The core merits of outsourcing drug research, development, manufacturing and packaging have been long established over 20 years of PE investment – access to specialist technology and expertise, cost advantages and accelerated speed to market.
It is a testament to investor success that over 100 exhibitors at CPHI 2026 have some form of PE ownership across the entire value chain of outsourced pharma services, from excipients and APIs to FDFs and packaging (Figure 1).
Nevertheless, navigating today’s complex macroeconomic landscape requires more sophisticated investment strategies than the more traditional investor playbook of buy-and-build, vertical integration and capacity expansion.
In this review, we highlight key investment themes in CDMOs (contract development and manufacturing organisation) and offer insights into how to create value in an increasingly competitive yet richly abundant marketplace.
Recent M&A activity
The last 2 years have been somewhat muted in terms of PE investment owing to macroeconomic headwinds and geopolitical volatility, underpinning a period of high interest rates which deter capex-intensive investment.
However, the structural drivers for CDMO activity remain strong, with robust pipelines in new therapeutics, particularly biologics which necessitate greater expertise and specialist infrastructure to develop and manufacture.
We therefore remain optimistic for the CDMO outlook, but investors need to identify key technologies, modalities and therapeutic areas to drive long-term value.
Right niche, right time
Success depends on investing in the right niche ahead of time. High growth players today invested early in peptides to ride the GLP-1 wave, such as Corden Pharma (Astorg), Axplora (Bridgepoint) and Catalent (acquired by Novo Holdings in a $16.5bn transaction).
CDMOs at all stages of the GLP-1 value chain have prospered, including the Italian family-owned Flamma Group and PolyPeptide, currently the subject of a tender offer by Samsung Biologics, which manufacture peptide fragments and amino acids.
However, picking the right technology at the right time can be difficult. Seven years ago, there was significant excitement in antibody-drug conjugates, but technical challenges around R&D meant the pace of expansion in new treatments was initially slow.
Moreover, the exit or capacity divestiture of multiple cell and gene therapy manufacturing plants provides a cautionary tale of investing too early in a technology limited by R&D and reimbursement challenges.
We observe high growth potential areas today to include oncology-related treatments, supported by a strong clinical trial pipeline. Many of these therapies require handling of high potency APIs and hazardous chemistry, necessitating specialist capabilities to manage these synthesis pathways. ADCs are finally starting to convert early promise into commercial success, with 16 FDA-approved products and over 300 clinical trial starts in 2025 in the pipeline (Figure 2).
Radiopharmaceuticals constitute a potentially transformational emerging area with an extensive pipeline, though approvals remain concentrated around Novartis’ Pluvicto and Lutathera. mRNA-based therapies received a strong boost post-Covid, and though growth has since normalised, the recent success by Moderna in developing a melanoma cancer vaccine in partnership with Merck may attract further investment.
Increasingly complex antibodies, including bi-specific and tri-specific formats, constitute an untapped opportunity that we expect greater pharma investment in over the coming years, though it will take time to percolate into significant CDMO investment. Sterile liquid manufacturing capabilities remain in short supply and will be increasingly important for biologics and a growing pipeline of biosimilars.
What is clear is that investors and CDMOs alike need to ‘follow the molecule’ and understand where the market is heading to invest in the right technologies and capabilities to be best positioned for future demand, while retaining the flexibility and agility to serve demand today.
Over-investment in nascent technologies that fail to launch immediately can make the short-term high returns required by many PE funds difficult to achieve.
However, balancing a portfolio of specialist capabilities with a strong base business of entrenched long-term contracts provides investors with revenue visibility and the flexibility to capitalise on whichever emerging opportunities prosper most.
Reshoring to the US and Europe
For many years, globalisation drove outsourcing to the cheapest countries, but in light of Covid-19 and more recent geopolitical risks, the need for supply chain resilience has become paramount for pharma sponsors. This has led to localisation of development and manufacturing of the most critical drugs to Western markets.
Many CDMOs have bolstered their US manufacturing footprint in light of tariff uncertainty and the implementation of the BIOSECURE Act. This has accelerated a long-term trend, with the number of FDA-registered pharma facilities increasing from approximately 6.5k in 2010 to approximately 15k in 2026.
However, price and cost remain important to pharma sponsors, so whether manufacturing presence in the US translates to a marked increase in manufacturing volume remains to be seen. The vast majority of Gx APIs will still be manufactured in India and China owing to cost advantages, but production of higher value drugs may shift more towards Western markets.
Future outlook
After a subdued period of deal activity, we expect renewed investor interest in pharma CDMOs as financing conditions improve and long-held PE assets return to market. Value will increasingly be derived from platforms with differentiated capabilities in peptides, HPAPIs, radiopharmaceuticals and sterile manufacturing where barriers to entry remain high.
However, investors will also need to be more selective. Whereas the last decade rewarded capacity expansion and buy-and-build consolidation, the next is more likely to favour quality of capacity and operational excellence.
Ultimately, success will depend on platforms that can attract the right molecules at the right time.
