Growth strategies for CMO/CDMO services provided by materials chemical manufacturers: The key to a sustainable growth

With new modalities being drastically developed over recent years, it has become difficult for pharmaceutical companies to maintain their market competitiveness while engaging in all business phases, from research and development to manufacture and sales, by themselves. In 1997, the Federal Food, Drug, and Cosmetic Act enacted by the U.S. Food and Drug Administration (FDA) was amended. In 2005, the Pharmaceutical Affairs Act in Japan was also amended. Such law modifications have significantly alleviated regulations on the outsourcing of pharmaceutical goods production, and thus accelerated the movement of pharmaceutical companies to partially outsource corporate functions such as research and development. This has led to the drastic development of the CMO/CDMO service market.

We have seen many manufacturers in Japan advance into the CMO/CDMO service industry (Figure 1-1). One can say that this is a result of making use of the high manufacturing capabilities and elemental technologies already owned by Japanese manufacturers. In particular, materials chemical manufacturers are vigorously making its way into the market. Some of the leading materials chemical manufacturers are also announcing that they will soon be entering the CMO/CDMO service industry. As for the materials chemistry industry, many companies are struggling to enhance their profit margin as their primary source of revenue (conventional business) has become the core target of an intensifying price war. Many are starting to shift their primary business to CMO/CDMO services which seem to promise a higher operating profit margin.

Most of the growth strategies for CMO/CDMO services set forth by materials chemical manufacturers are based on aggressive facility investment. The aim is to increase sales by enhancing their manufacturing capabilities to accommodate the rapid market growth. In addition, many are vigorously enhancing facilities that will enable the company to seamlessly handle all manufacturing phases, from production of drug substances, drug formulation, to packaging. In this way, pharmaceutical companies would be able to outsource the entire manufacturing process to one manufacturer. However, over recent years, we have started to observe many cases where materials chemical manufacturers are not receiving enough outsourcing orders to reap profit from the excessive investments made to their facilities. They need to take into consideration that the market growth will soon start to dwindle, explore ways to differentiate themselves from their competitors in terms other than their manufacturing capacities, and increase their market competitiveness.

To be able to foresee issues before actual manufacturing begins and reduce risks of manufacturing issues, it is important that there are resources that “has the knowledge of a seasoned personnel and can foresee dangers that may occur in manufacturing.” The key to secure such resource is data utilization. For example, combining manufacturing-related data received from pharmaceutical companies with data of facilities that the CMO/CDMO own, along with case examples of failures in general chemical reactions and issues that had occurred at the CMO/CDMO may draft a proposal on which facilities could be used as well as what other facilities they can be used with. Such assumptions may help list up the manufacturing issues that may occur.  (Figure 3-1)

Furthermore, data utilization is not only effective to prevent manufacturing issues but also expected to improve communication. In CMO/CDMO services, tasks such as regular progress reports to the outsourcing pharmaceutical companies and head offices as well as drafting quotations for pharmaceutical companies are regarded as hassle work that manufacturing sites need to provide. Let us take a look at how much of a hassle it is to draft a quotation. Based on the information that the CMO/CDMO receives from the pharmaceutical company, the CMO/CDMO must determine which tanks are best to use, selecting tanks made from the most appropriate material, taking into consideration of factors such as the time it takes to clean the tanks and pH of the reaction solution. The CMO/CDMO needs to allocate resource who are well versed in the facilities that it owns as well as synthetic chemistry. However, as aforementioned, it is not easy for CMO/CDMO services to hire experienced personnel in abundance. Hence, in many cases, it is inevitable for CMO/CDMO to prioritize quotation requests.

If the CMO/CDMO could build a system that supports creation of tank combination plans, using limited information as input, it would be able to standardize the process to draft quotations and promptly create quotations without depending on the availability of experienced personnel. Not only will the customer’s satisfaction towards quotation requests increase, but experienced staff members will also be able to focus on other tasks, enabling the organization to create leisure to improve service quality. These are all effects that could be achieved in the process of accumulating data to reduce risks of manufacturing issues as shown in Figure 3-1.

In addition, data accumulation would make it feasible to create a system to draft SOP and support the creation of a CAPA (Corrective Action & Preventative Action) plan to implement at times of deviation. Although the ultimate goal is to accumulate data that will put forward suggestions to reduce risks of manufacturing issues and eliminate miscommunications, we think it is effective for CMO/CDMO to take into account of the effects that can be expected along this journey and envisage a strategy to gradually differentiate itself from its competitors.