CDMO Buy-Out
If one or more parties would be thinking about a buy-out of CDMO, then who would they be and why would they do it.
This post can be seen as 100% SPECULATION. The parties that I think could have an incentive may not in the slightest be interested and maybe there are no interested parties at all or there could be some I didn't even think about.
These are my candidates (in random order)
Merck
Thermo Fischer
Lonza/Catalent(Cook)
Halozyme
1) Price
All parties that would like to buy-out would need a source of revenue, cash on the bank, listed shares or any combination of that, to make the transaction happen if we are talking about a buy-out rather then a merger. For mergers it is more % negotiation and the smaller party (that is always CDMO with the above candidates) tend always to come out at the advantage. SO we are good. All parties above have the means.
Prices of 40$ have been popular lately, but in todays Biotech market and its demand/offer and given our current capacity expansion and apparently/possibly/probably some non-disclosed capacity extension, we should get more. If CDMO is already talking expansion while PI and PII expansion is still ongoing, then they have order guarantees to at least fill the PI/PII expanded capacity.
I will not place a price on it because it would be wrong and poorly educated because we have no idea what exactly they are doing. Just know that the dollar is getting stronger, so CDMO become more expensive for no-US suitors.
2) Incentive
All parties have an incentive. Halo, Thermo Fischer and Merck have some underlying business interest behind the pure capacity.
CDMO was brought into the Thermo Fischer distributed cluster of manufacturers at the time of PPHM (King) and is currently a CDMO equipment manufacturer. CDMO has a consultancy division to built facilities, and hands on experience. CDMO piled up the awards for best...in lab technologies. CDMO is an interesting investment for TF now that having cash becomes more expensive every day. Personally, I would not be surprised that TF isolates its own production because today they are kind of a competitor with their own customers. When there is a demand for 100 reactors and you can only produce 50, then who gets them? Because the one that gets them can do business and take in the orders.
Merck runs clinical trial with Bavituximab and BP doesn't like to share commissions on sales. Those commissions make that party a potential new competitors with sufficient deep pockets to develop a next drug without them. A PII was successful, so a PIII registrational trial could be sponsored (if FDA approves PII results and PIII trial proposal). There will be some point where Merck will know AHEAD of the market that the combination works and hence try to wheel in the 15+% commission BEFORE that news gets out. That is also where OncXerna enters into its profits.
Lonza competes with Catalent and both are themselves investing in capacity extensions. But CDMO is almost (except AVID I) 100% with single-use reactors and in a full forward process. Acquiring that capacity isn't a big risk, given market demand, but also due to long term commitments of the CDMO customers. Each line needs FDA approval and moving away is costly and slow. Catalent (through Cook) has already a part of the HALO production (for clinical trials) but the interesting part is the commercial production for Enhanze (see below). Of course both would in the same movement increase their market share of CDMO activities.
Halozyme has a long term relation with with PPHM/CDMO dating from the Steve-Helen time. Halo had clinical trial production with Avid and production with Cook and then a few years ago switch that around. Now contracts from, for instance Roche, and upcoming contracts (e.g. J&J Janssen) are coming CDMO's way thanks to that. But HALO will at some point run in expiring patents while the recombinant will still have to be produced. Hence CDMO that approved the lines through the FDA can continue producing it. Generics can almost not infiltrate this market because the recombinant is delivered with the main drug. Those main drug are controlled by patents and partially, maybe in the future completely, distributed in a package for Enhanze SC administration. The Generics would have to make each of those main drugs too once they loose patent protection. So HALO has a mid- long term interest to buy CDMO to keep capitalizing on their research when licensing revenue will go down.
Conclusion
All mentioned companies could have an interest in a buy-out or merger with CDMO. The economic situations is "Relance + Inflation" a mix that we have rarely seen in the past. Having money cost money, demand is high and offer is low, hence prices rise and inflation is caused by the impossibility to produce/sell at the wanted rate.
We'll probably will be in this at least part, if not whole of the coming year too. The dollar raises and the Europeans will be able to export more, while the Americans will be able to buy cheaper. The 3rd vaccine for COVID is currently being administered in some European countries. Here in Flanders we returned to normal live without masks, nose-test or apps proving vaccination at the entrance of businesses, restaurants and events. Yet, you wait twice a long for anything you order that depends on import.
BP will be very busy to produce several more billion vaccines for the rest of the world and will need to keep part of their production capacity on it. So acquiring companies like CDMO to continue there high-end clinical programs and related production seems a smart plan.
AIMO
All In My Opinion. I am not advising anything, nor accusing anyone.
