What’s Driving the CMO Market? – The Opportunities and Challenges Ahead

CMOs help biotechs accelerate their development timelines and position them for commercial success.

Posted: July 28, 2016

API Manufacturing and Pharmaceutical Manufacturing

Judging by a resurgence of IPO activities since the new year and increasing product commercialization news in the pharma and biopharma industries, the future of these industries is clearly on the rise. And as the market for generics continues to heat up, so too does the role of CMOs as strategic outsourced development partners. CMOs help biotechs accelerate their development timelines and position them for commercial success. But what are the drivers of this resurgence in activities? What makes the role of the CMO ever more important in 2016? And what are the challenges that lie ahead?

According to a report from Mordor Intelligence, the market for CMOs is expected to increase from $58 billion in 2014 to $84 billion in 2020. The use of CMOs clearly enables sponsors to accelerate product timeframes, reduce costs in order to better compete internationally and efficiently address regulatory and compliance issues. The market for CMOs will continue to grow in 2016 because of several key factors:

  • Growth of generic drug market. As drugs costs continue to rise, the growing demand for lower cost alternatives to novel therapies will surge. The reasons include the time and investment necessary to bring ever-more complex drugs to market, as well as rising GDUFA fees and increased oversight. Since many traditional pharma companies lack such expertise, they may turn to CMOs who have the expertise in developing and manufacturing generics and biologic drugs including biosimilars. Yet even in the generics space, prices continue to soar, partially due to acquisitions and consolidations in the pharma industry, which leads to less competition, as well as a shortage of raw materials for generic drugs.
  • Increasing global demand. As incomes rise and populations age, medicine is in higher demand than ever before. Because of this, there has been a more robust pipeline of drug candidates and an increasing rate of FDA NDA/BLA approvals. Pharma firms are working aggressively to be the first to bring new therapies to market, and capitalize on the increasing opportunity. The expertise of CMOs lends itself to the increasing complexity of both small- and large-molecule drugs and highly potent compounds that require specialized skills and capabilities.
  • Deluge of start-ups. As opportunities abound for pharma firms, there is a growth in small, virtual startups with no manufacturing capacity and few internal resources. They are turning to CMOs to provide not only the skills but labs and other physical resources.
  • Looming patent expiries. As aging patents begin to expire, and competition heats up, pharma firms are recognizing the urgency in leveraging novel, proprietary technologies to achieve product differentiation – expertise and resources provided by CMOs. For this reason, we can expect to see many CMOs transform from providers of niche expertise and manufacturing capabilities to providing integrated services that help sponsors meet aggressive timelines.

There are huge growth opportunities for CMOS since many sponsor companies do not have access to all of the state-of-the-art technologies that are necessary to develop and commercialize complex APIs and formulated drug products. CMOs provide an efficient and cost-effective way to gain access to the most advanced technical solutions. As a result, CMOs are focused on providing advanced technical capabilities, and innovative technologies that have the greatest chance of attracting sponsor firms. As sponsor firms continue to pare down their vendor numbers and establish strategic partnerships with fewer, integrated suppliers, technological capabilities will only become greater differentiators.

While there continues to be great opportunity for CMOs in 2016, they continue to be confronted with key challenges that require they continuously reinvent themselves. These challenges include:

  • Recruitment and Training: One of the most pressing challenges for CMOs is recruiting and training the next generation of technical employees. Salaries aren’t always as high in CMOs, as in biotech/ pharma sponsor sectors, yet opportunities abound for young scientists, through more intense, hands-on-learning within a variety of projects. CMOs are challenged with finding the right candidates with the expert credentials, who also have the flexibility and agility to adapt to different projects, cycles and phases within such as outsourced environment.
  • Funding: With so many companies increasing their outsourcing, one of the challenges virtual pharma companies face is that they need drug substance for toxicological studies, yet investors may be holding back funding until certain successful milestones are achieved. Investment decisions need to keep pace with the realities of the clinic. Additionally, as regulations continue to constantly change, more work needs to be done to keep pace, which requires additional investment. As the market intensifies, CMOs must learn to better collaborate with sponsors, consultants and other partners to ensure proper funding of each step of the way during early stage development.
  • Inequitable policies that inhibit competition: The high cost of new drugs is a bigger issue in the U.S. than the rest of the world because the U.S. lacks the same price controls that Europe and Japan offer. And because companies can charge more for the same medicines than they can elsewhere, the industry relies on American patients to subsidize the necessary investments to go from discovery to FDA approval. Further, under current FDA policies, closed distribution loopholes provide a virtual monopoly even after the patent has expired for drugs like Daraprim, which enabled its U.S. manufacturer, Turing Pharmaceutical, to raise the per-pill cost of the drug. The FDA needs to look into the closed distribution loophole and to talk with its counterpart agencies like the European Medicines Agency to address the unfair financial burden placed on U.S. consumers who subsidize the drug costs for patients in other countries.

As the opportunity for pharma and biopharma firms to seize market share and bring much-needed drugs to market continues to accelerate, CMOs are sharing in the excitement and rewards. Those that can adapt to changing product developments and regulations, bringing innovative technologies and wide-ranging expertise to bear on critical projects will come out on top.

Related posts:

The factors that drive up the price of drugs
Time to address price hikes in US generic drugs
Three Questions to Ask Your CMO about Standard Operating Procedures
Coming Clean on Quality in the Chemical Manufacturing Lab
The Long Paper Trail of Documentation in API Manufacturing

About the Author

Ed Price CEO of PCI Synthesis
Ed is the President and CEO of PCI Synthesis (PCI), he serves as a co-chair of the New England CRO/CMO Council and sits on the Industrial Advisory Board for the Department of Chemical Engineering at UMass, Amherst. Ed is also a long standing member of the American Chemical Society and advises the Bulk Pharmaceutical Task Force of the Society of Chemical Manufacturer’s and Affiliates (SOCMA).

Do you have questions? Talk to Ed.