The pharmaceutical industry is rapidly expanding, with an expected annual growth rate of up to 8% over the next five years. Driven by high-priced new treatments for cancer, chronic diseases, and obesity, market leaders like Roche anticipate a significant market increase. However, reliance on Contract Development and Manufacturing Organizations (CDMOs) has grown, especially highlighted during the pandemic. Additionally, U.S. regulatory changes targeting Chinese manufacturers could complicate supply chains for major companies reliant on global resources.
The pharmaceutical industry is rapidly expanding and is anticipated to achieve an annual growth rate of up to 8% over the next five years. This surge is largely driven by the introduction of high-cost innovative medications that offer significant effectiveness, particularly in treating cancer and chronic conditions like multiple sclerosis and diabetes. Recently, there has also been a notable increase in revenue from obesity treatment products.
During the latest quarterly report, Roche’s CEO, Thomas Schinecker, highlighted that the obesity drug market could reach an impressive annual value of $80 to $100 billion by the end of this decade, potentially escalating to $150 billion in the following years.
While Roche has not yet released an anti-obesity medication, Schinecker expressed the company’s goal to enter this lucrative sector “well before 2030.”
Essential Yet Underappreciated Partners
Meeting the high expectations of the pharmaceutical landscape relies heavily on a less recognized segment known as Contract Development and Manufacturing Organizations (CDMOs). These firms specialize in producing drugs for pharmaceutical and biotechnology companies, often assisting in the product development stages as well.
This sector has experienced substantial growth in recent years, with approximately 500 CDMOs operating globally. According to Zürcher Kantonalbank, these contract manufacturers have outpaced the overall pharmaceutical market in terms of growth, with revenues estimated around $150 billion. Market analysts project that CDMOs will see an annual growth rate of about 7% through the end of the decade, as major pharmaceutical firms increasingly rely on external expertise to develop complex new therapeutics.
Challenges in Drug Filling Processes
The reliance on CDMO companies became evident during the pandemic when contract manufacturers played a crucial role in the rapid development and mass production of Sars-CoV-2 vaccines.
The recent surge in anti-obesity medications has created a burgeoning market for the pharmaceutical industry but has also led to a bottleneck in the formulation and filling processes due to high demand. Currently, available medications are typically administered using disposable syringes that patients manage themselves.
One prominent CDMO, Catalent, is set to be acquired by Novo Holdings for $16.5 billion. Novo Nordisk plans to purchase three Catalent factories in a related deal for an additional $11 billion.
Controversy Surrounding Catalent’s Acquisition
The acquisition of Catalent has drawn criticism, with some industry representatives labeling it an “unorthodox act.” Such acquisitions of contract manufacturers by drug suppliers are quite rare in the pharmaceutical sector.
Schinecker expressed concern over the potential implications of this acquisition, suggesting it could hinder competition if regulatory bodies approve the transfer. While Roche has secured sufficient capacity with other CDMOs, access challenges may arise for smaller pharmaceutical companies that rely on Catalent’s resources.
Political Pressures on Chinese CDMOs
The proposed Biosecure Act in the United States poses an additional challenge for drug manufacturers. This legislation, which passed the House of Representatives and is awaiting Senate approval, aims to impose strict limitations on contract manufacturers based in China. Under this act, U.S. state institutions, including Medicare, would be prohibited from purchasing drugs produced by companies deemed too closely aligned with the Chinese government.
While the specifics regarding which Chinese companies will be affected remain unclear, prominent names like Wuxi Biologics and Wuxi Apptec have been mentioned, both of which achieved revenues of approximately $8.1 billion in 2023. Wuxi Biologics is recognized for manufacturing peptides, which are key components in weight-loss syringes, positioning it in competition with Swiss firms such as Bachem, Polypeptide, and Corden Pharma.
Similar to many Western pharmaceuticals, Roche seeks to diminish its reliance on Chinese contractors, although CEO Schinecker highlighted that initiatives like the Biosecure Act complicate matters for businesses with global operations.