Biopharma, CDMOs Don't See Eye-To-Eye On Long-Term

By Louis Garguilo, Chief Editor, Outsourced Pharma

The Drug, Chemical & Associated Technologies Association (DCAT) is allowing me to present Outsourced Pharma readers some data I found intriguing within the pages of its most recent, member-only (I’m one) Benchmarking Study. The press release for the study, titled “Examining the Current and Future Alignment of the Pharma Customer–Supplier Relationship,” is here.

The intrigue for me took shape slowly – isn’t that how intrigues develop? It was also aided during a webinar on the study, featuring Robert Discordia, Ph.D., Vice President, Pharmaceutical Development & Manufacturing, Corbus Pharmaceuticals, and Chairman of DCAT’s Research & Benchmarking Task Force. (Discordia is also an important Outsourced Pharma Editorial Advisory Board member).

So here goes: After all the jaw-boning, modeling, conferences (including ours at Outsourced Pharma), reports, articles, and analysis … biopharma customers and CDMOs still don’t see eye-to-eye on the topic and practice of “long-term” service and business relationships.

I think we now have a better idea why.

First, A Word About The Study

The third annual DCAT Benchmark study provides some in-depth analysis of the current “and near-future imperatives” for drug owners and suppliers, highlighting areas of alignment and misalignment, and opportunities for improvement. Executives from pharmaceutical companies and CMOs/CDMOs were asked for perspectives on areas of critical interface between the two sides, including business models, integration and communication.

Define That Again?

The biopharma companies participating in the DCAT study nearly universally defined “strategic partners” simply as those service providers with which they sustain a “long-term relationship.” Simple, but understandable enough.

However, on the other side of the equation, the CMOs were divided on the definition. Some CMOs agreed with the idea of continuation as strategic, if you will. But a significant number of CMOs defined this in more of a “key account” sense, i.e., with a focus on actual financials and increasing transactions.

For example, when asked the key elements that define a strategic relationship, just over half (51%) selected “growth of revenue from customer.” Conversely, only 17% of the biopharma companies surveyed responded, “growth of spend with supplier” as key.

So what was most important in defining a strategic relationship? Biopharma companies said: Criticality of materials from a supplier (78%). CDMOs said: Continued business from customer (70%).

What’s this say to me? Probably what it says to you when you think over those responses:

Biopharma rely on CDMOs for services and materials; CDMOs are the means to an end.

CDMOs rely on biopharma for revenues; Biopharma are an end to a means.

Consequently, if biopharma really wants to think “strategically” about its (long-term) relationships with CDMOs, it needs to understand this: Long-term stability with a supplier (the definition of “strategic” for biopharma) is in fact predicated on providing that CDMO increasing amounts of work, and increasing amounts of revenue.

And there we have it; cold, hard, buyer-seller fundamentals. Any long-term “relationships” not addressing the CDMO’s ability to affect these two outcomes (i.e., more work and revenues) from you the customer, are actually built on shifting sands.

A Head’s Up On The Future?

As Discordia highlighted during the webinar, there are important “areas of divergence” when it comes to considering how the two sides could better communicate, in order to help create more meaningful long-term partnerships.

Eighty-three percent of CDMOs said that an area to improve communication-wise was,  “Greater visibility of a biopharma customer’s long-range strategy.”

In contrast, only 39% of biopharma companies thought sharing their long-term strategy with their suppliers was important.

You read that correctly: a mere 39%. Apparently this is biopharma’s message to “strategic” CDMO partners: “When it comes to our business plans and forecasts, we’ll keep them mostly to ourselves.”

Why this decision not to share? Out of concern information might leak from the CDMOs? Because of a lack of meaningful, supply-chain visibility longer term?

More likely – and here is the real intrigue – it could be precisely because biopharma customers know that CDMOs are always looking for more work and revenue (as the DCAT study says); keeping long-range plans close to the vest can help customers maintain leverage in future or on-going negotiations.

The obvious counter here, of course, is that this strategy can in fact impair a customer’s attempt to capture future CDMO equipment and capacity. The very carrot of additional work and revenue opportunities can assist the CDMO in understanding the relationship, and being prepared to meet more strategic and long-term goals.

So it looks like we’ll just have to keep plugging away at the dynamic of drug development and manufacturing outsourcing relationships. Perhaps this DCAT study helps us move forward.