From JP Morgan: CDMOs Have A Change Of Heart

By Louis Garguilo, Chief Editor, Outsourced Pharma

The first part of Kurt Nielsen’s analysis of this year’s J. P. Morgan Healthcare Conference ended on a relatively positive note vis-à-vis the development and manufacturing outsourcing industry.
Let’s get right back into it (with some editing for space and continuity).
Focus On Core Strengths
“A positive sentiment I detected comes from CDMOs understanding it’s best to focus on what they are really good at [versus adding capabilities or M&A to appreciably increase service offerings].
There's a culmination effect with this focus.
Companies are reaching the point where they stipulate, ‘I'm still really good at all the things I have always been good at. Let me focus on growing in those areas.’
Obviously, there are some CDMOs chasing, for example, GLP-1 opportunities, and many will be successful with what is happening there.
I do think some companies who have installed that capacity, for whatever reasons may not get the business. However, there are other interesting trends of which they can take advantage.
For example where infusion products are increasing, and there are going to be conversions into subcutaneous products. That’s going to then use pre-filled syringe capacities.
Maybe it's not the volume of GLP-1s, but that adjacent innovation is happening, and will be captured at CDMOs.
You get innovation with bispecific and trispecific monoclonal antibodies, RNA-based therapeutics, and many other innovations and modalities maturing and where capacity is going to get utilized.
When it comes to oral-dose products, there was a fair amount of talk about serving national-brand OTC companies and doing that well. That’s an opportunity.
Back to GPL-1s for a second, there was more than a rumble around what's going to happen with oral-dose products.
Altogether, a lot of this gets CDMOs back to what they do best, and at the same time staying innovative and competitive.
There’s also a small but growing chorus of ‘visionaries’ – that’s what I’d call them – who are talking about an integrated drug development model (i.e., CRO + CDMO) that is different than an end-to-end service offering model.
As a CDMO, being big allows you to offer every service your customer could possibly think of – the end-to-end model. At the least from an atmospheric standpoint, your customer needs fewer suppliers.
But there are all kinds of other challenges that get created when a company gets to that size and offers you ‘everything.’
So this contrary idea of being focused on on-time delivery of whatever the handful of things you're really good at can have more of an appeal to biopharma customers.
This more strategic drug development model is an idea coming of age, and will be enabled by operating at scale with better communication [AI can help here], and driving a frictionless relationship that works to seamlessly deliver an integrated solution.”
You’re Not Fungible With Customer Service
“At the same time, something I found interesting was more people I talked to at JP Morgan said we are near the point where CDMOs – what they do in terms of manufacturing – are fungible.
‘Fungible’ meaning there isn't a whole lot that's differentiating about being able to make 7,500 prefilled syringes in an hour. Obviously you must meet critical criteria, but once you do, then I could buy from any of 25 different vendors.
Other than geography preferences such as where you're buying your product and where the market is, there are plenty of options.
Therefore, more CDMOs are talking seriously about this challenge of differentiating by acknowledging that to be different or better, ‘You need to provide better customer service.’
That I thought was interesting, because still today more than a handful of CDMOs just don't use that vocabulary of customer service. And that to me is surprising.
But this year at the conference, I would say within half of the conversations I had, people were stressing the idea of, ‘Look, we've got to deliver what we promise.'
'We have to deliver on time. We’ve got to follow through with what we say we must do to advance the project, and we need to communicate more with the customer.'
The feeling that customer service stood somewhat alone as the area to differentiate yourself as a CDMO was more prevalent this year than any year in the past.
Less Complaining (About Sponsors)
[I asked Nielsen if during his conversations with CDMOs, there were themes related to the statement, ‘I wish our customers would do XXX better.’ It took him a good 30 seconds to start his reply.]
“Well, I think just the fact that I've got to search my recollection for something demonstrates there isn't an answer that pops up right away.
I didn’t hear much in answer to a question such as, ‘What’s missing in the relationship with our best customers.’
CDMOs were not, shall we say, grousing. There wasn't a lot of complaining about this or that.
Not to over interpret this, but I think that’s because today we have the outsourcing model down quite well, but also since many CDMOs have been on a diet – and not because of GLP-1s! – but as we discussed earlier, the money's been harder to come by for clients, and thus less projects coming in compared to pre-COVID years.
CDMOs may be a lot more grateful for what does come to them in terms of projects than they may have been in the past.”
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Also: Click here for Part 1