Strategy & Management

Experts Statements: Garrett Dilley, Johnson Matthey

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:

How would you describe the current market situation for pharma CDMOs and which trends affecting your project pipeline do you see?

Garrett Dilley: The CMDO market is greatly affected by the evolving pressures on pharmaceutical companies. One result of these pressures is an increase in the development of treatments for rare or orphan diseases with smaller patient popula­tions. The average drug launch is now worth approximately $250 million in annual sales (DCAT presentation, Graham Lewis, IQVIA, March 2019). This provides a construct where most potential launches deliver less than the net present value that large pharma companies typically require in their models.

There has been a shift since 2011, when small and mid-sized companies were driving a lot of the discovery stage but partnering with larger companies for commercialization. Data from 2018 shows that now small and mid-sized companies have been increasingly progressing therapeutics through to commercialization. We have seen a corresponding increase in the number of APIs and intermediates in our pipeline alongside an increase in the number of small and mid-sized company sponsors.
Small and mid-sized drug companies pride themselves on being fast and nimble. They focus their capital on moving therapies through the clinic quickly and less on building end-to-end in-house development and commercial manu­facturing operations. So, they benefit from the advantages a strong CDMO like JM can provide in that regard; excellent development capabilities, broad technology offerings, years of experience across numerous development programs and launches, and a global footprint of well-established FDA inspected facilities.
At the same time an industry shift towards increasingly large and complex molecules has also created new pressures for drug developers, especially in regard to bioavailability. Recent research estimates that as many as 60% of new molecules in clinical development demonstrate poor bioavaila­bility. To address this need JM continues to invest in its particle technologies, building on its long-standing experience in solid form sciences.
We offer a suite of techniques for identifying and characterizing salt forms, polymorphs, and co-crystals, as well as crystallization development. These techniques, along with our capabilities in milling, micronization, and spray drying, help our customers to arrive on the ideal physical form of their API.