Venture Capital Funding to Fuel Pharma Outsourcing

According to the CPHI Annual Report 2022, which launches during the CPHI Frankfurt event from Nov. 1–3, 2022, there is predicted to be an expansion in the demand for contract research organizations (CROs) and contract development and research organizations (CDMOs) in the pharmaceutical space. This demand will be driven by volumes of venture capital (VC) and private equity cash reserves.

Brian Scanlan of Edgewater Capital is quoted in the report, saying, “Despite the economic and inflationary uncertainty, CRO[s] and CDMOs are likely to be the chief beneficiaries of the investment capital that has poured into biotech during the last two years—with little slowdown in growth—despite the more challenging market conditions.” Funding will support contract sector valuations and investment in CRO/CDMO infrastructure, according to Scanlan.

“Putting pandemic-related factors aside, a significant portion of the heightened demand for CRO/CDMO services has been driven by VC-backed pharma and biopharma companies. Presently, VC-funded biotechs are sitting on two to three years of cash reserves, and this will ultimately transfer through, in part, to contract services. On top of this, biotech funding that has been raised over the last couple of years … is likely to be deployed relatively soon because these closed-end investment vehicles must be used in deals within four to five years,”added Scanlan in the report.

Smaller and medium CDMOs are forecasted to see growth from new compounds entering development, the report states. CPHI says these compounds in development “are effectively already ‘queued up’ for further development as public markets swing back and funding levels resume.” Larger CDMOs are expected to benefit most from later-phase compounds.

Reshoring in supply chains is also a factor in the increase in investment, according to CPHI. “The Russian/Ukraine conflict, EU [European Union] energy concerns, and US–China tensions [are] all creating uncertainty about moving vital materials around the globe,” according to a CPHI press release.

Source: CPHI