Industry Benchmark: Part 1 CDMO
Demand for contract development and manufacturing services remains strong, but initial results from the 2017 Nice Insight CDMO Survey suggests that service providers will find the marketplace increasingly competitive.
The global pharmaceutical market continues to grow at a healthy rate. According to research firm EvaluatePharma, the global drug market will expand at a compound annual growth rate (CAGR) of 6.3% from 2016 to 2022, with biologics accounting for 50% of the top 100 products by the end of the study period. Meanwhile, global R&D spending in the pharmaceutical industry will see a 2.8% CAGR. By 2022, half of the added revenues will be contributed by new products currently in the R&D pipeline.1
Strong demand for APIs is also expected. Mordor Intelligence estimates the global API market will expand at a CAGR of 6.5% from $154 billion in 2015 to $225 billion in 2021.2 These growth rates are in turn driving growth in the global pharmaceutical contract manufacturing market, including APIs and finished dosage forms, which Mordor predicts will increase at a CAGR of 6.4% from $58 billion in 2016 to $84 billion in 2021.3
Growth is not the only change occurring in the pharmaceutical industry or the contract development and manufacturing sector, however. Pricing pressures continue to mount as governments seek mechanisms for reducing healthcare costs by lowering the cost of expensive new (particularly biologic) medicines. Patients and payers are also looking for evidence of added value in new treatments.
Being first to market with the safest, highest-performing, most cost-effective products has become increasingly crucial to success for pharmaceutical companies and is creating the need for highly efficient and responsive contract development and manufacturing organizations (CDMOs) that can serve as long-term partners. Access to novel technologies for addressing drug delivery challenges is also a necessity today.
The top reasons for outsourcing to CDMOs are, not surprisingly, changing as a result. Initially, outsourcing activities were largely driven by the desire to reduce costs. That has changed significantly. Cost was not even a top-five factor for respondents to the 2016 Nice Insight CDMO Outsourcing survey.4 Improving quality and efficiency, gaining competitive advantage and operational or technical expertise, and reducing the risk of supply shortages were identified most frequently.
In 2017, drivers are different yet again. The top reason for outsourcing for participants in the 2017 Nice Insight CDMO Outsourcing survey is access to specialized technologies.5 Improving quality and gaining expertise remain important to survey respondents. However, the other two top-five reasons also changed: outsourcing has become a strategic activity, and cost has once again become a factor.
Patients and payers are also looking for evidence of added value in new treatments.
It is also interesting to note that over two-thirds of survey recipients are interested or very interested in a number of new technologies that impact day-to-day operations, including software systems to facilitate collaboration (73%), continuous processing (72%), equipment and process automation (69%), cloud computing for data management (68%) and single-use systems (68%).
The 2017 Nice Insight CDMO Survey results are based on input from over 700 pharmaceutical industry professionals representing all sizes of pharmaceutical and biotech companies (41% large, 36% medium-sized, 20% small and 3% emerging) from around the world (Europe 38%, North America 33%, Asia 29%). These companies are engaged in the development of all major forms of medicines.
More than a third of the individual respondents (37%) hold management (CEO, COO, CSO, SVP, VP) positions. In addition, 8% or more of respondents serve in quality, R&D, development, manufacturing, engineering and sourcing.
Outsourcing has become a strategic activity and cost has once again become a factor.
Changing Spending Expectations
Perhaps the most notable differences between survey results from 2016 and 2017 are the changes in the level of spending on CDMO services and the expectations for spending in the future. While 71% of respondents to the 2016 Nice Insight CDMO Outsourcing survey had outsourcing expenditures of $50 million/year or more, just 56% of 2017 survey participants indicated this high level of spending.
Furthermore, more respondents to the 2017 survey expect their companies to decrease (52%) rather than increase (39%) spending on CDMO services over the next five years; in 2016, 75% predicted higher expenditures, with just 4% forecasting reduced spending.
On the other hand, more than half (55%) of respondents to the 2017 survey expect their companies to increase the number of CDMOs they partner with. An additional 40% expect the number to remain the same. Respondents work for drug manufacturers that contract with as many as 30 CDMOs: 38% work with up to 10, 39% with 10 to 20 and 23% with 21 to 30.
What is Being Outsourced?
Despite the reduced level of spending in 2016, drug manufacturers continued to outsource a wide range of project types. CDMOs were used most frequently for the development and manufacture of small-molecule APIs and final products, including both new chemical entities (25%) and generics (21%). New biological entities were also outsourced by approximately one-fifth of survey participants (21%). Projects related to biosimilars and over-the-counter (OTC) medicines were least likely to be outsourced (17% and 16%, respectively).
