Pharma outsourcing surges amid cost and supply challenges
NEW YORK, UNITED STATES — Pharmaceutical companies are increasingly adopting outsourcing strategies to tackle rising costs, supply chain disruptions, and regulatory hurdles.
According to a PE Hub report, contract development and manufacturing organizations (CDMOs) and contract research organizations (CROs) are becoming essential partners in drug development and production, reshaping the industry landscape.
Key drivers of outsourcing growth
The rationale for outsourcing has evolved beyond cost savings. Companies now leverage external partnerships to enhance efficiency, focus on core operations, and accelerate drug development.
Matthew Altman, managing partner at Arlington Capital Partners, told PE Hub that the sector is seeing “a growing willingness to invest domestically as companies seek to mitigate risks associated with relying on overseas suppliers for raw material sourcing and finished drug product production.”
This shift aligns with the U.S. government’s push to secure pharmaceutical supply chains. For instance, Arlington Capital recently acquired Team Technologies, a firm specializing in original equipment manufacturing for pharmaceutical companies.
Private equity investments in outsourcing
Private equity firms are seizing opportunities in the outsourcing boom by investing in specialized service providers.
A notable example is Partners Group’s July 2024 acquisition of FairJourney Biologics, an antibody discovery CRO, for €900 million (US$936 million).
Pascal Noth, head of private equity health and life Europe at Partners Group, explained: “There’s a logical waterfall of pharma companies doing more outsourcing because it helps to accelerate their discovery process.”
Specialty drugs and expanded pharma services drive investment
The growing demand for specialty drugs to treat chronic and rare diseases is also driving significant investment in the pharmaceutical sector. Aging populations and rising chronic illness rates have increased the need for personalized therapies, such as oncology treatments and rare disease medications.
For example, Intermediate Capital Group (ICG) and Andera Partners sold Amolyt Pharma, a developer of therapeutic peptides for rare endocrine diseases, to AstraZeneca in March 2024 for up to $1.05 billion.
High pricing, fast-track approvals, and market exclusivity for specialty drugs further attracted investors. According to Toby Sykes, managing director at ICG, large pharma companies are actively pursuing M&A deals to replenish pipelines as key drugs lose patent protection.
“We’re seeking to provide scale-up capital to de-risked clinical stage opportunities,” he added.
Investment is also surging in expanded pharmaceutical services like home delivery and e-commerce platforms. Cardinal Health’s $1.1 billion acquisition of Advanced Diabetes Supply Group in November 2024 highlights this trend.
Tim Wheeler of BPOC noted that telehealth adoption during COVID-19 has reshaped consumer behavior: “It’s really changed the appetite for the average consumer to pursue healthcare solutions online.”
Future outlook for pharma outsourcing
As the pharmaceutical sector faces challenges like patent cliffs, increasing R&D costs, and regulatory pressures, outsourcing is expected to expand significantly. It has transitioned from a cost-saving measure to a strategic necessity, enabling pharmaceutical companies to remain competitive in a rapidly evolving global market.
This trend underscores the critical role of partnerships in driving innovation and efficiency across the industry.
