Despite rising costs associated with their services, contract development and manufacturing organizations (CDMOs) are becoming important players in the broader biopharmaceutical supply chain, according to the results of a recent survey from global consulting firm McKinsey & Company.

The good news is biopharma companies are expected to increase their reliance on CDMOs through 2030, thanks to growing demand for biologics and complex therapeutics, with biomanufacturing, cell-line development, and fill-finish services poised for growth.

McKinsey’s survey of more than 300 biopharma leaders found the outsourcing shift is “particularly pronounced” in mammalian biologics manufacturing, where the outsourced share of 2,000-liter single-use bioreactors will soon be more than 50% for both clinical and commercial supply.

However, customer loyalty in the CDMO sector is thin, McKinsey warns. In fill-finish, the survey’s average customer advocacy score was “at the low end of typical B2B benchmarks” with only three of the top 15 providers recommended by customers. In cell-line development, just five of 21 providers achieved a positive customer advocacy score, while in mammalian expression systems “most providers have more detractors than promoters.”

Meanwhile, costs have shifted from a secondary consideration to the primary factor in supplier selection, according to McKinsey. In biologics manufacturing, cost ranks as a primary selection criterion — alongside reliability and speed — while in fill-finish outsourcing decisions, low cost now ranks second among all buying factors.

Nonetheless, there appears to be no relief in sight on the cost front. Respondents to McKinsey’s survey indicated that batch prices have risen by 7% since 2020, and they anticipate additional increases for the rest of the decade.

Capacity alone is not a differentiator

It’s no longer enough for CDMOs to have “readily available and regulatory compliant capacity,” according to McKinsey, as customers are placing greater emphasis on reliability, execution, and cost competitiveness.

“Quality remains essential, but it is increasingly seen as a baseline requirement rather than a differentiator,” the firm said. “If a CDMO cannot execute flawlessly, ensure consistent compliance, and maintain baseline quality, its physical square footage doesn’t matter.”

To remain competitive in a rapidly evolving market, CDMOs must “pivot from providing capacity to delivering flawless operational performance” that improves productivity and enables efficient pricing, according to McKinsey.

But that is easier said than done in a biopharma sector where the bar for customer expectations is being raised across the board, posing a fundamental challenge for CDMOs who cannot simply lower their standards or cut corners to offer lower prices.

“Instead, meeting aggressive cost expectations requires a step-change in productivity,” McKinsey said. “CDMOs must master the invisible economics of day-to-day operations; that is, the factory-floor efficiencies and inefficiencies that don’t appear on requests for proposals or pricing sheets but that dictate a provider’s unit cost and reliability.”

CDMOs are “leaving substantial value on the table” through structural inefficiencies. Ultimately, cost competitiveness is achieved by eliminating operational waste, quality deviations, yield losses, and utilization gaps, McKinsey said, noting that quality issues — including failed batches and rework — can be 15% to 20% of the cost of goods sold.

The firm argues CDMOs must meet aggressive price expectations through lean manufacturing, scrap reduction, and improved yields.

Artificial intelligence (AI) and advanced analytics are “becoming essential tools for reducing planning variability, managing deviations, and optimizing yield,” according to McKinsey. “Over time, these capabilities will confer structural cost and reliability advantages.”

A new study by Wissen Research similarly makes the case that advances in bioprocessing, continuous manufacturing, and process analytical technologies are enabling CDMOs to have far more precise control over drug development and manufacturing than just a decade ago.

“The adoption of single-use technologies, automation, digital twins, and AI-based process optimization is improving manufacturing flexibility, lowering contamination risk, and speeding up delivery timelines for both small-molecule and biopharmaceutical products,” finds the report.