From discovery to delivery
The biopharma supply chain offers growth for private equity despite complexity. PE deal activity in pharma services fell 15% per annum from 2021 to 2023 due to higher capital costs. Global pharma supply chain services form a $77 billion profit pool with growth in large-molecule manufacturing and injectables.
A period of peaks and troughs
Pharma supply chain services cover raw materials, CDMOs, drug delivery, packaging, and distribution. Biotech funding rose from $110 billion in 2015 to $180 billion in 2020 at 10% CAGR, with PE deals in services at 6% per annum. Post-2021, funding dropped 30% per annum to $73 billion, PE deals by 15%.
TSR for public supply chain firms slowed, aligning with pharma. The McKinsey index outperformed industrials and pharma from 2018-2022 but fluctuated after, due to post-pandemic destocking. Life sciences supply chain TSR grew at 45% CAGR from 2020-2022 amid stocking.
Drug delivery/containment and biologics CDMOs showed strong TSR from 2019-2024; integrated CDMOs and raw materials mixed. Companies should improve operational efficiency and sales techniques.
Capturing value in the pharma supply chain
Long-term growth stems from end-market expansion: 3% CAGR small molecules, 6-10% large molecules, over 25% new modalities. Outsourcing adds 1-2 points; pricing up to 5-10 points in biologics. Demand rises for ADCs, gene therapies, injectables.
How can PE investors capitalise on this opportunity?
Incorporate modality (large vs small) and value chain exposure (raw materials to distribution). Apply efficiency levers like equipment effectiveness to boost revenue. Embed B2B practices such as AI lead generation.
Three themes:
- Innovative large modalities (ADCs 23% CAGR, cell/gene therapy 42% CAGR) driven by 100+ launches to 2028; small molecules 5% amid generics pressure. Increase exposure for 3-5 year growth.
- High-growth subsegments: bioprocessing for cell/ADCs, single-use bioreactors, sterile fill-finish (capacity constrained), analytical services for cell/gene. Build scale via M&A, organic investment.
- GLP-1 delivery: autoinjectors demand outstrips supply by 2027; invest via M&A/carveouts in devices, containment. Oral GLP-1s may impact injectables. Gain pipeline insights.
