CDMOs Continuing to Grow Through 2022 CDMOs Continuing to Grow Through 2022
Pharma Tech Outlook

CDMOs Continuing to Grow Through 2022

Pharma Tech Outlook | Tuesday, August 16, 2022

New investment flooded the market, the pipeline kept growing, sales increased by double digits, and CDMO valuations shot through the roof

FREMONT, CA: The response to the COVID-19 pandemic helped the CDMO business enter on a wave of momentum. While interest rate cuts by central banks unleashed a surge of funds into high-risk assets, including venture capital and initial public offerings (IPOs) for emerging bio-pharma companies, CDMOs provided development and manufacturing capacity for new vaccines and therapeutics.

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New investment flooded the market; the pipeline kept growing; sales increased by double digits; and CDMO valuations shot through the roof. That momentum persists, but there are increasing indications that the wave may peak this year as financial circumstances deteriorate, excesses in the bio/pharma sector are cleaned up, and resource shortages arise.

An increase in drug development and manufacturing activities, much of it unrelated to the COVID reaction, increased demand for CDMO services. R&D expenditures by both major and small bio/pharma companies increased by more than ten percent for the year. Additionally, the number of medication candidates under clinical development increased by around seven percent during the course of the year. The COVID-19 outbreak had a challenging 2020, causing several operations to slow down or stop entirely.

Emerging bio/pharma companies, which rely heavily on CDMOs, have kept raising significant amounts of money through IPOs and venture funding. Corporations raised more than USD 100 billion in 2021, which was less than the record-breaking amount they raised in 2020 but still much more than in any other year. Many industry observers will be surprised to learn that 45 percent of the businesses that went public in 2021 are working on small-molecule candidates, while 36 percent are working on biologics excluding vaccines, which include gene and cell treatments, monoclonal antibodies, and recombinant proteins.

While CDMO clients had exceptional years for fundraising in 2020 and 2021, the prognosis for 2022 is rather uncertain as the year begins. To reduce high inflation rates, central banks are tightening banking regulations. Interest rates will be much higher than what investors have become accustomed to since the global financial crisis of 2008/2009, even though they will still be modest in comparison to long-term historical norms. The amount of money that startup bio/pharma companies can raise through initial and secondary public offerings as well as venture capital may decrease if interest rates rise. This is due to the fact that valuations will decrease as discount rates increase and less risky assets will become more alluring as interest rates rise. 

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