Monday, September 18, 2023

C&EN: Downbeat outlook at ChemOutsourcing

Via Rick Mullin at Chemical and Engineering News:

...But at ChemOutsourcing, a smaller meeting of pharmaceutical services firms in New Jersey earlier this month, there was far less focus on AI and a more dour outlook for the business of manufacturing pharmaceutical ingredients for drug companies.

Price pressures, a prolonged dip in biotech stock prices, and general hesitancy on the part of venture capital firms to invest in small and mid-sized drug companies foreshadow a slowdown in contract manufacturing next year, many in attendance said.

“I think 2024 is going to be a bit of a transitional year,” predicted Kenneth Drew, vice president of US operations for the Italian services firm Flamma. A downturn would follow a decade of double-digit annual growth for many services companies in a sector that thrived during the pandemic.

With financing tight, biotech firms are now often focused on only their lead drug candidate, a strategy that Drew likened to keeping all eggs in one basket. “If that basket breaks, it can kill a company,” he said, a development that would reverberate at Flamma and other companies that serve such firms.

But Stefan Loren, managing director for healthcare investment banking at Oppenheimer, said in a keynote address at ChemOutsourcing that the disappearance of a few small to mid-sized biotech companies may not be a bad thing for the sector. He noted that the number of publicly traded biotechs has risen from 125 in 2012 to 706 in 2023, diluting the availability of investment capital.

“Biotechs have to fold, go bankrupt, or be swallowed up” through mergers and acquisitions, Loren said, noting that generalist investors are not currently investing in small companies. Such culling could combine with a drop in inflation to fuel a biotech recovery going into next year, Loren said.

James Bruno, president of the consulting firm Chemical and Pharmaceutical Solutions, cautioned that a brighter 2024 may not be within reach for services firms. “The financial markets are opening up, but I don’t think small pharma actually sees that yet,” he said, and that doesn’t bode well for services firms.

It will be interesting to see if this is the case. If there is a slowdown in services firms, you could imagine a slowdown in the hiring at the Curias and Cambrexes of the world... 

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