What is happening to the CMO industry (particularly the pharmaceutical fine chemical industry) looks pretty similar to what it did almost 20 years ago. The attached 13 articles written between 1998 and 2005 -half of which were written by me- recount a well-known story: exuberance and over-investment results in write-offs and losses. What happened then was crystal clear to me when in 1998 someone came with a large cheque book convinced that a $500m API business could be built in 3-5 years. Shortly thereafter a well-known Deutsche Bank analyst’s report made sure the herd mentality took over. By 2005 most of the $15bn or so spent in M&A deals were mostly written off and a number of wonderful brands and several major companies had vanished.
It is interesting to note that at the time that some entered the CMO business Honeywell was exiting and said: “...pharmaceutical chemical manufacture is a highly capital intensive business plagued by over-capacity, clinical trial failures, limited new drug approvals, new drug marketing disappointments, and price wars…”
Maybe there is an opportunity to learn from history. The challenge today is to check whether what looks the same is indeed the same, and whether what is really different can contribute to a different outcome. What remains to be seen is whether outsiders understand what they are getting into, and one thing is certain: when the dust settles you will have the usual suspects picking up the pieces.
If anything we should be concerned because as of today over $33bn have already been spent in CMO related M&A activity in the last 4 years – in exactly the same pattern as in 1995-7, 1998-2000.
View the full set of documents (PDF, 8MB)
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