From The Editor | August 16, 2021

Market Mash: Bigger CDMOs, Smaller Biopharma Customers


By Louis Garguilo, Chief Editor, Outsourced Pharma

Fighting hands breaking glass-iStock-1158205918

The fundamental challenge in today’s drug development and manufacturing outsourcing space is a misaligned market.

  • Consolidations, and the appending of service offerings, has increased the footprint and scale of contract development and manufacturing organizations.
  • At the same time, CDMO customers – emerging biopharma of all stripes – shrink in size via now-mature, virtual/lean models of operation. And for the most part, they stay shrunk even as programs progress to commercial.

The same phenomenon has catalyzed the incompatible directions: total acceptance of outsourcing as business model of choice.

So established CDMOs grow along with the perceived increase in market opportunities, while more biopharma entrepreneurs start out earlier and stay leaner to take advantage of a maturing outsourcing industry.

Something has to give.

Actually, that give has begun.  

Model Shifts

Perhaps since the advent of the outsourcing model, we’ve not seen more start-up biopharma organizations considering building instead of buying.

This is the first market shift.

Significant to its progress: Experienced biopharma executives at the helm of many of these start-ups, as well as their early investors and stakeholders, are willing to build instead of outsource as a natural reflex.

This is driven by these and other laments from executives at start-up (and more established) biopharma:

  1. CDMO consolidation means less outsourcing optionality and fewer “right-sized” service providers.
  2. Bigger CDMOs don’t take them seriously – there’s more competition for the same services, often from Big Pharma (with more funds and programs).
  3. Large CDMOs don’t have flexible business (and contractual) models responsive to the needs of today’s biopharma industry entrants – particularly in regards to smaller material needs, and overall speed through development to commercial. 
  4. Elongating CDMOs claim expertise in every service they add, but in fact don’t have the knowhow for components of the advanced drug and therapy programs emerging from new biopharma.

Critically, these factors can drive up the costs of services and materials.

So the emerging biopharma may have no choice other than to build out at least some capability and capacity. Often, this leads to a hybrid model of build-and-buy, a topic we’ve covered extensively in these pages.

“Building” in fact can be easier than in the past – again related to market sizing.

Orphan drug pursuits, personalized medicine, targeted cell-and-gene therapies, single-use equipment, etc., make it less expensive to place one’s program in internal development.

The second market “give” are the emergence of “new-styled CDMOs.”

These new service providers – right-sized to meet today’s customers – can emerge from locations such as universities or hospitals. Facility build-out might be facilitated by real estate concerns and builders, federal/state/local and private industry partnerships, with all parties now acutely aware of the growth potential of the drug development and manufacturing outsourcing industry.

These new CDMOs are often established to serve local/regional cell-and-gene or other biopharma clusters, and to plug the market (and geographic) holes for emerging biopharma searching for expertise and services.

Increasingly important, these service providers often include a component of worker training, performed at affiliated universities (or community colleges).

In fact, we’ve been wondering when this third leg of the biopharma ecosphere would take an expanded part in today’s market (the three legs being these academic settings from which talent, hands-on training, and of course r&d programs often originate; the start-ups and new biopharma organizations themselves; and the service provider partners – particularly CDMOs in our case).

The answer appears to be “in the present moment.”

While there are certainly more steps afoot, the last market shift I’ll mention here is one I’ve actually tried to name – as  “Biopharma CDMOs.”

Although varying in configurations, for the most part these are emerging biopharma organizations, who when pursuing their own programs face challenges in finding right-sized (and right-minded) external partners, or those with the requisite expertise, decide to take matters into their own hands:

They become CDMOs themselves.

Often, they leverage their own drug-development platforms and technologies as fee-for-service offerings to other emerging biopharma, and manage this business along with their own development pursuits.

I recently interviewed an executive at an emerging cell-and-gene company that upon realizing they were the most experienced organization in their realm, and other companies like them were struggling to find external help, decided to aid the entire cell-and-gene ecosystem by working with these other emerging companies.

For a certain price, of course. But in so doing – altruistically and profitably – a biopharma-cum-CDMO can (financially) feed its own program development with proceeds from its “partnerships.”

Final Perspective

We’ve outlined some of the shifting in what at first appearances seemed a tranquil business-to-business market in our (relatively) post-COVID-19 supply-chain disrupted world. 

But listen a little harder to the emerging biopharma sector, and we can be sure there are more adjustments to come. 

For now, let’s leave with a note from the other side of the story.

Nobody should suggest established CDMOs are misguided in consolidation and current pursuits.

These are the savvy and talented organizations that have served our industry so well. They carved out a market providing countless drug development and manufacturing opportunities beyond what anyone would have imagined just a few decades ago.

And of course there are beneficiaries of the moves many CDMOs have undertaken. Those benefits lean towards Big Pharma (and Big Biopharma). These hefty customers now need utilize fewer supply chain partners; they can strike longer term and deeper service-provider/drug-sponsor relationships with CDMOs that are right-sized for them.

Perhaps some readers have further thoughts to offer regarding all this, as we shift our way into the back half of 2021. We need all the help we can get to stay on top of outsourcing today.


Some further reading:

Today’s Biotech Start-Up: Experienced Leaders, Wise Investors
“In And Out Sourcing” At An Advanced Therapy Biopharma
Advice For Cell-Therapy Biopharma: Strategic Building, Tactical Outsourcing
Wanted: Right-Sized CDMOs For Advanced Therapy Developers
What’s A “Biopharma CDMO”?
Hepatitis B “Functional Cure” On The Way? A CDMO Helps Ou