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:

How would you describe the current market situation for pharma CDMOs and which trends affecting your project pipeline do you see?

João Madeira, CatSci: The pharma industry has undergone significant changes in the last decade. A growing and aging population has increased demand, translating to increased R&D efforts. However, the rise in R&D spending has not been accompanied by a proportional increase in numbers of new chemical entities (NCEs). Consequently, we have seen an increase in partnering and the co-development of assets as cost- and risk-management measures.
Additionally, we have witnessed an increase in M&A deals. Although it is expected these factors will affect the resources dedicated to NCEs, the landscape of internal asset prioritization and pipeline attrition continues to evolve and will impact the work outsourced to service providers.

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

João Madeira, CatSci: CROs/CMOs provide on-demand capacity in a dynamic environment. This requires agility and flexibility from service providers in order to actively adjust and handle a portfolio of projects. Well-managed collaborations enable highly efficient external research, development and manufacturing as innovator pharma companies seek to manage budgets and internal capacity.
Innovators are challenging old paradigms and increasingly expect more from their CROs — establishing long-term partnerships to share the drug development burden. This aims to create value through a stronger relationship with a deeper understanding of each other’s business needs. These partnerships are highly valuable for both parties as they allow for continuity in the communication flow, optimize working interactions, reduce IP scattering and improve project outcomes.

How do you rate the potential of ­value-based pricing models as a contracting strategy and how do your customers respond to that?

João Madeira, CatSci: Innovator companies want CROs who are fully aligned with technical project demands and broader commercial objectives. This focused expertise mitigates commercial and technical risk, as clients can make informed decisions on a proposed course of action and ultimately achieve higher ROI on their project spend. The demand for independent CROs to provide R&D expertise de-coupled from material supply is increasing. Customers require excellence across every facet of research, development and manufacturing, which is creating demand for new value-based pricing models.