The global pharmaceutical companies will continue to look at China and India for their outsourcing activities for both research and development and manufacturing. This is because of demographic profiles of these two nations. With vast populations, these are also likely to become the growth markets for them in the not so distant future. Engaging with these CMOs therefore helps to not only test the market but also accelerate the subsequent scaleup.
Long-term success of a pharmaceutical company is very closely linked with its ability to consistently research, patent, develop and market new drugs that can tackle as yet incurable diseases, or at the very least make them a little more a ordable to the population. However, with the threat of an impending patent cliff in the last few years, real trouble has arguably been brewing and business warrants a re-imagination. Other than these expiring patents, companies also need to worry competition and squeezed margins because of generics ooding the markets, as well as tighter regulations because of renewed government focus on quality as also an evolving public awareness.
Therefore, organizations are being forced to not only look at top line revenues but bottom line costs as well. In such situations, it is but natural to turn to the experience of other industries that have gone through such tectonic shifts in their business landscape – in particular, contracting out of non-core business activities, with the objective of controlling costs. This is not a new concept, neither in the pharma industry or elsewhere. But it has definitely found renewed focus and interest in recent times, as the global economy limps from one crisis to another. With this trend attempting to now fundamentally restructure the industry, it is imperative that various nuances at play are better analysed – to aide major players as well as start-up evangelists alike – in taking a considered view on whether or not they should become active participants.
Drivers for Contract Manufacturing
In the pharmaceutical industry parlance, a contract manufacturing organization (CMO) is a company that provides various business relevant services on a contractual basis. These may include activities as varied as pre-formulation, formulation development, stability studies, method development, pre-clinical and phase1 clinical trial materials, late-stage clinical trial materials, format stability, scale-up, registration batches and commercial production, etc.
From a demand perspective, contracting out non- core and relatively commoditized activities de nitely helps pharmaceutical companies better manage costs, at the very least. It also frees up or redirects valuable human and capital resources that can instead be focussed on strategic business activities like drug research and discovery or sales and marketing.
Cost and process e ciency is the bread and butter for a quintessential CMO. The business model of CMOs hinges on being able to aggregate demand across multiple companies and become more effective by leveraging economies of scale, thus providing improved solutions and service levels. Additionally, they may also be able to drive costs down by servicing demand from geographies with cheaper labour or capital costs required for scaling infrastructure and building capabilities.
It will however be myopic to view this trend to be purely focussed on delivering cost efficiencies, especially in the pharmaceutical industry that heavily relies on scientific and technical expertise at each step of the process. The next blockbuster drug can falter at the altar of manufacturing, if not done right. Rami cations of such errors can also be extremely severe, with both money and lives at stake. In many cases therefore, the decision to engage a CMO has to be strategic, and in more ways than one.
In the way that business has been traditionally conducted, innovation dramatically loses its appeal post the R&D stage. In a rush to launch, pharmaceutical companies have attempted to scale up laboratory methods to industrial scale, rather than re-imagining the path to commercialization. Very few firms have cared to include top manufacturing people on their executive boards either. As long as manufacturing is relegated to simply being a compliance matter or an inevitable check in the box for getting the product out, change will be slow. While this is par...
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