Multiplying Forces Of Clinical Supply Outsourcing

By Louis Garguilo, Chief Editor, Outsourced Pharma

Readers may have noted that by rule these pages refer to service providers in our segment of the industry as CDMOs, and not CMOs. A one letter addition reflecting a significant difference.

From Big Pharma to the widening array of biotechs developing drugs and therapies, there’s now near universal outreach to external partners for assistance with developing new programs.

Of course contracts and phase-appropriate decisions determine exact services to be performed, but as an outsourcing mindset, development and manufacturing have collapsed into a de facto set-service offering.

Consequently, to attract customers, CDMOs must obtain a high degree of integration.  

Yes, some CDMO integration, manifesting as M&A, is also driven by internal economies-of-scale and other operational considerations.

But there is an accelerating customer-driven stimulus for this CDMO activity. So while some may say the consolidation has gone too far, the market is a substantial driver to that activity, as we’d expect in a competitive environment.

Nonetheless, there is also a narrowing caveat to this M&A activity: Executives at biotechs and start-ups say they are looking for CDMOs who have a wider array of services, but they do not want smaller to mid-sized service providers to grow “too big” to accomplish a fuller slate.

Too big as in creating an uncomfortable imbalance in the size of the sponsor vis-à-vis their preferred service provider. This can mean a CDMO with a lessening of receptibility to requests from smaller developers, among other things.

Therefore, CDMO service expansion, and the facilitated integration of those new parts, are what the nimble biopharma customers want, but at the right size. We have thought this through via previous editorials, but what brings this front of mind again is a new survey/report (released in December) from my colleagues at ISR Reports, Clinical Manufacturing Market Outlook.

Material And Operational

As ISR states in its report based on extensive surveying of biopharma professionals, today outsourced clinical manufacturing may be one of the most competitive areas of all contract manufacturing.

One reason for that is the “different types of providers with varying capabilities vying for the work” of a growing and widening array of sponsors.

In addition to the “global CDMO giants with one-stop-shop capabilities,” and the strategy of combining small, specialized drug substance and drug product CDMOs to fulfill clinical supply needs, the report says there also are integrated clinical-trial-supply service providers – some of which are “big CROs and clinical-trial-sourcing service providers” also ready to assist drug innovators’ clinical material needs.

The ISR report suggests to me (and I may be late to the party) the time has passed to silo contract/clinical research organizations (we’ll call both CROs), and include them within those competing with CDMOs for biotech customers shopping for a fuller menu of pre- and clinical development and manufacturing services.

CROs had been where a young biotech and other start-ups went first with their emanating projects and proposals, but also from where you then moved on – to the CDMOs for increasing supply needs.

Today, though, with a cornucopia of advanced therapeutic medicinal products (ATMPs) coming from the industry, the amount of material needed for the clinic (and commercial) is greatly reduced per program.

There are more customers, but less (material per customer, and the outsourcing industry is in fine-tuning mode to adjust.

Letters Of Recognition

To make that adjustment abundantly evident to existing and prospective clients, service providers are expanding their call letters:

CROs are now CRDOs; CMOs went in reverse: to CDMOs and now some are CRDMOs.

In fact, with the need for facility and advanced equipment right-sizing for smaller batch sizes, single-use and continuous-flow production needs for innovative products, CDMOs have struggled to serve the down-sized sponsor entrants.

Often, what are considered too-small-scale needs (and patient populations and markets) have precluded CDMOs from gaining traction with new sponsors – and vice versa. Restating the above, burgeoning innovators today want integrated service providers – be they nominally CROs or CDMOs – but at a commensurate size. You might say, they want it all.

Some of this may be industrial semantics, and based somewhat on sponsor’s (hurt) feelings of rejection by some established CDMOs during the recent COVID and supply-chain strangulation years.

Neither do we want to overstate: There also certainly remain service providers devoted to large-scale manufacturing of materials (including growing needs on the biologics/cell-therapy side). Almost all we hear of those facilities is they remain humming along at high capacity rates.

Decision Drivers

Other factors are at play here as well. They are harder to decipher.

For example, consider what many in our industry see as a misguided idea stuffed into a cynically named bill passed in the U.S., The Inflation Reduction Act: a provision that provides biologics with different government-price negotiation periods than small-molecule drugs.

Eli Lilly for one says this about the new regime:

“Small molecule medicines are unfairly disadvantaged by the law by allowing Medicare to negotiate prices after just nine years, compared with the 13 years afforded to large molecule, or biologic, treatments.”

Lilly CEO Dave Ricks said in a recent interview, "The difference between a nine- and 13-year product line is about 50% or 60% of the value. In 10 years, we'll have far fewer small molecules being developed than we do today."

To accentuate his point, Lilly announced it already dropped a small-molecule, blood-cancer drug from its pipeline. "We just couldn't make the math work," Ricks said.

This penultimate point may be somewhat extraneous to the subject of this editorial, but it does show there is a variety of adding, subtracting, and reconfiguring in our industry. Your service providers will need to react and realign based on a large set of variables.

Mostly, though, those variables will be decided by what you, the sponsors, bring forth as innovations, and what you insist you need to advance them through our system of research, development and manufacturing outsourcing.

A final tidbit from the ISR report. Roughly two-thirds of trial sites today are still located in the U.S. (41%) and Western Europe (23%). Which means if you desire to keep your clinical-supply chain close to those trials (and ultimate patient populations), you’ll be selecting service provides in the West.

Let’s hope they’re the right size, and have enough letters in their descriptions.

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Also see:
Wanted: Right-Sized CDMOs For Advanced Therapy Developers