materials, intermediates, advanced intermediates, and regulated starting materials being supplied from Asia with final steps carried out in America or Europe. In summary, we expect India to grow and benefit from the expected growth in the need for discovery, development, API and drug product manufacturing.
 

As a CRO who has seen the dynamics of the market over the years, what have you chosen to focus on and what have you chosen not to cater to, as sometimes clarity on what not to do will take us closer to the goal faster?

It is an interesting question. We have been in the Indian CRO space for over two decades now. From offering stand-alone discovery chemistry services in our early days, we now offer comprehensive integrated discovery, development and manufacturing solutions for small molecules and biologics. We will continue to broaden our capacities in this space while creating niche differentiators in some of the expertise in discovery and development. We have identified those areas and will continue to invest in infrastructure and talent to retain our market leadership position. We also leverage with Aragen Biosciences to offer discovery, development solutions for large molecules. Our growth strategy will include both inorganic and organic growth.

We have built our capabilities and infrastructure over the years listening to our customers’ future needs and backed with the industry best talent to provide cutting edge solutions.

In the last few years, we have also been seeing the growth in the outsourcing of services to support biologics. We were the first Indian CRO to acquire a US CRO – Aragen Bioscience Inc. in 2014 to cater to the needs of companies in the large molecules space and in development and manufacturing. We recently invested significantly in expansions and now have the capacity to meet our customers’ immediate future needs. In biologics we are advancing downstream and investing in a manufacturing facility in the US to offer a single seamless solution to our customers that want to develop and manufacture at one location.

We have consciously chosen not to run our own internal drug discovery programs which can be a potential conflict to our business model. We also will not manufacture and market our own generic products.

What are the current trends to look out for in the CDMO market?

In a few words, it is being driven by the desire to find scientific solutions to the most complex of problems. The science of biology and chemistry need to be completely integrated and leverage the power of AI to advance assets from concept to clinic. At the same time, we are seeing an increasing number of biotechs and the access to global talent to drive innovation. So what we now have is a situation where R&D outsourcing has become a must have rather than a 'good to have' strategy.

With the diversity of potential targets proliferating, it means that large pharma companies and biotechs need to have externalisation as a core part of their growth. The encouraging thing not just for ourselves, but for the wider contract research industry, is that this growth is accelerating, not abating. For example, in 2020 alone, we saw $23 billion in venture investments and the pandemic has attracted new venture capital partners into the industry at the same moment as there is a potential explosion of drug targets. What we anticipate over the next few years is that this will supercharge demand for discovery-into-development services, and we anticipate that the choice of CDMO will be a key factor in meeting development milestones.

How has the CDMO market evolved during the COVID pandemic?

One of the knock-on effects of the pandemic is that it has accelerated the growth and consolidation of the CDMO market, with a number of prominent deals in the last 12 months. In fact, even VCs (Bob Nelsen’s venture partner’s launch of resilience) that have traditionally only invested in innovative companies are now looking to secure their supply chains with a CDMO in their portfolio of companies.

For instance, we saw that need highlighted when many pharma companies’ R&D/manufacturing sites were shut down for an extended period. But it’s also why CRDMOs (Contract Research Development Manufacturing Organisations) like ourselves realise the importance of being able to provide flexibility in supply chains in how we work with customers. To offer truly comprehensive services, you need facilities in different parts of the world where the expertise the clients' needs lie. Speaking of our customers, there is a significant demand for biological services, and we’ve aligned our facilities in regional bio hubs so that we can attract the best possible talent to join our discovery and development teams. Similarly, it is also important that CDMOs are able to provide security of supply chains by using a number of different sites.

More generally, what we have seen is a transition to remote monitoring and, as an industry, we have increasingly innovated and used new technologies to provide real time reporting and longer-term resilience planning. What we are undoubtedly going to see is that the larger, more integrated and global CDMOs are going to pick up the majority of the growth in the next few years. So what you are going to see maybe five years from now is a much larger industry, but also much top-heavier contract services players.

Companies like ourselves have both strategic alliances with big pharma and deeply integrated relationships with the biggest biotech hubs, especially those in the US. For example, in the past two years Aragen has grown by 19%, with our US Biologics arm doing phenomenally well (26% growth) – it is potentially a golden era not only for our company, but for the contract services industry as a whole. Most importantly, what we have not spoken about enough today, is the direct consequence of this – patients globally will see an increasing number of life-improving products making it to market.