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?

Matthew Moorcroft, Cambrex: Until very recently, the majority of small molecules in the clinical pipeline were being developed by the larger, top 30 pharmaceutical companies. Today, however, data shows that this trend is strikingly different with approximately 65% of the current pipeline being developed by small and virtual pharma companies, many of which do not yet have revenue from commercial products and are backed by venture capital or private equity funding.

Instead of the traditional model where smaller, less capital intensive, companies would have typically looked to out-license their candidates halfway through the clinical trial process (usually stopping soon after phase II), the recent rise of drugs being tested in smaller patient cohorts, such as oncology or orphan diseases, has allowed the development of these molecules to stay at the original innovator. This shift to smaller companies can bring additional changes or demands on the supplier base and the preference for working with CDMOs with end-to-end or integrated capabilities. Typically, these companies have limited resources in corporate functions such as procurement and supply chain management, and these roles are typically filled with people with other responsibilities. The benefits of using CDMOs that can manage more of the supply chain (drug substance, drug product, clinical and commercial supply) ­means a reduced set of CDMO partners to manage, fewer supplier agreements to negotiate, fewer people involved in decision making, and can avoid multiple points of contact for each project.

Cambrex made two recent acquisitions — Halo Pharma in 2018 and Avista Pharma Solutions in 2019 — adding drug product manufacturing and analytical services to the company’s expertise in drug substance, and broadening its capabilities to support small molecule drug developers looking for an integrated service provider. As well as new services, it allowed Cambrex to broaden the customer base and potential complementary customer service offerings.