Power Moves: Contract Services' Success Strategies

Pharma’s top CMOs are playing to their strengths, toning operations and flexing their technical muscles in an effort to compete

By Steven E. Kuehn, Editor in Chief

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Contract services organizations are pursuing a number of strategies to be successful, competitive and relevant to their customers. To get there, this important Pharma sector is driving manufacturing and process innovation at an impressive pace. Critics may argue that compared to other industries this is all just so much catch-up, rather than true “innovation.” But that would be selling way short the direction CMOs are taking the industry strategically, tactically and operationally.

It’s becoming very clear today’s Pharma contract services providers are preparing themselves to compete for their spot in an increasingly sophisticated and multifaceted supply chain. Attracting customers in this environment is predicated on fielding the technologies and techniques to meet capacity and processing needs, but keeping those customers for the long haul and maintaining the stable, long-term revenue streams they bring, is another thing entirely.

ONE RULE, OVER ALL
Operational excellence is the rule, with no exceptions, especially as it relates to regulated, GMP-delivered pharmaceutical manufacture. But excellence is the desired end; the result: a goal to measure, achieve and sustain. Ultimately it’s the expression of an organization’s overall competence and internal ability to execute its business plans and roll out product, manufacturing and organizational strategies via its people and resources effectively. 

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From the point of view and a recent study of 2,000 companies by the Council of Supply Chain Management Professionals (CSCMP), supply chain performance in Pharma has not been as strategically important in this “high-margin sector” as it has been in other industries. To effectively respond to the many changes in the industry, CSCMP explains pharmaceutical companies (Branded Pharma primarily) will need to build better end-to-end supply chains. Well, no kidding, and certainly driving the demand for competence among supply chain partners.

Nice Insight’s Nigel Walker (See Strong Growth Ahead for Contract Manufacturing) notes that contract service providers that wish to attain a similar level of growth going forward will need to find ways to provide measurable added value — something that sponsor organizations cannot realize on their own. “Emerging markets, value-added generics (so-called supergenerics), and biosimilars provide other potential opportunities for growth,” says Walker, but only “if contract manufacturers have the global reach and technical capabilities necessary to capitalize on them.”

According to Nice Insight analysis, some 30 CMOs account for more than half of the industry’s revenues (PharmSource), and “more than 18 acquisitions in the CMO space (including only CMO-CMO deals) have taken place in the last three years.”

Current dynamics point to the contract services industry readying itself to play its increasingly important and primary role contributing to the global supply of pharmaceuticals. Many members of this “Club of 30” are well known and increasingly visible to the industry’s highly professional observers. Visiongain, in its pursuit of market intelligence, recently released “Pharma Leader Series: Leading Pharmaceutical Contract Manufacturing Organizations (CMOs) 2014-2024,” which analyzes 30 leading companies in the space.

Jonathan Weymer, a senior analyst for Visiongain, said: “There is a historic trend in the pharma industry of outsourcing activities such as drug and API manufacturing. Recent years have been lean for a number of the big players in the pharmaceutical contract manufacturing market, with M&A activity a core driver of revenue growth. However, the ability to deliver high-quality, flexible production will drive business to the leading firms in coming years.” Amen to that Mr. Weymer.

Visiongain forecasts strong revenue growth for CMO market leaders between 2014 and 2024. Their analysts say DPx Holdings and other leaders like Lonza and Catalent will experience the greatest increase in revenue between 2014 and 2024. Bottom-lining it, Visiongain notes “CMOs with specialist expertise, proprietary technology and flexible production facilities will experience market-beating growth rates over the forecast period.”

Who’s the hottest? Visiongain singled out Vetter and Lonza as two of the “best-placed” companies for high revenue growth during the forecast period. Visiongain analysts also called out Catalent and Lonza in particular as two companies that have placed considerable investment into high potency API and antibody-drug conjugate facilities, a couple of high value competencies that, at least according to just about anyone observing the industry, will help fuel revenue and growth.

“These areas are predicted to experience long-term growth in demand over of the next 10 years,” says Weymer, “and will drive growth for firms with experience and production capacity.” Similarly, say Visongain and others, competency with complex processing such as lyophilisation and pre-filled syringes will win increasing business from biopharmaceutical companies seeking partners that can demonstrate their ability to deliver such capabilities.

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