The pharmaceutical industry continues to grow and is estimated to be worth $1.5 trillion by 2021. One important driver is the trend towards outsourcing of development and manu­facturing to contract development and manufacturing organizations (CDMOs). What sounds like good news for CDMOs also holds its own challenges — many of these companies are operating in a highly fragmented market that is currently undergoing a significant consolidation. At the same time, many of them are not fully prepared to exploit the maximum potential and willingness-to-pay in project pricing, which calls for new and innovative monetization strategies.

Since price is the single most powerful lever to increase a company’s profits, it is high time for CDMOs to reconsider their project pricing approach. Instead of clinging to traditional cost-plus pricing logic that usually lack consistency, transparency and control, experts propose measures such as harmonizing costing methodologies, incorporating value-based pricing metrics, and systematically using internal project price benchmarks for developing a value-based price model. ­

CHEManager International asked executives and opinion leaders operating in this market to share their experience and advice. We asked the experts to discuss the following questions:

Which role can CDMOs play in helping pharma companies to manage development, production and supply chain cost?

Christian Dowdeswell: We believe CDMOs have a key role to play in helping customers rapidly design, develop and scale-up innovative medicines and bring them to patients around the world. One of our priorities at Lonza is ensuring that our technologies and capabilities are aligned with the pipeline and approval trends for new medicines. To provide the partnership that our customers value, we also focus on employing phase-appropriate formulation approaches that can both accelerate timelines to clinical studies and be readily scaled.
We continue to align with several key trends that have resulted in more complex drug molecules and requirements for innovative delivery mechanisms. First, there are more highly potent compounds in the pipeline, driven by oncology research, as treatments become more effectively facilitated by improved target­ing of disease states. Second, the continued prevalence of molecules with bioavailability challenges, i.e. Biopharmaceutical Classification System (BCS) II/IV classes, with an estimated 90% of the preclinical compounds now estimated to have low solubility.
At the same time, in developed markets we are seeing a continued rise in specialty drug products in the pipeline, as well as orphan, fast-track and 505(b)(2) designations. Specialty drugs accounted for 39% of global ­sales in 2018 and are expected to be more than 50% of the US market by 2023. Meanwhile, orphan drug products exceeded 50% of new compounds approved by both the FDA and the EMA in 2018 and projected to account for approximately two thirds of the FDA’s forecasted approvals through 2023. The impact that CDMOs must consider is the resultant shift towards higher-value drugs that have lower production volume requirements of both API and finished drug product.
Additionally, the majority of today’s specialty drug pipeline is held by small biopharma companies and these companies are increas­ingly commercializing their compounds. ­Nearly 60% of 2018 FDA filings were from small companies, almost twice as many as in 2011, when only 31% of filings were from the small company category. Establishing market position can be especially critical for small biopharma players, which may have only one or a few compounds, meaning speed to market of their products — often orphan or 505(b)2 applications — is paramount.
Looking ahead, we see a net shift in our customer mix towards smaller biopharma companies — sometimes even virtual — that have very limited in-house capabilities. These organizations typically need specialized drug delivery technologies and expertise, as well as development and manufacturing infrastructure, often under containment, to progress their compounds. Phase-appropriate and specific drug-appropriate infrastructure is also increasingly required for specialty medicines.
These trends indicate that biopharma companies have an amplified need for fit-for-purpose solutions — bioavailability enhancement and drug delivery technologies, services, infrastructure and commercial ­arrangements. Flexibility is critical as are partners that can and are willing to tailor their development and commercial approaches to fit the individual customer and drug program requirements. Integrated approaches for API and drug product development can be of huge value and must be available for customers with accelerated timeline requirements.
Biopharmaceutical companies can benefit from working with CDMO partners that have already adapted to the aforementioned trends to help bring innovative drug products to patients.