CDMO Market Update Jim Miller President, PharmSource - PowerPoint PPT Presentation

CDMO Market Update Jim Miller President, PharmSource PharmSource/PharmTech AAPS Breakfast November 2016 www.pharmsource.com ¡ 1 ¡

Pipeline driving strong CRO/CDMO performance Recent Company Performance (2016) Development Company Segment Growth Period services account Medpace CRO 18% 6 mo. for about 45% of Covance CRO 12% 6 mo industry revenues PRA CRO 15% 9 mo. INC Research CRO 16% 6 mo. Lonza Bio API 10% 6 mo. Development services growing Avid Bio API 66% 12 mo. at 10+% annually Patheon DEV 8% 9 mo. – Expanding Catalent Clin Pkg 10% 12 mo. pipeline Metrics DEV 26% 12 mo. – Robust funding SGS Analytical 8% 6 mo. for emerging bio/ pharma Charles River DEV 11% 6 mo. Source: Public company reports 2 ¡

Global bio/pharma dominating approvals NDA Approvals by R&D Spending by Top 25 Bio/ Sponsor Type Pharma Companies 140 $100 $87 120 $90 $81 Number of Approvals $80 $74 $74 $73 100 $72 $70 23 US$ Billions 80 $60 22 13 28 60 19 $50 15 23 $40 33 40 25 22 $30 49 20 38 $20 27 27 24 $10 0 2011 2012 2013 2014 2015 $- 2010 2011 2012 2013 2014 2015 Global Mid Size Small Generic Growing biologics pipeline driving up Half of global bio/pharma approvals R&D spend have been in-licensed or acquired ¡ ¡ ¡ PharmSource, CMO Scorecard 2016 Edition 3 ¡

Funding flowing to emerging bio/pharma Funding for Emerging Bio/ Emerging Bio/pharma Pharma R&D and Cash Status $45 $4.0 90% $3.5 $3.5 $3.6 $40 % Companies >2 years of cash 80% $3.5 $2.7 $2.9 $3.0 $35 Funds Raised $ Billion 70% R&D Spend ($billion) $3.0 $30 60% $2.5 $25 50% $2.0 $20 40% $15 $1.5 30% $10 $1.0 20% $5 $0.5 10% $0 $0.0 0% 2010 2011 2012 2013 2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 6 mo. 15 15 15 15 16 16 VC IPO Secondary Upfront R&D Spend ($bn) Source: PharmSource Lead Sheet and public data % Companies with >2 years cash 500+ companies raised funding in 2015, most are inexperienced drug developers 4 ¡

FDA guidance supports development Criteria and Fast Track and Regulatory Response Designation Breakthrough Drug Fast Track • Data supports potential Designations for un-met need 160 • Expedited & rolling Number of Designations review 140 120 • Data indicate 100 Break- 96 substantial through 80 80 improvement over 63 64 60 existing therapies 40 • Intensive guidance, 42 20 expedited & rolling 32 31 31 review 0 2013 2014 2015 2016 Breakthrough Fast Track Accelerated approval has major implications on CMC timeline 5 ¡

Well-stocked pipeline but more novel therapies Drug Development Biologics by Type Pipeline 1600 Number of Candidates 1400 Gene/Cell/ 1200 Thera Vac MAb/ 1000 689 Recomb 731 800 Protein 525 600 ADCs 400 300 645 584 Source: PharmSource Lead Sheet 200 426 192 0 Complex Processing Needs Solubility Powder-in-a-bottle/ capsule raises issues Biologics Small Potency May require high Molecule containment Stability cold chain conditions for Source: IMS Lifecycle R&D Focus manufacturing/distribution 6 ¡

Development demands will drive CDMO consolidation Naïve Accelerated Pathways Clients Pipeline Compound Growth Complexity Investor Expectations Cost Globaliza- Pressures tion Required CDMO Response Scale Technology Management 7 ¡

Market forces drive M&A • Biopharma companies are demanding suppliers have greater capability as well as capacity – Trying to simplify vendor management, speed development and reduce costs • CDMO investors, especially PE, don’t like greenfield investment – Don’t want to wait for returns – Don’t want risk of declining demand just as new capacity comes on stream 8 ¡

Acquisitions add capability and capacity CDMO/Analytical Lab Buyer Buyer Business • Micron Technologies Catalent Drug product CMO • Pharmatek • Redwood Bioscience • Whitehouse Laboratories AMRI Drug product & API • SSCI & Aptuit Glasgow CMO • ABC Laboratories EAG Analytical services • Biotec Services PCI Services Packaging & • Penn Pharma manufacturing • Sinesis Eurofins Analytical services • Advantar Scientific • WIL Research Charles River Preclinical & • Blue Stream Laboratories Laboratories discovery CRO • Particle Sciences Lubrizol Polymers for drug delivery • BioOutsource and Cellca Sartorius Manufacturing equipment Over 50 CMC acquisitions in the past 24 months

Implications of the election? Outcome Impact Implications for CDMOs Less risk of drug price Better pharma profits, more R&D + regulation But PBMs will still fight increases Tax reform > cash +/- More pharma M&A repatriation More R&D Let Medicare negotiate drug Lower profits, less R&D - prices More pressure on pricing Repeal ObamaCare, 20 Lower profits, less R&D - million fewer covered lives More pressure on pricing Anti-immigration policies Talent shortages - More offshoring to where talent is Suggested by “Biopharma’s Trump Party is a Little too Raucous,” Bloomberg Gadfly, www.pharmsource.com ¡ 10 ¡

Final thoughts • CMC not likely to go as far with strategic partner model as clinical research – Too many technologies and capabilities needed – But general contractor and other innovative models evolving • Performance is the key differentiator – KPIs, FDA approvals may be more important than price • Senior management as a difference-maker – Who can manage the growing complexity? 11 ¡