The regulatory offering:
The European serialization project has proved to be one of the main factors leading the main CMOs to embark upon new customer service strategies. The implementation of the European serialization project and more broadly of the regulatory directives for serialization at the international level require massive investments, the implementation of complex techniques and an extremely rigorous operational organization. The most dynamic CMOs have transformed a major regulatory constraint into a sales argument by developing a regulatory service offering adapted to each region of the world. Several CMOs, such as Aesica, Recipharm, etc., have made this a major part of their communications strategy.
Increasingly restrictive regulatory factors, government policies on mandatory local production, the regulations and particularities of local markets and reimbursement policies all weigh heavily in the choice of supply sources. Certain leading CMOs and those specializing in innovative technological forms, such as Unither, have launched a wider range of services to support their customers in each of their respective marketplaces with a wide range of competencies covering data collection, the technical aspects of projects, local regulatory expertise, knowledge of target markets, links with local authorities and distribution channels, etc. CMOs with a strong position on the international scene are playing a key role in the transmission of competencies to facilitate the extension of a range of products in a given country.(1)
An expanding offering:
The integration of expertise increasingly upstream of industrialisation is a response to the need to shorten the time to market by reducing the cost and complexity of each stage. The supply chain concept is increasingly incorporating any processes that can increase the added value of a product. These innovation and development centres, covering every stage from the development of a product through to its marketing, develop offerings that stand out from the competition, and provide excellent long-term opportunities for organic growth.
In 2013 that the market for the administration of oral medicines was estimated to be worth $64.3 billion and is expected to reach $100.8 billion by 2018, for a compound annual growth rate of 9.40% over this period. This increase reflects the rise in demand for innovative oral medicines and more especially the ODx forms. On the OTC market, innovation has to be virtually permanent. Following the reshuffle of product portfolios, laboratories are reinforcing their product roll-out strategies or are updating of their product ranges with new, innovative presentations.
Several CMOs have gone one step further by filing market authorization applications that include either proprietary formulations or packaging innovations. This proposes turnkey market authorizations for the original laboratories with the aim of extending a product range, for example.
A highly localised industrial offering in relation
to the marketplace…
The differentiation factor for CMOs resides in optimizing their supply chain so that is as close as possible to the marketplace and is geared to meet the customer’s financial strategies. The main contractors of the original laboratories are seeking to benefit from commercial manufacturing resources in both the United States and Europe in order to meet the needs of their markets on both continents. These facilities can extend the geographical opportunities for products, while increasing the flexibility and the security of supplies. The leading European CMOs, such as Fareva, Unither or more recently Recipharm and Famar, did not hesitate to cross the Atlantic several years ago. Only two of them provide a back-up service on both sides of the ocean. This summer, Vetter announced an ambitious project to establish a plant on the Déplaines site. Driven by its constant concern to maintain a dialogue with its customers, Vetter’s planned site aims to extend the company’s geographical production opportunities in order to increase the flexibility of its supply chain.
... and flexible too
The leading CMOs on the market have very rapidly acquired extremely specialised production tools for fast-growing pharmaceutical forms, such as High Potent, or biopharmaceuticals, combined antibody medicines, products from gene therapies, etc. Such highly specialised manufacturing techniques cannot be amortised by the pharmaceutical laboratory alone. CMOs are examining a number of different models to help them overcome a shortage of production capacity in the biopharmaceutical sector.
In addition to traditional outsourcing services, certain CMOs have totally revisited their manufacturing services offerings especially in order to adapt to the industrialisation of products developed by start-ups, biopharmaceutical companies and virtual pharmaceutical laboratories, or in response to the new trends in “dynamic licences” granted for extremely innovative treatments. The time between the initial launch and the peak in sales will therefore be much longer in the case of these licences. The amortisation periods for industrial investments will be longer still. Generally speaking, start-ups and virtual companies do not have the finances required to build up their own industrial plant. They are seeking to reduce the risks associated with the investment in new active principles and in sourcing access to new technologies and skills. In the best-case scenario, their financial capacity enables them to invest solely in manufacturing equipment. To remedy this situation, several CMOs have revisited their production offerings.
Since the start of the year, the CDMO Patheon, which launched an IPO (initial public offer) in July 2016, has investigated five models of production offerings for virtual pharmaceutical laboratories from a flexible manufacturing services platform: Dedicated Capacity, Fractional Capacity, Flexible Network Access, Condominium/Customized Capacity and Enterprise – each completely customizable to the specific needs, along with flexible capacity solutions that allow customers to increase or decrease capacity as necessary. Patheon’s condominium model enables a small firm to benefit from an infrastructure, engineering and industrial expertise. This offering allows the customer laboratory, within the infrastructure of the industrial plant, to rent a suite which will be a facility dedicated to its own highly specific production. This approach generally appeals to firms which do not have any products on the market. To date, Patheon has set up five active condominiums. The customer benefits from the flexibility and the security of having its own dedicated manufacturing operation but at a much lower cost as far as the overheads for the utilities, buildings, storage and security etc. are concerned.
In the long term, the provision of service packs has numerous advantages. It allows the CMO to differentiate its offerings by capitalising on the management of the robust knowledge acquired from a large number of data collected, with a view to constantly improving the added value of its service offering.
Such offerings add value and provide a very dynamic response to customers’ needs by determining the future access to the marketplace and to commercial success. CMOs must rise to the challenge of adapting their commercial models so that they can offer customised proposals. These new-generation companies will need to reconcile several business models in order to adapt to a wide range of customers from start-ups to Big Pharma and all in very different geographical locations.
Over the last few years, M&A transactions concerning
CMOs have focused on multiples of EBITDA in order to
determine their valuation. In the future, the potential of
the service offerings will increasingly have to be taken into
account in order to determine the long term goodwill. The
multiplier effect of this added value will have a very noticeable
impact on the valuation of the company.
(1). Towards a new generation of CMO by 2020. PHARMAnetwork magazine n°30 - 2016