27 June 2019
Tatenda Musakanya By Tatenda Musakanya

Why Is Competition in the CDMO Market Fiercer than Ever?

The diverse and complex world of Pharmaceuticals and Contract Development and Manufacturing Organization (CDMO) is undergoing a fascinating transition. More and more pharmaceuticals are outsourcing their R&D, which is heating up competition in the CDMO market.

Today, I thought that I'd take some time to share with you a few of my own predictions about the CDMO market and write about why competition is fiercer than ever.

What’s going on?

The global pharmaceutical market is expanding with the total global spend for pharmaceuticals expected to increase to $367 billion on a constant-dollar basis by 2021, a 33% increase on 2016.

This is due to an increase in demand which has been largely driven by the world’s ageing population, the rising healthcare standards in developing countries and the increased accessibility and concern of healthcare services.

An increase in demand like this means higher revenues for pharmaceuticals, but also higher business costs. The most significant of these costs is R&D.

To minimise costs and maximise innovation, more pharmaceuticals are looking for outsourcing partners which, of course, presents a massive opportunity for the CDMO market.

What does this mean for the CDMO market?

With the CDMO market consolidating and diversifying, exciting times lie ahead for this industry.

In 2016, the CDMO industry’s 7% annual growth rate surpassed the 6% growth of the collective pharmaceutical sector, reflecting a shift toward increased outsourcing. This trend is being seen to continue today.

However, outsourcing is a costly process and high costs come with high expectations. Small and large pharmaceutical sponsors alike demand proven reliability and impeccable quality standards when agreeing contracts.

This has been highlighted in a recent study conducted by Pharma-IQ (2018), in which a lack of quality was the aspect voted most likely to lead to the end a partnership with a CDMO, attracting 66% of the votes. A contract breach and a high level of mistakes were the next two most popular options with 12% of the vote each.

To tackle the pressure of high expectations in a fiercely competitive market, we’ve seen an increase in mergers and acquisitions. This has helped companies gain greater market shares, while also ensuring consistent, quality results for sponsors. A further advantage from these mergers and acquisitions has been an increased access to technologies for the companies involved. Bristol-Myers Squibb’s $74bn acquisition of Celgene is a recent example of this happening.

My three predictions

From this light overview, you can see that competition for contracts is fierce with outsourcing a viable option for pharmaceuticals. Here’s what I can see happening going into 2020:

1.There is clear pressure on CDMOs to perform. Firms are expected to deliver exceptional results in record time and there’s little room for error. To accommodate the increased demand for high quality results, I predict that mergers and acquisitions will continue to play a significant role in the CDMO market.

2. I also predict that the contract bargaining power of CDMOs will fall. A clear motivator for outsourcing has been to minimise costs. So, with this still at the forefront of pharmaceuticals minds’ and more CDMOs fighting for contracts, we should see pharmaceuticals have the upper-hand when it comes to negotiations and outsourcing costs should lower.

3. Finally, I believe that trust will be a strong deciding factor when it comes to negotiating contracts between pharmaceuticals and CDMOs. Stakes are high and the outsourcing process is costly. Therefore, trust will have to be earned through consistently proven, high quality results. This will play into the hands of the more established CDMOs in the market: PatheonCatalentLonzaBoehringer IngelheimPCIVetterAlmacDr. Reddy’s LaboratoriesFamarRecipharm.

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Tatenda Musakanya

Tatenda Musakanya works across drug development and the wider pharmaceutical space. In his role as a Business Consultant, Tatenda particularly enjoys being able to take an objective view of the wider CDMO market, identifying trends and providing insight to clients and candidates.

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