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The Pharma Capacity Crunch: CMOs/CRAMs Crucial to Strategic Capacity Planning for Pharma and Biotech

The continued growth of virtual pharma – and the subsequent rise of virtual biotech – have made a lasting impression on the pharmaceutical contract manufacturing industry.

Big Pharma firms, some of whom we’ve supplied with either APIs or contract manufacturing services
(or both), have never been accused of agility and rapid adaptation to industry shifts. The well-regulated nature of pharma manufacturing generally discourages a “let’s try new things!” attitude. But in the case of contract manufacturing, the larger players have taken the example of their virtual brethren to heart.

APIs Please, But Not In-House

From an API standpoint, it’s clear that neither pharma nor biotech firms are keen on building internal capacity. This isn’t a sudden shift. It has occurred steadily over the last three decades, as more and more active pharma ingredients are produced on a contract basis (or as part of a larger supplier-partner agreement).

Late Lifecycle Stage Outsourcing
The late lifecycle outsourcing trend has continued unabated, with Big Pharma either shutting down plants or allocating their operational plants to the production of newer and more strategically-important products. As a result, older products are getting pushed out of in-house manufacturing – which account for a large portion of the growth in CMO capacity to support this increasingly popular strategy.

The benefits to virtual firms are obvious: there is no need to invest in any internal capacity or infrastructure. Biotech firms, in particular, are highly dependent on CMOs to help them ramp up products since few have the internal capacities necessary.

With larger, established companies, the cost-benefit analysis has settled on a ‘Late Lifecycle Stage Outsourcing’ strategy in which late lifecycle products are outsourced to competitively priced CMOs who can better compete with generics.

Other Factors Influencing Continued Growth of Pharma Contract Manufacturing
There are a number of other factors at play, some of which are local. In Japan, for example, pharma is bracing for increased generic competition due to changes in government policy aimed at promoting generics. Combined with improved trade relations with API manufacturing powerhouses such as India – and the concurrent growth of markets in India, China and other nations – outsourcing production is increasingly popular.

Beyond the Supplier Relationship

I’ve commented before on the shift in thinking occurring in the pharma industry, with CMO/CRAMs being seen less as pure suppliers and more as partners. Capacity planning is a big reason why contract relationships are being redefined.

More and more frequently, we’re seeing deals in which small or mid-size innovators are investing in creating capacity together with CMOs. This allows companies to benefit from the knowledge and expertise the contract manufacturer brings to the table (a colleague mentioned to me the Arena/Seigfried plant in Switzerland, which I believe is an example of this).

As more pharma firms shift to focus on their core strengths in-house, it’s clear we will continue to see growth and expansion in the CRO/CRAMs space in the coming years. With it, the nature of the relationships will undoubtedly continue to shift and grow more complex as this strategy grows in popularity.

Are pharma contract services an important part of your company’s strategic planning?

 

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