BRIEF: CMOs: Pharma's Heavy Lifters

When it comes to drug development and commercialization, Contract Pharma is bringing the brains and the brawn to do Pharma’s heavy lifting

By Steve Kuehn, Editor in Chief

Editor's note: this is a 60-second version of the original article. To read the full length feature, click the link at the end of the brief.

It’s always exciting to see how a given industry responds to the market’s dynamics, and for pharmaceutical contract services companies these are exciting times indeed. For the most part, contract services companies used to be the towel boys and water carriers for the industry, certainly filling key and critical roles, but leaving the “competitive” lifting to their primarily vertically structured, predominantly capacity-heavy Pharma customers.

Times have changed. According to Visiongain’s “Pharma Leader Series: Leading Pharmaceutical Contract Manufacturing Organizations 2014-2024,” in the past 10 years demand for outsourced manufacturing services grew rapidly. Pharmaceutical companies, say Visiongain’s analysts, have sought to take advantage of the benefits of contract manufacturing — namely lower costs, increased flexibility and external expertise — while focusing resources on core competencies in drug development and marketing.

CMO revenues reached nearly $16 billion in the U.S. for 2014, and according to industry sources, formulation complexity and the biologics/biopharmaceuticals sector are going to be presenting Contract Pharma with more than enough opportunities to flex their muscle in the near future. Contract Pharma’s future is being shaped by its customers who, says Price Waterhouse Cooper, continue to be attracted to outsourcing by several compelling reasons including: time-to market, cost advantages and risk management.

Competition among the Top 10 leading CMOs (who generated $5.5 billion in revenues in 2013) is tight and their strategic behavior indicates these players are seeking growth, market share and competitive advantage through acquisitions and the pursuit of operational excellence.

Drivers prompting drug owners and others to shift manufacturing capacity and supporting operations to contract services companies include increasingly complex formulations for oral solid dose forms and generics and new, complex drug delivery devices. The rise of the large molecule in Pharma and the tremendous push for biopharmaceutical development, plus the looming opportunities for producing and marketing biosimilars are all driving demand for CMO services.

Success for both drug owners and CMOs is predicated on the quality of the relationship. Most of the recent studies have found that the quality of the relationship is a key indicator of how successful these alliances will be. Costs and price aside, both those buying and selling contract services know that the surest path to poor performance and increased risk is a poorly integrated, haphazardly planned relationship.

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