Roundtable: discussing trends in contract manufacturing

Outsourced contract manufacturing in the pharmaceutical industry is stronger than ever. But how can CROs leverage their capabilities to better serve growth in new markets? Abi Millar spoke to a range of experts to find out more.


As outsourced contract manufacturing continues to grow, the need for a trustworthy partner is paramount.

Manuel Leal Sanchez, business development director at Idifarma, Erik Haeffler, vice president manufacturing services and head of CSR at Recipharm and Kevin Cook, CEO at Sterling Pharma Solutions discuss the trends currently shaping their industry

What are some of the main factors underlying the growth in outsourcing?

Manuel Leal Sanchez (MLS) – There are a number of factors contributing to the growth of the contract manufacturing industry. One of the most relevant is the increasing competition in the pharmaceutical sector, spurred by the rise of generic drugs. These demand lower manufacturing costs and margins and higher flexibility and efficiency.

Some pharmaceutical products require specific manufacturing facilities and equipment, along with the capability to manufacture small batches. This is a common reason why our customers choose Idifarma. Finally, there are many ‘virtual’ companies, which outsource all development and manufacturing activities, and need suitable CDMOs to make their business sustainable in the long term.

Kevin Cook (KC) – I think there are two main factors driving the growth within the contract manufacturing sector. The first is the growth of the emerging pharma sector, particularly in the US. Since the emerging pharma companies have limited manufacturing capabilities they rely on contract manufacturers. The second is the continuation of the trend for large pharma to consolidate and divest their internal manufacturing capacity, and move towards an outsourcing model for non-core activities.

How can contract development and manufactring organisations (CDMO) tailor their service offerings to ensure they offer something an in-house team cannot?

MLS

There are three basic considerations. First, put clients first and avoid conflicts of interests. Having your own product portfolio is hardly compatible with providing contract services. Clients demand clear business models in CDMOs and alignment with their needs is paramount.

Second, invest wisely. It’s impossible to cover all the spectrum of services and technologies that clients might demand, so it is essential to invest in differentiating capabilities that complement the client’s own capacities. Don’t be a ‘jack of all trades’!

Third, generate trust. Clients demand proven credibility in their CDMOs. If they don’t find trustworthy partners, they might opt for keeping activities in-house. It’s essential to be upfront with the client, as well as proactive when solving technical challenges.

How would you characterise the current mergers and acquisitions (M&A) landscape among CDMOs, and to what extent do you focus on M&A activity as part of your own strategy? 

MLS – There is consolidation happening in the industry, without a doubt, but this has a greater effect on the big companies than on smaller, independent CDMOs like us. For us, this trend actually opens new opportunities for growth with clients that prefer nimbler and independent partners. Idifarma is committed to organic and sustained growth on the basis of a purely contract services business model.

Erik Haeffler (EH) – There is significant change occurring in the industry structure at the moment, and clearly a consolidation theme with many opportunities in this area. We follow an active M&A strategy and this will continue to be an integral part of our strategy as a leading consolidator of the industry.

KC – The CDMO market is significantly fragmented and M&A is currently driving the market consolidation. The M&A focus of CDMOs falls into three main categories. The first is adding specific and unique technologies to provide market differentiation. The second is accessing related services to move towards a full-service provider model. The third is acquisitions into new markets to provide a global footprint. Inorganic growth forms a significant part of the Sterling strategy and we are currently evaluating a range of acquisition opportunities in all three of these categories.

To what extent have you been affected by upcoming serialisation requirements, and what are you doing to prepare?

MLS – We are getting ready in terms of both the hardware and software. It’s a relevant challenge for the industry as a whole, but niche manufacturers like us will face fewer difficulties to comply with the serialisation requirements. Bigger CMOs, with multiple facilities in different countries and continents, face a much more complex challenge.

EH – Recipharm has worked on serialisation for several years and already carries out serialisation already in markets where this is a requirement. For the upcoming legislation in the US and EU, we will be fully ready to serve our customers with serialisation solutions well ahead of the regulatory deadlines. We will also offer additional services if requested, e.g. aggregation.

Serialisation is a challenge to the CDMO industry, since it will add complexity in the manufacturing and supply chain processes. In many cases, CDMOs must find approaches that allow the packaging of several customers’ products on the same line. It is also a question of who will pay for investments – the CDMO or the customer? Our offering is based on Recipharm paying for all CapEx investments for a standard serialisation solution, minimising the need for an upfront customer investment, and then covering our additional costs by a fee-for-service model.

High potency manufacturing is a strong spot in the CDMO market, why so?

MLS – High potency is really important for two reasons: a high degree of specialisation is needed in terms of high containment facilities and the overall strategy of the CDMO, and also the regulatory requirements are stringent. There are still many big CMOs that do not have high potency capability, which is very telling.

Of course, the main driver is the importance of treating cancer. Within this space, there is an evolution towards simpler and more cost-effective forms of administration, which will have a strong impact on the costs of healthcare systems.

Generic drugs will play an important role in the sustainability of healthcare systems, and there are many drugs for cancer treatments that are going off patent in the coming years, most of which are high in value and low in volume. This will be very positive for patients, and will represent a significant opportunity for CDMOs that can manufacture these generic drugs with the required flexibility, quality, responsiveness and safety.

EH – High potency products require containment technology and specialised manufacturing expertise. Building up capabilities requires a high level of investment. Consequently, CDMOs with expertise in containment and the management of potent products can offer an attractive alternative to in-house manufacturing for customers.

KC – The key challenge for the CDMO sector is understanding the potency and associated occupational exposure limits of individual products, and then having the internal expertise to handle them safely.

Where do you see the greatest opportunities for growth, both geographically and in terms of market segments?

MLS – Idifarma still has great growth potential in Europe, which represents almost 50% of our business. We already have a significant client base in Central Europe, with Germany as our top international market, but there are still many opportunities. Our challenge for the near future is the US market. Currently, over 30% of our ongoing contract development projects are targeted to US clients.

We are also developing and manufacturing products for clients in Australia and the MENA region, and we are confident that the European quality reputation will also help to generate business in Central and South America.

EH – We see growth in many areas. Firstly, the underlying pharma market continues to grow. There are clearly opportunities in the biologics sector, which tends to be very capital intensive and is a prime candidate for outsourcing. Difficult-to-manufacture technologies also represent significant growth opportunities. From a geographic perspective, emerging markets probably represent one of the most significant areas of growth even though the absolute numbers are somewhat lower than developing counterparts.

KC – The biggest opportunity is within the development sector in the US. The emerging pharma sector continues to thrive in the US due to the financial funding structure and medical sciences infrastructure.

Can you discuss any other key market trends?

MLS – In an extremely regulated market like the pharmaceutical industry, compliance with regulatory requirements is essential. This represents both a challenge and an opportunity for nimble CDMOs like Idifarma.

We are also witnessing a loss of trust in providers from other continents, which have been traditionally very common for contract development and manufacturing activities. We have found that several clients prefer to work with European partners that are technically very competent, without cultural barriers, and even in many cases similarly cost-effective.

Finally, we also see a trend towards greater integration between clients and suppliers, which requires closer relationships underlined by trust, transparency and frequent and reliable communication.