The Biggest Problem At CDMOs Today
By Louis Garguilo, Chief Editor, Outsourced Pharma
A perennial outsourcing problem has resurfaced, according to industry sources.
It is the misalignments at CDMOs between their business development and tech ops or other project-evaluation teams.
Sponsors are again encountering situations where CDMO sales/BD representatives show enthusiasm and tell a sponsor the project is a great fit, but later learn the project has been declined.
Typical reasons for the rejections are lack of technical alignment or available capacity. There are times sponsors are given no reasons, leading to frustration on both sides.
Sponsors feel misled and lose trust in the service provider, and the CDMO’s sales reps feel undercut internally, and lose credibility with potential clients.
Unfortunately, it's time to revisit these unexpected denials of projects at CDMOs.
Why It Happens
We could enumerate a long list of causes for the sudden-denial syndrome. Let’s start with these five.
- Misaligned Incentives: BD teams are incentivized to generate leads and build relationships, even at times of full capacity. Sales staff may in fact not necessarily be adept at filtering projects or applying technical scrutiny early on.
- Insufficient Internal Communication: Technical/operational teams may not be looped in early enough and lack visibility into deals being pursued. They also may not in fact be the ultimate decision-makers for accepting projects.
- Capacity Uncertainty: CDMO manufacturing capacity and resource availability can change quickly. For example, there can emerge a new prioritization for larger or more strategic clients.
- “Fuzzy Fit” Criteria: What qualifies as a "good fit" can differ between sales, technical, and executive leadership. There may not be a clear, codified go/no-go decision tree or framework.
- Sponsor Disfunction: Not uncommon are sponsors not adequately prepared for presenting their program to a CDMO; needs, goals and objectives are not clearly defined.
Certainly, these denials of service recur most predominately during critical market gyrations, such as during the COVID outbreak. Today they may be caused by, for example, the rush to GLP-1-program prioritization, the tariff turbulence and geopolitical environment adding supply-chain complications.
I’ll add this:
When projects are initially welcomed and encouraged by CDMO sales teams, only to be rejected later somewhere within the organization, the sales representative may not be at fault.
These professionals are directed (and paid) to solicit new work. When what appear legitimate projects are rejected, these are the individuals who suffer most immediate consequences within an organization.
However, this breakdown in internal alignment can ultimately and fundamentally undermine reputations in an entire organization, and even risk long-term business viability at a CDMO.
So while the shock of a CDMOs suddent disinclination to take on a project can severely impact sponsors, CDMOs need to recognize the self-inflicted damage they may be causing to their overall business as well.
Frustration, Wasted Time, Damaged Relationships
As readers know, at the outset when a CDMO BD representative expresses enthusiasm for a sponsor’s project, it sets in motion a series of time-consuming activities.
Sponsors (should) prepare detailed technical packages, hold exploratory calls, and potentially visit facilities with key personnel.
CDMOs (should) initiate preliminary assessments, even start to consider internal-resource as well as capacity planning.
Suffice to say, psychologically this stage builds mutual excitement and expectations.
But when that early enthusiasm is snufed out by an unanticipated project rejection, negative impacts are palatable.
For sponsors, precious time and resources have been wasted. Resource-strapped biotechs may have invested weeks (or months) selecting best CDMOs to pursue.
Time lost during these failed engagements can delay critical development or manufacturing milestones, jeopardize funding, regulatory timelines, and clinical trial launches.
The experience can substantially sour a sponsor’s perception of the CDMO, and be sure word spreads quickly in tight-knit biotech circles.
On the side of the CDMOs, there is a palpable feel of a disempowered sales team. Credibility is lost – both externally and internally; client relationships are damaged. Morale may suffer as a result of crossed up signals and misunderstandings.
Moreover, such situations expose a CDMO's operational inefficiencies. Biotech executives tell me with this type of experience, a CDMO will become “a closed door to future opportunities with us.”
Long-Term Damage To Reputation And Revenue
Before continuing, we must recognize that some CDMOs may have sufficient big-client relationships. Taking care of those established money-makers precludes concerns with bringing in a variety of newer (and smaller) customers.
While Big CDMOs will swear that is not true, honesty should prevail. CDMOs must clearly inform its sales/marketing teams of exactly what new business to go after, and when.
Externally, CDMOs should communicate directly with the sponsor market of their mission and current capacities.
All CDMOs to an extent compete in a crowded marketplace. Differentiation often hinges on trust, responsiveness, and technical transparency.
CDMOs should never develop a pattern of saying “yes” through sales, and “no” through operations. Ongoing misalignment between sales and operations signals deeper organizational dysfunction. Again, word will spread.
Moreover, when technical and business units are not coordinated at a CDMO, it creates various frictions, cross-unit miscommunication, and an overall culture of blame.
This can demoralize staff, and in fact hinder responsiveness to market changes and new opportunities.
In an industry where flexibility and execution are paramount, this becomes a significant strategic disadvantage.
Frequent rejection of potential projects after initial BD engagement can also distort revenue forecasts. Sales pipelines may appear robust but fail to convert, resulting in less predictable revenue streams, complicating both operational planning and financial reporting.
Over time, all or any combination above undermines investor and stakeholder confidence in the CDMO’s business outlook.
From the biotech and pharma sponsors’ point of view, these experiences can alter outsourcing strategy. Biotechs will question whether the CDMO truly understands its own capabilities, or worse, whether it is intentionally misleading prospects for its own business objectives.
A company burned by a CDMO may become overly conservative—slowing down future engagements—or overly aggressive by pursuing too many CDMOs simultaneously to hedge against project rejection.
Either of those approaches can increase cost and complexity, and shake confidence in the outsourcing model as a whole.
Neither side wants that.
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Next we'll take up some ways to help rectify the inconsistent onboarding of sponsor projects at CDMOs.