Experts Statements: Harry Christiaens, Ardena
The Pharma CDMO Challenge
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?
Harry Christiaens: The outsourcing market fundamentals are highly favorable and are likely to remain so. There is still a strong funding environment. Increasingly, innovation shifts from traditional pharma to small venture capital-funded players who are outsourcing many of their R&D activities. There has been a significant expansion in the number of biotech companies that are focused on a business model of developing a molecule through to the proof-of-concept stage, and then selling or licensing the molecule to a pharma partner.
The development of precision drugs with higher efficacy and lower toxicity is an emerging market. We observe an increasing demand for the development and manufacturing of nanomedicines, enabling target delivery of APIs.
Which role can CDMOs play in helping pharma companies to manage development, production and supply chain cost?
Harry Christiaens: We strongly believe that a multidisciplinary approach can accelerate the drug development and approval process. At Ardena, we have integrated chemical and pharmaceutical development services on one platform. This provides customer convenience: clients do not have to deal with multiple vendors. We coordinate development programs, streamline communication and reduce any contracting burden. Moreover, by integrating our services, we are able to better mitigate development risks and ultimately reduce time-to-clinic. A siloed, serial and fragmented approach to drug development may lead to poor and delayed distribution of information, causing duplicate work and even rework, particularly in early-phase development where study design is subject to continuous change.
How do you rate the potential of value-based pricing models as a contracting strategy and how do your customers respond to that?
Harry Christiaens: Value pricing makes sense, but it needs a deep understanding of what is actually valued by a customer. Is it time, service level, flexibility, etc.? Values are likely to be customer dependent or even project dependent. Moreover, values will need to be defined unambiguously so value capture can be measured objectively upon service execution. Today we offer our R&D-services on a cost plus or FTE basis. Customers that want to secure capacity or prefer all-time flexibility are more in favor of FTE contracts.