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?

Lukas von Hippel: No company in the world will be able to have all technologies and relevant production assets in own hands. This may lead to several strategic options.
Option 1: Companies may develop only products that fit their actual permissions, and, if needed, invest in fitting equipment. Such approach does mean the company is limited in potential developments since no company in the world can combine all technologies and does have all relevant talent and techniques on hand in-house. Even there are more and more companies trying to broaden their technological foundation, limitations will apply.
Option 2: Companies may look for partners which are able to close gaps. Such gaps may be ­driven by technologies, skills, size of equipment, just to name a few aspects for outsourcing. In our current world, equipment is no longer a factor. The worldwide capacity is more than enough to oversupply the world’s demand. What limits success are other aspects: A sound understand­ing of quality, a proven ability to deliver, and skilled people who understand their customers’ requirements. It may be an active part of risk management to work with those organizations that have the assets and technological skills.
We can spend our money only once, following option 1 or 2. Most opt for option 2 since it does offer more flexibility and opens access to talent and technologies. This is why more and more companies are reaching out to us asking for development of certain products that use our skills which not too many other companies have: Bridging chemistry and biotechnology, we are the logical hub to discuss possibilities to develop certain products. The more and better chemistry and biochemistry develops, the more our products, our technologies and our skills are getting recognized.