The biopharma supply chain is a dynamic and evolving sector that plays a crucial role in the pharmaceutical industry’s success. Despite recent challenges, private equity (PE) investors can still discover significant growth and value creation opportunities within this space. Below, we explore how PE investors can capitalize on the evolving landscape of pharma supply chain services.
The Impact of Volatility on Pharma Services
In recent years, the biopharma industry has navigated significant disruptions, with private equity funding and deal activity experiencing notable fluctuations. The surge in biotech funding before and during the COVID-19 pandemic, including the development of vaccines, was followed by a slowdown once the pandemic subsided. From 2021 to 2023, PE deal activity in pharma services dropped 15% annually due to the higher cost of capital and the limited availability of attractive assets.
However, the long-term potential of pharma supply chain services remains promising. Despite short-term challenges such as financing issues in biotech and inventory destocking concerns, this sector is poised for future growth, representing a $77 billion profit pool globally. With strategic investments, PE firms can unlock significant value in several key growth pockets of the supply chain.
Three Key Investment Themes for Private Equity
Investors looking to capitalize on the opportunities in the pharma supply chain should focus on the following key investment themes:
- Innovative Modalities and Drug Classes
Emerging therapies, such as antibody-drug conjugates (ADCs) for cancer treatment, represent an exciting opportunity in biopharma. The increasing complexity of new drug classes calls for specialized supply chain services, including manufacturing and drug delivery solutions.
- High-Growth Subsegments for Inputs and Niche Services
Areas like sterile fill-finish services are seeing robust demand, driven by the need for specialized handling of biologic drugs. This niche subsegment is growing rapidly and is expected to continue expanding as biologic therapies become more prevalent.
- Specialized Drug Delivery Device Components
With the rise of therapies like GLP-1 for treating type 2 diabetes and obesity, the demand for specialized drug delivery devices and their components is increasing. PE investors can tap into this high-growth segment by backing companies that focus on advanced drug delivery systems.
The Resilience and Growth Trajectory of Pharma Supply Chain Services
Pharma supply chain services represent a critical segment of the biopharma value chain, encompassing raw materials, contract development and manufacturing organizations (CDMOs), drug delivery players, and packaging and distribution companies. Historically, this segment has been resilient and has shown robust growth, following the trajectory of the biopharma industry.
While performance in this sector stagnated between 2021 and 2023 due to external pressures such as destocking, the long-term growth prospects remain strong. Factors like the continued innovation in drug modalities, rising outsourcing trends, and the need for specialized services ensure that pharma services will continue to thrive. For instance, biologics drug substance manufacturing is expected to see significant growth, driven by demand for complex biologic therapies.
Overcoming Volatility and Identifying Growth Opportunities
Despite the volatility in recent years, not all pharma supply chain companies have suffered equally. Those specializing in high-growth areas such as drug delivery and biologics manufacturing have consistently outperformed the broader market. Investors looking to maximize returns should consider which segments of the supply chain are most aligned with long-term growth trends and invest accordingly.
To succeed, pharma supply chain players will need to adapt their operational strategies, improve commercial execution, and refine their sales approaches. Leveraging expertise in lead generation, pricing, and contracting will be essential for capturing new business in a competitive market.
Long-Term Value Creation: Why the Pharma Supply Chain Is a Key Area for Private Equity
Despite short-term challenges such as inventory fluctuations and biotech funding slowdowns, the global pharma supply chain services sector continues to present substantial growth opportunities. With a profit pool of $77 billion and a compound annual growth rate (CAGR) forecast of 3-10% in key areas like small molecules, large molecules, and biologics, this sector is well-positioned for future expansion.
The increasing complexity of biopharma products and therapies, including innovative modalities like ADCs and gene therapies, further amplifies the demand for specialized supply chain services. PE investors who understand the intricacies of this evolving landscape can unlock significant value by investing in companies that provide solutions for high-growth areas such as injectable drug delivery and biologics manufacturing.
Contact BioBoston Consulting today to explore tailored strategies