Sep. 11, 2019
TopicsStrategy

Experts Statements: Michael Quirmbach, CordenPharma

The Pharma CDMO Challenge

  • Michael Quirmbach, CEO & president, CordenPharmaMichael Quirmbach, CEO & president, CordenPharma

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?

Michael Quirmbach: As the pharmaceutical industry is evolving towards targeted drug delivery platforms with a much stronger strategic focus on niche indications, the molecules which are being developed as a consequence tend to be more complex — e.g. gene cell ­therapy, biologics, ADC’s, oligonucleotides, and peptides — just to name a few hot areas. This trend requires a very different range of development and manufacturing capabilities to ensure these new drugs will be cost-effective and efficiently produced.

This is where CDMOs today play a major role — by providing expertise not available in-house at biotech / pharma companies. Furthermore, the increasing complexity and necessity to both reduce time-to-market and development costs make it nearly mandatory to rely on outside expertise and collaboration with strong, well-run CDMOs. Both large & small pharma companies are therefore evaluating strategic, integrated partners who can seamlessly deliver on multiple projects, thereby reducing the complexity of their supplier network. Currently, the pharma CDMO industry benefits from continued demand in many areas such as injectables (combination products), high-potency, and oncology and biologics.

Which role can CDMOs play in helping pharma companies to manage development, production and supply chain cost?

Michael Quirmbach: CDMOs support pharmaceutical companies by either providing a single development or manufacturing service (API or drug product) in their area of expertise, which the pharma company lacks, or by becoming a strategic partner on multiple projects with broader product offerings, including the ultimate end-to-end service model. In particular, the latter has ­gained increasing interest due to the number of high-profile acquisitions within the CDMO industry. This growing demand for enhanced capabilities, greater capacity and oftentimes global reach will continue heading towards the full-service supply chain model for CDMOs, making them a recognized and respected strategic partner to their pharma customers. This is a great opportunity for the pharma companies to potentially simplify their manufacturing and distribution network, reduce their resources, and ultimately accelerate development and manufacturing within transparent cost control parameters.

How do you rate the potential of ­value-based pricing models as a contracting strategy and how do your customers respond to that?

Michael Quirmbach: In the past we saw value-based pricing principles less utilized in the CDMO industry. However moving forward, I expect that will change as the normal evolution of our industry reflects CDMOs moving away from simply being transactional low-value service (one-time) providers to delivering more sophisticated, value-added strategic services & technologies. This also means the compensation model requires adjustment and flexibility on both sides — allowing the CDMO to continue investment in know-how and infrastructure, while also capturing a fair share of the value added as part of their enhanced contribution, collaboration and support.

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