Outsourcing Trends: What CMOs Need to Know

06 June, 2017

CMO2 Image.jpgThere’s both good news and bad news for today’s Contract Manufacturing Organizations (CMOs). The good news is that outsourcing is a trend that appears to be remaining strong. Pharmaceutical companies and biotechs realize that outsourcing manufacturing responsibilities can reduce overall costs by 30 to 35%, as well as reduce problems faced during the regulatory process.

The other good news for US-based CMOs is that prices are rising in India and China, making them less competitive. Also, sponsors recognize that when dealing with complex science, collaboration is important, and that’s much harder to achieve when sponsors and service providers are separated by oceans, time zones and language barriers.

However, there are developing trends, such as uncertainty with the new presidential administration and increased consolidation, which may increase risk. Pharmaceutical companies also often have concerns regarding loss of control in processes and proprietary knowledge, managing complicated and long distance collaborative third-party relationships and delays due to regulatory hold-ups and flawed processes.

To more fully understand the trends and challenges facing today’s CMOs, we reviewed an annual study conducted by Contract Pharma that surveys both sponsors and service providers regarding the state of the pharmaceutical outsourcing industry. In the 2016 study, 315 industry professionals responded to the survey. Forty-two percent of the respondents were from pharmaceutical sponsor companies and the remaining 58 percent represented service providers.

Figure_1.jpgWhen asked whether there was an increase in demand for outsourcing over the previous year, 73 percent of respondents answered yes. The number one reason for this, according to 41 percent of respondents, is to focus more on core competencies. Pharmaceutical company sponsors say they are also outsourcing more because they are virtual (30 percent), while a significant number say they lack the capabilities in-house (14 percent).

When asked whether they thought this trend would change over the next few years almost three quarters of respondents said they did not expect to see a reversal. In fact, much of the industry data indicates that outsourcing R&D efforts to academia and contract manufacturing organizations is only expected to increase.

Outsourcing efforts include analytical and testing services, clinical trials, formulation development, as well as a wide spectrum of drug development processes.

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Despite growth in outsourcing, both sponsors and service providers point out ongoing challenges in outsourcing relation­ships. The top issue for sponsors continues to be communication and culture.

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It’s not surprising then that when sponsors are seeking a relationship with a CMO, they are looking for a true partnership.

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When service providers were asked if they were seeing an increase in demand for outsourcing, 73 percent responded yes. According to service providers, most of the demand (51 percent) is coming from mid-sized diversified pharma companies. Second and third in demand for service providers are large biopharmas and small pharma companies.

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And when service providers were asked about their top challenges working with sponsors they cited unrealistic deadlines and insufficient information at the top of the list.

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When sponsors were asked what factors influenced their selection of a Contract Service Provider, quality and consistency of performance ranked highest.

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The study also showed that sponsors are also using contract service providers as secondary suppliers, with 46% saying they are using them for APIs, 39% for commercial supply, 37% for clinical materials, while twenty-three percent say they are not using providers for any secondary supplies.

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And, when asked how likely a sponsor was to outsource a project to India or China the responses were mostly highly unlikely or rather unlikely. This is a shift from the results of a Pharmaceutical Processing study conducted several years ago that reported that almost 75% of respondents would consider using a CMO based in another country. 

Figure_17.jpgTo improve efficiency and increase productivity, reliance on contract manufacturing organizations (CMOs) and contract research organizations (CROs) is likely to continue to increase. However, according to a study conducted by Applied Chemical Trials, the selection of clinical CMOs/CROs by sponsors seems more focused on matching chemistry, ie, that they can work with the CMO (63%); followed by the perception of dedication (62%); experience in the same indication (61%); and CMO overall experience in the study’s therapeutic area, but hardly any weight is given to Good Clinical Practice or Good Pharmacovigilance Practice compliance.

To find out how a virtual data room can facilitate collaboration between pharmaceutical sponsors and service providers, click here.