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Tycho Peterson tycho.peterson@jpmorgan.com +1 212 622 6568
Julia Qin julia.qin@jpmorgan.com +1 212 622 9253
Tejas Savant tejas.savant@jpmorgan.com +1 212 622 5650
Eleni Apostolatos eleni.apostolatos@jpmorgan.com +1 212 622 0136
Portfolio Manager’s Summary
Capacity supply & demand:
Recent capacity expansions were reactive to a strong pipeline,
with most large-scale builds in Europe and Asia
While the supply/demand gap has been closed for traditional
biologics, demand to continue DD growth in the medium term
A significant capacity crunch exists for cell/gene therapy
CDMO backlog remains elevated, and utilization will steadily
increase. Overcapacity risk is idiosyncratic (i.e. Samsung)
Single-use technologies (SUT) make overcapacity concerns less
relevant
Outsourcing trends:
Outsourcing rate reached a historical high last year
Excess in-house capacity is unlikely to pose a meaningful threat
Biosimilar impact:
With the mAb pipeline maturing, biosimilars present the next
potential source of growth (>25% CAGR)
U.S. pharma cautious about in-house investment for biosimilars, a
positive for CDMOs
Biosimilars could see 60% outsourcing rate, 2x current levels
Pricing trends:
Commercial-scale pricing supported by controlled capacity supply
and long-term contracts, while clinical-scale pricing could be
pressured by new capacity based on cheaper SUT
Biosimilars could drive lower pricing, but CDMO margins should
remain supported
Stock-specific implications:
CDMOs with leading SUT capacity are best positioned for
bioprocessing (WuXi, TMO/PTHN, LONN, CTLT)
LONN, TMO/PTHN and BING best positioned for biosimilars
TMO now well positioned for cell/gene therapy following Brammer
Bio acquisition (see our thoughts on the deal here)
Key Takeaways
Technology trends:
Single-use equipment sales to grow at +26% CAGR and reach
~30% of total equipment market in five years
Continuous downstream processing (relevant for DHR, GE, MRK)
is a key area for future innovation, but industry adoption will likely
be slow
Digitization and automation is another focus area seeing lots of
partnerships/tuck-in acquisitions
Competitive landscape and vendor positioning:
All five leading vendors have broad portfolios, and the industry is
trending toward one-stop-shop, but each vendor still has a different
focus/strength
GE’s strength in SUT is likely underappreciated
DHR/PLL well positioned for cell & gene therapy
RGEN has >40% share in prepacked chromatography columns
Pricing trends:
Highly differentiated products support favorable pricing trend
SUT brings sticky consumable revenue with attractive margins
Expect minimal impact from drug pricing pressure
Industry consolidation:
Expect continued industry consolidation due to significant
advantage of one-stop-shop offerings
Future bioprocessing workflow increases synergy between
processing equipment and analytical instruments
Stock-specific implications:
DHR & TMO should continue to see above-market growth with
their broadest scope of portfolio
DHR should also see meaningful upside from GE synergies and
PLL’s strong positioning for cell/gene therapy
Also like RGEN for market leadership in select applications
CDMOs
(CTLT, LONN, Samsung Biologics, TMO/PTHN, WuXi Biologics)
Equipment Vendors
(DHR, GE, MRK, RGEN, SRT, TMO)
For more industry background, please refer to our original
bioprocess deep dive here.
