Strategy & Management

Experts Statements: Gabriel Haering, Cerbios Pharma

The Pharma CDMO Challenge

05.09.2019 -

The pharmaceutical industry continues to grow and is estimated to be worth $1.5 trillion by 2021. One important driver is the trend towards outsourcing of development and manu­facturing to contract development and manufacturing organizations (CDMOs). What sounds like good news for CDMOs also holds its own challenges — many of these companies are operating in a highly fragmented market that is currently undergoing a significant consolidation. At the same time, many of them are not fully prepared to exploit the maximum potential and willingness-to-pay in project pricing, which calls for new and innovative monetization strategies.

Since price is the single most powerful lever to increase a company’s profits, it is high time for CDMOs to reconsider their project pricing approach. Instead of clinging to traditional cost-plus pricing logic that usually lack consistency, transparency and control, experts propose measures such as harmonizing costing methodologies, incorporating value-based pricing metrics, and systematically using internal project price benchmarks for developing a value-based price model. ­

CHEManager International asked executives and opinion leaders operating in this market to share their experience and advice. We asked the experts to discuss the following questions:

Which role can CDMOs play in helping pharma companies to manage development, production and supply chain cost?
Gabriel Haering: A simple question with a complex answer! The approach is very different depending on company size and outsourcing needs. Let us see pharma companies in three segments and approaches.
Big pharma and large biotech (with internal production)Outsourcing can be described as more tactical than strategic. Usually they have established a number of preferred suppliers they know and trust from previous experiences. Entering as new CDMO is quite difficult unless you have unique features and specialties they do not have in house or other CDMOs have.
Medium to large biotech (with no production)For them CDMOs are strategic. Expectations are for long-term partnerships supported by very close communication at all levels, from R&D team to quality team through a very strong project management system. Expectations are not only the deliverables (on time, in full), but also bringing continuous innovation and ideas for process and cost improvements. Value is very important for them.
Small virtual pharma companiesCDMOs are definitely strategic for them. However, they have limited resources (people and money) and often no experience at all. They rely completely on the CDMO know-how and expertise. As CDMO patience is needed. The project depends on financing rounds and the project can move from full speed (need the product yesterday) to a sudden halt. The CDMO needs to act as consultant suggesting what activities need to be done at what stage in order to keep the regulatory needs in line with the budget available. They look for innovative financing models since price is the key factor.
In conclusion. A project price (cost) derived from a request for proposal is different for every CDMO. What the contract giver has to consider and evaluate is the value behind it. A reliable supplier that will maintain the timelines promised that will not delay the clinical trial and potential launch date of the new drug brings value. I already said it in the past: “Price is what you pay. Value is what you get!” And our slogan describes it perfectly: Fostering Value through Innovation.