Outsourcing partners were engaged at all phases of development, with phase I and II projects most common (47% and 44%, respectively), followed by preclinical (38%), phase III (34%) and phase IV and postlaunch (21%) projects. This trend is not surprising, given the high attrition rate for drug candidates as they move further along the development cycle.
With respect to the types of services sought by survey participants, drug product (58% of respondents) and drug substance research, development and manufacturing services (59% of respondents) were equally in demand. Specialized services, including those required for highly potent compounds and controlled substances, as well as sterile or contained manufacturing and regulatory compliance support, were used by 34% of survey participants. One-quarter of respondents used laboratory services for analytical and stability testing, pre-formulation and formulation studies, process development, optimization and scale-up work.
CDMOs used for drug product services were pursued most frequently for clinical- and commercial-scale solid, semisolid and liquid dosage manufacturing support (45% or more of respondents). Outsourcing of prefilled syringe and injectable dosage form manufacturing was conducted by approximately one-quarter of survey participants.
The most commonly needed services for drug substance development (more than half of respondents) included ingredient processing, clinical-scale manufacturing of small- and-large molecule APIs, and small-molecule API ingredient R&D. For projects related to biopharmaceuticals, CDMOs were most frequently obtained by survey participants for assistance with microbial cell line, vaccine and mammalian cell line development and manufacturing.
Both drug product packaging and drug delivery enhancement services were also widely cited. Commercial-scale primary and clinical-scale secondary packaging were the most commonly used services. At least a third of survey participants are seeking solutions for labeling; clinical-scale primary packaging; commercial-scale secondary packaging; the production of tubes, pouches and stickpacks; and the development of child-resistance and compliance packaging.
With respect to geographic location, outsourcing by respondents takes place around the globe. Slightly below or above one-quarter of survey participants have 6%–10% of their outsourcing projects in all regions and countries covered by the survey: Brazil and Argentina, China, Eastern Europe and Turkey, India, Japan, the Middle East, Singapore and Southeast Asia, the U.S. and Canada, and Western Europe.
What Matters to Sponsors
Faced with solubility and bioavailability challenges for novel small-molecule drugs and a keen desire to develop oral dosage forms for biologics, sponsor companies seek innovative CDMO partners with proprietary technologies that also have the flexibility to respond quickly to constantly changing market conditions and stakeholder expectations.
For that reason, drug manufacturers carefully consider many different characteristics when initially evaluating CDMOs. Approximately 70% of respondents identified a positive regulatory compliance track record, having an understanding of customer requirements, experience (operational, methodological and therapeutic), financial stability, industry reputation, cost, assurance of intellectual property protection, and risk adherence as important attributes that factor into the selection process.
After engaging a CDMO, sponsor companies continue to evaluate the performance of the supplier against a different set of expectations. Top attributes considered at this stage of the relationship include good communication and transparency, on-time delivery, quality compliance, responsiveness when problems arise, performance on safety and compliance audits, meeting project deliverables, customer service, and the willingness of the CDMO to go beyond requirements.
Survey participants also identified several areas where CDMOs did not perform to expectations. The top five sources of dissatisfaction were the unavailability of products and services, poor product or service quality (previously the top issue), incomplete and untimely completion of documentation, inadequate maintenance of security or confidentiality, and cost overruns.
Some of these issues are sufficiently serious to drive sponsor companies to switch to another CDMO, which involves significant project delays and additional costs. One-third or more of respondents would change CDMOs to obtain better quality, pricing and timeliness.
Despite the expectation of respondents that their companies will increase the number of CDMOs they work with in the near future, 88% of all survey participants were either very interested or interested in becoming involved in a strategic partnership with a CDMO in the next 12-18 months. In addition, 75% felt it was likely that a referred provider would become a strategic partner, while 66% agreed that a CDMO that started off as a tactical service provider would likely become a preferred provider.
- World Preview 2016, Outlook to 2022. Rep. EvaluatePharma. Sep. 2016. Web.
- Global Active Pharmaceutical Ingredients Market – Growth, Trends & Forecasts (2016–2021). Rep. Mordor Intelligence. Sep. 2016. Web.
- Global Pharmaceutical Contract Manufacturing Market – Trends & Forecasts (2016–2021). Rep. Mordor Intelligence. Aug. 2016. Web.
- The 2016 Nice Insight Contract Development and Manufacturing Survey.
- The 2017 Nice Insight Contract Development and Manufacturing Survey.