Stop Fixating On CDMO Pricing!
By Louis Garguilo, Chief Editor, Outsourced Pharma
You read that headline correctly.
You may have an ill-advised idée fixe on the prices your CDMO is charging you.
Who says?
Among others I’ve interviewed, members of our Outsourced Pharma Editorial Advisory Board – a practical and practiced assembly of successful outsourcing professionals.
And when it comes to this pinpointing of pricing, they start with an offensive C-suite.
On the other hand, he says, those that “overly focus on costs and expenses at the risk of CMC deficiencies are frankly not well suited for the C-suite role,” or a bit more more generously, they are “misguided in their decision-making process.”
GeoVax outsources much of its activities (e.g., animal testing; clinical trials; process development/manufacturing/CMC activities). That in Dodd’s mind necessitates guidance from “highly experienced C-suite and support-level staff, all closely interacting with outsourcing partners.”
These internal professionals will not primarily focus on costs at the expense of CMC risk. If this begins to occur, says Dodd, “it ought to be addressed by the CEO relative to their appropriateness in that role.”
“Otherwise, the organizational risk of critically important deficiencies in outsourcing grows unacceptably.”
In other words, focusing on price is particularly a bad early-outsourcing strategy.
The Price Is Right
Here’s another perspective from the OutsourcedPharma.com board:
“My overall philosophy, given the type of industry we are a part of with so much forward risk – and I don't necessarily broadcast this externally or internally! –is not to necessarily get stuck on pricing at the time of ramp-up to approval and launch.”
Not to be misunderstood, he already has obtained a solid base of outsourcing experience so as to understand where in the competitive ballpark a CDMO pricing comes in.
“I'm simply not going to start out really difficult on pricing. Why? For example, when you look at a typical launch, you’re never fully accurate in terms of volumes negotiated with your CDMO.
“Inherently, CDMOs are always at some risk, which is built into their initial price negotiation.”
To find that happy pricing medium at the manufacturing phase, start with questions such as these two of your external partner:
- What exactly is driving the cost? Is it our (the customer’s) core processes, or the raw materials we need?
- Could we put in a mini project with an engineer and manufacturing professional from my team to work with your team to see if we can help save both companies money?
“When you start with a focus on price, you set the wrong tone in terms of what the ultimate objective is, which is to get a safe medicine to patients,” he concludes.
“On the small molecule side most specifically, I see sponsors jump in blindly with poorly defined goals or expectations in their rush to the clinic.
“Unfortunately, the CDMOs don’t help much during the early RFP process to scope out the project in more detail – they want to secure the contract, and if it comes to it, scope out change after change subsequently.”
I’m not certain of that specific CDMO modus operandi, but James’ point is well taken:
Sponsors can drive up their own costs of outsourcing.
Are You Experienced?
“After conversations with CEOs, C-suite members, investors, and board members of startups and early clinical-stage companies,” says, CTO at Aerium Therapeutics. “I find they often overestimate their understanding of the scope, complexity, and impact of CMC.”
I think readers will agree this indubitably leads to all kinds of questioning of the costs of components of development and manufacturing outsourcing – and the casting of “high pricing” aspersions on CDMOs.
“CMC-related decision-making in the case of emerging biotechs is often relegated to C-suite members with little or no prior direct experience, or, to less experienced heads of CMC who are not able to build convincing business cases to fund phase-appropriate scope of work” says Beck.
“This, and the size of investment needed early on, contribute to the fact that investments in key activities may be postponed without taking into consideration technical and compliance risks that often rise to unacceptable levels.
“Postponing key CMC activities, especially for emerging, less well understood modalities, may defer spend but can often result in significant program delays.”
The old “Save money now to lose more later” trick.
Beck adds this thought:
Beyond ensuring that CMC/Technical Operations expertise is included on companies’ leadership teams, “we should focus on more creative partnering and cost/risk-sharing models between the CDMOs and their clients. I think this would help.”
CDMOs Are Too Expensive
“For smaller sponsors, finding an affordable CDMO located in North America equipped with a balance of GMP requirements, and that can meet timelines required for a competitive landscape, is a challenge,” she says, with the added emphasis mine.
The emphasis is to point out that nowadays sponsors employ comparative analyses to pinpoint relatively high pricing – when capabilities and skillsets are also relative – applied to CDMOs across the globe.
An overwrought focus on pricing is bad strategy, for sure, but arguably not going into the global CDMO marketplace to see what pricing structures are out there might equally disadvantage a biopharma’s operations.
Burson adds another related theme of which readers are certainly familiar.
Smaller companies, she says echoing many others, get less CDMO attention, potentially less experienced or skilled employees, when compared to bigger sponsors, due to “the total amount of spend at the CDMO.”
And thus the question is do the smaller sponsors receive the same value-to-price ratio to begin with? Add to that a laser-like focus on what the CDMO is charging, can put the sponsor at cross purposes.
Come to think of it, might relative value be the underlying common denominator for our entire discussion on pricing?
What you get for your money, how CDMO services and deliverables propel your projects forward, assist your internal professionals, and help you achieve your goals, ultimately determines if you got a good price, or a raw deal.