What are the Benefits of Expanding CDMO Capabilities
With aging populations in industrialized countries and greater access to healthcare for emerging countries, the pharmaceutical industry is on a huge growth curve. As part of that, the CDMO segment also needs to match the increase in manufacturing demand. Today though, it’s a very fragmented sector with the top companies only covering 15% of the market, according to PWC. Consolidation is therefore the next natural step. This raises strategic questions that all CDMO must face, including how to benefit from expanding their capabilities.
CDMO Market Trends
Another interesting trend is the rise in outsourcing from pharmaceutical companies to any Contract Development and Manufacturing Organization. This enables a pharmaceutical company to save costs, simplify their operations and reduce their time to market. As they become more commercial, this drives certain market changes, as detailed below:
- Growth and Mergers & Acquisitions
- Regional funding impact
- Sterile liquids demand
Growth and Mergers & Acquisitions
Biotechnology and pharmaceutical companies are leading growth with major technological breakthroughs, for example, stem cell therapy. As a result, CDMO services are in greater demand than ever before putting them on a CAGR growth rate of 6.9%, according to PWC. Not only does this overtake pharmaceutical companies but it also lends itself to mergers and acquisitions. After all, an exceptional CDMO business could be a major competitive advantage.
Regional funding impact
Clearly, any CDMO needs capital. Whilst Asia Pacific is gradually entering the market, with China and India leading the curve, most funding still comes from the US. Moreover, it remains the key region for biopharmaceutical outsourcing.
Sterile liquids demand
To date, pharmaceutical companies have mainly focused their drug development efforts on solid drugs such as capsules and powders. On the other hand, formulation development for sterile liquids is on the rise. These include producing fluids for intravenous drips as well as the more avant-garde stem cells. This demand will only increase as research and our expertise in biopharmaceutical products also keeps developing.
Advantage of CDMO Expansion
Just like any business, a CDMO must provide competitive services for a profit in order to survive. As the industry starts consolidating, any CDMO is under pressure to adjust its strategy accordingly. One aspect is to consider the capabilities it provides, along with possible expansion. The possible benefits could be as follows:
- Competitive advantage
- Meet rising demand
- Greater profits
A consolidating market presents opportunities for partnerships with pharmaceutical companies with the potential for funding support. Alternatively, a CDMO could explore vertical integration. For example, a CDMO tends to focus on the last phase of manufacturing but there’s nothing stopping them from getting more involved with CRO drug production which some companies are already doing. In general, they bring their manufacturing expertise whilst also being able to develop the manufacturing operations for that drug slightly earlier in the overall drug development process.
Meet rising demand
A CDMO that can offer a wider range of services, including increased manufacturing capabilities with development services, will be better positioned to meet rising demand. For example, they could partner with pharmaceutical companies to support them with the small-scale production of clinical samples.
Other services include investing in new technologies for more advanced packaging. Ultimately, it’s about demonstrating that the CDMO can cope with rising demand whilst offering state-of-the-art services. That way, they fend off potential acquirers and keep control of their destiny more easily.
Every business knows that you have to invest for long-term strategic growth. Of course, the challenge is balancing that approach with the need for short-term capital and clients today. Whether a CDMO finds funding through partnerships or by diversifying its services, increased manufacturing capabilities will help the business grow its profits.
This is particularly true today now that a CDMO can apply Lean Manufacturing principles and create a continuous manufacturing process, or a moving line. This means that products move through an integrated equipment train where materials are available exactly when they’re needed. This removes waste, reduces stop times, and increases flexibility and delivery effectiveness.
Key Takeaways for an Expanding CDMO
It’s both an exciting and a daunting time for any CDMO. A consolidating sector puts huge pressure on any business but it also offers opportunities needed to stay competitive. A CDMO who can balance today’s need for clients and cash by finding sources of funding to invest in the expansion will be masters of their destiny. Overall, a CDMO team should be creative in looking for partners on projects or for vertical integration opportunities.
On the flip side, it’s worth remembering that acquisition can be better for a team in the long run rather than bankruptcy. Sometimes, we need to let go of the current state in order to move with the times. How the team adapts is then up to the CDMO. Either way, the possibilities are there so stay nimble and keep talking to those in the industry. The right approach and next-step decision will naturally become clear.