Brian Scanlan: Chemoutsourcing Panel 2023

“What’s Going on With Demand for Small Molecule Chemistry Services?”

  • Signs of a Stabilizing Biotech Funding Environment: After 18+ months of declines, VC and Follow-On funding is starting to flow again into the emerging pharma sector, however the IPO environment remains difficult. We may have reached the bottom and there as signs the market may be moving back into a more healthy mode. Implications for CDMO’s: Likely to see continued softness from emerging biopharma over the next year, but the funding environment seems to be stabilizing.
  • Small Molecules Are Not Going Away: Small molecules will continue to play a very important role in the new therapeutic landscape going forward. Of the ~21k total drugs in development small molecules still account for 56% in total. Even in preclinical development, small molecules account for 46% of the total. Implications for CDMO’s: Continued robust demand for small molecules in development will continue for the foreseeable future, but the IRA needs some tweaking (see below).
  • Inflation Reduction Act (IRA) Disfavors Small Molecules: Some parts of the IRA may need to be re-evaluated to close gaps that disfavor small molecule vs large molecule development. For example, under the IRA small molecules can be selected for government price negotiations 9 years after approval, while biologics selected for price negotiation will be implemented 13 years after approval. Implications for CDMO’s: Will the IRA hinder the drug innovation engine generally?? If so, then downward pressure on CDMO demand. 
  • On-Shoring; More Rhetoric Than Reality?: Competing pressures are at play. The push towards on-shoring continues, but disentanglement from China is not practical. The forces that prompted supply chain re-alignment in North America (Covid, Geopolitical) have been offset more recently by the current economic situation and an intent to stretch funding dollars (particularly by emerging pharma who have seen anemic funding climate).   Implications for CDMO’s: Consistent and significant reshoring has not been felt by most CDMO’s in North America. There has been more of a shift in some supply chains from China to India however.
  • General Outlook Positive: Overall the panel felt the mid/long term demand drivers for small molecule chemistry services is positive. Near term, demand from emerging pharma will remain soft (but improving), and flaws in the IRA should be addressed.

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