Therefore, organizations are being forced to not only look at top line revenues but bottom line costs as well. In such situations, it is but natural to turn to the experience of other industries that have gone through such tectonic shifts in their business landscape – in particular, contracting out of non-core business activities, with the objective of controlling costs. This is not a new concept, neither in the pharma industry or elsewhere. But it has definitely found renewed focus and interest in recent times, as the global economy limps from one crisis to another. With this trend attempting to now fundamentally restructure the industry, it is imperative that various nuances at play are better analysed – to aide major players as well as start-up evangelists alike – in taking a considered view on whether or not they should become active participants.

Drivers for Contract Manufacturing

In the pharmaceutical industry parlance, a contract manufacturing organization (CMO) is a company that provides various business relevant services on a contractual basis. These may include activities as varied as pre-formulation, formulation development, stability studies, method development, pre-clinical and phase1 clinical trial materials, late-stage clinical trial materials, format stability, scale-up, registration batches and commercial production, etc.

From a demand perspective, contracting out non- core and relatively commoditized activities de nitely helps pharmaceutical companies better manage costs, at the very least. It also frees up or redirects valuable human and capital resources that can instead be focussed on strategic business activities like drug research and discovery or sales and marketing.

Cost and process e ciency is the bread and butter for a quintessential CMO. The business model of CMOs hinges on being able to aggregate demand across multiple companies and become more effective by leveraging economies of scale, thus providing improved solutions and service levels. Additionally, they may also be able to drive costs down by servicing demand from geographies with cheaper labour or capital costs required for scaling infrastructure and building capabilities.

It will however be myopic to view this trend to be purely focussed on delivering cost efficiencies, especially in the pharmaceutical industry that heavily relies on scientific and technical expertise at each step of the process. The next blockbuster drug can falter at the altar of manufacturing, if not done right. Rami cations of such errors can also be extremely severe, with both money and lives at stake. In many cases therefore, the decision to engage a CMO has to be strategic, and in more ways than one.

In the way that business has been traditionally conducted, innovation dramatically loses its appeal post the R&D stage. In a rush to launch, pharmaceutical companies have attempted to scale up laboratory methods to industrial scale, rather than re-imagining the path to commercialization. Very few firms have cared to include top manufacturing people on their executive boards either. As long as manufacturing is relegated to simply being a compliance matter or an inevitable check in the box for getting the product out, change will be slow. While this is partly understandable, saddling manufacturing with ine cient techniques and unsuitable equipment will however almost never be a justifiable business decision in a cost-conscious environment.

Although early research and development is arguably still the harder and time consuming part of taking a drug to market, manufacturing comes with its own challenges. For instance, just producing the active ingredient of a chemical dug can take a number of iterations before being perfected and will still involve multiple reactions, while subsequent formulation and packaging may have additional considerations. Further, there are regulatory requirements to be met. In the US for instance, FDA registration of the manufacturing process is a key and sometimes be lengthy step before medicines can be marketed - involving elaborate procedural checks to ensure that safety, dosage and quality controls are in place and can be e ectively monitored post commercialization. To add another layer of complexity, such regulatory oversight and requirement will also vary by geography. While cost e ciency is a critical hallmark of a good CMO, one with the appropriate experience and expertise can also play a key role of strategically partnering with the pharmaceutical company in reducing the time to market or providing a relatively easier access to geographies that are tightly regulated from a quality control perspective.