Taking Middle-Market CROs and CDMOs to the Next Level

Small CDMOs and CROs that have achieved profits in the $5 to $20 million USD range often need assistance moving to the next level. Investment firms like Castleford Capital that focus on lower-middle-market companies in this sector have the capital, relationships and operational resources needed by executives to enable further growth.

Industry Trends Underscore Need for Growth Investment

Numerous trends in the pharmaceutical contract services industry are impacting the ability of smaller contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs) to expand their market share. 

While pharmaceutical companies continue to shed manufacturing assets to optimize costs, the main driver for outsourcing to CDMOs is the need to access specialized capabilities that accelerate the commercialization of complex drug candidates. Demand for CDMOs with biologics development and manufacturing expertise is particularly strong. Growth in the generics and biosimilars markets is also fueling demand for CDMOs as many of these firms rely on outsourced manufacturing. 

Long-term strategic partnerships with CDMOs that can best enable biopharma firms to get their products to market in a timely fashion are of growing importance. Middle-market CDMOs that can support multiple projects across a broad range of biomolecules with a wide array of manufacturing and delivery technologies create additional value for their customers and potential acquirers.

Many of the same factors affecting CDMOs are similar for CROs. Drug development continues to be increasingly complex as new drugs are significantly more challenging to develop than previously. Regulations on development are very complicated and process oriented requiring specialization. Regulators and payers increasingly look for real-world data, which leads to an emphasis on predictive modeling and analytics. Regulatory and data expertise combined with specialized technologies are differentiators for CROs and CDMOs to capture customers and grow.

Pharmaceutical development is a very attractive area for both strategic and financial investors due to the expanding market size and a fragmented marketplace.

Globalization Drives Service-Sector M&A

Pharmaceutical development is a very attractive area for both strategic and financial investors due to the expanding market size and a fragmented marketplace. Pharma is a global industry. Large pharma companies want to deal with CROs/CDMOs that can support them in their ever-expanding footprint. Through consolidation, today’s larger CROs and CDMOs have acquired international scale to meet the needs of their top-tier customer base. Smaller firms that have developed specialized expertise, created innovative processes and spent the effort to create the right institutional governance are attractive targets for these acquisitive consolidators.

Many Benefits of Investment

Castleford Capital looks to back management teams of lower-middle-market firms ($5 to $20 million USD in profits) with the capital and resources they need to grow their business. Many growth-stage firms need to amplify their management team on the commercial side and often require additional capital to expand both organically and through the acquisition of technologies and capabilities. Growing firms generally need the insight and necessary tools to bring institutional governance to a level that enables them to go public, become targets for strategic consolidators or receive investments from larger sponsors.

Why Castleford Capital

Leveraging the twenty-year advisory and investment career of its founder, Castleford Capital provides management teams with the capital, relationships and operational resources that empower leadership to attain new levels of growth. By aligning with Revelstoke Capital Partners, Castleford has the backing of a leading healthcare private equity firm that has raised approximately $1.0 billion of equity in the last five years, an experienced top-tier team of investment professionals, access to junior resources and vast sources of debt financing. Invested companies are able to draw on executive relationships from ten invested platforms, a pool of operating partners and industry experts who are able to serve on advisory or scientific boards.

Castleford and Revelstoke invest primarily in the pharmaceutical and healthcare services markets. The capital they provide and the resources at their disposal are specifically oriented to the specialized needs of companies in pharma and healthcare. Castleford focuses on lower-middle-market companies including CROs, CDMOs, PBMs, pharmacy services, RCM and other tech-enabled healthcare solutions. 

Jeffrey Marlough

Jeff is also Executive in Residence at Revelstoke Capital Partners. Previously, Jeff was Managing Director and head of the New York office of ORIX Healthcare Capital, and Director of Investments at Mitsui & Co. (U.S.A.), Inc. He has been a Board Director of MED3000, Inc. among others. Jeff began his career as an investment banker for Brown, Gibbons, Lang & Co. and UBS Investment Bank. He is a member of The Brookings Council at The Brookings Institution.