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Contract Manufacturing Organization within a pharmaceutical company. Let the little brother grow!

It is not uncommon in families with two children that all attention goes to the big brother. The little one is not necessarily neglected, but parents do not teach the same things all over again, so he does things the way his older sibling was taught to do them. A certain modus operandi is carried on from the parents to the older brother and then to the little one. But in case the little one has different needs and is not ready to follow the steps of the rest of the family, the parents need to do something different when it comes to the raise of their second child. Otherwise, the oldest brother will be the successful one and the little brother will live in his shadow.

Something similar may happen in case a pharmaceutical company decides on top of its usual business to offer CDMO services to third parties. If this happens without a proper planning, without knowing exactly what to expect from the CDMO activities, this might lead to results that are far below expectations.

Today, based on the Pharma Companies database including more than 320 companies with operations in Europe, at least 100 of them, offer contract manufacturing services on top of their pharma business.

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We, in Fuliginous Management, have taken part in several discussions during the last year, with pharmaceutical companies that also offer CDMO services. The main targets for doing that is to:

  • increase their top line
  • fill their free capacity
  • benefit from economies of scale in manufacturing that comes from higher capacity utilization of their site(s)

The truth is that this is a particularly good approach only if:

  • the organization comprehends that Pharma commercial business and CDMO business are two different business models and require different mindsets
  • it is followed by a vision, the appropriate strategy targets and specific action plan
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Statements like “We will continue what we are doing so far, but instead of producing only our own products, we will produce for others as well”, make sense only for unique technologies with no free capacity in the market. In this case customers will come to you and would be probably ready to accept your way of working.

In the vast majority of the cases though, reality is less favorable. Pharmaceutical companies that consider entering the CDMO business need to understand that the success of this activity is about meeting customers’ expectations.

If you ask pharmaceutical companies cooperating with CDMOs to put down a list with what they expect from the cooperation with CDMOs, almost all of them will mention the same things. Trust, quality, delivery performance, price and communication. But they will also mention something else. They want to feel that they are on top of the priority list of the CDMO and not at the bottom.

And this is another key question for CDMOs integrated within a larger pharmaceutical company. When the critical time comes, will you prioritize the supply of your own products vs those of your customers?

Although it is clear what the answer to this question should be, lets see what it takes to make sure that customers of an integrated CDMO do not feel neglected and at the same time the CDMO is successful.

1.      Disconnect CDMO organization from the rest of the company

For a CDMO to work as efficient as possible, it should have an autonomous management and budget. It is obvious that a conflict could arise from time to time between the CDMO department and the rest of the organization, but this happens in every company, where different departments have different targets. It is like the CFO disagreeing with the Commercial Director in a big company. It happens all the time but at the end of the day when an alignment is found, the company goes forward. And alignment can take place when there is a clear strategy within the organization, which takes us to the next point.

2.      Set clear targets for the CDMO organization

In order to avoid conflict of interest within the overall organization, clear targets and strategy should be set from the beginning. A separate business plan for the CDMO part of the company should be built, which will be aligned with the overall business plan of the company. For example, future new business coming from the CDMO department, should not “eat” the free capacity reserved for the own production of the company. The business plan should be structured in such a way that it will be clear from the beginning that for example free capacity allocated to customers outside the organization is x % and the remaining y % will be allocated to own production.

This will not only avoid conflicts of interest between different departments, but it will also make clear what should be expected by the CDMO part. The business plan should be structured in a way that is realistic but challenging.

3.      Give time, do not expect results to come overnight

As explained in our article “Designing a new business plan in the Pharma CDMO industry. Are you ready to wait?” all the effort that a CDMO puts now, all the new proposals it offers to customers, all new business agreed now, will bear fruits gradually in the future. This is because of the long timelines required for transferring in a product to a new manufacturing site and all the uncertainties coming with it. Moreover, before even reaching the transfer in stage, it takes time to prepare a quotation and to get a positive feedback from the customer.

This means that you need to give time to the little brother to grow, don’t come one year later and ask for results. Be prepared to wait.

4.      Build customer focus mentality

Operating as CDMO requires customer focus. In order to trust you, a customer needs to feel prioritized as was mentioned in the beginning. When the customer faces a problem, someone from the organization should be there to make sure that the problem will be solved as soon as possible. It is acceptable that problems will occur. Every company running manufacturing operations faces problems. The key is to make customer’s problem yours and act as a partner.

And this is not easy to do if you don’t have a dedicated department for the CDMO business with customer focus mentality. If the customer calls the supply chain manager of the company asking why the track is not on his door, the latter may do not give the necessary attention if he faces similar delay issues with the own company products. On the contrary, if there is a dedicated Business Development Manager with customer focus mentality, he or she will make sure that someone within the organization will take a look at the customer’s problem. It will not be easy and will trigger conflict within the organization but this will be the first step towards finding a solution.

Usually, companies that manufacture both their own products and products for third parties do not have as priority the customer and this should change if you want the little brother to grow.

5.      Build tools and processes appropriate for the CDMO industry

Processes that are not required in a pharmaceutical company are essential for the smooth operation of a CDMO. One of the most important ones is the RFQ policy/process. It will not be acceptable from the customer to get a reply for their request for quotation after 40 days. But if there is no process in place that requires an answer to be given within 20 days for example, it might easily be the case that indeed a reply will be given to the customer after 40 days. If you don’t explain to your people what is expected from a CDMO customer, they will not know. So, a process like this helps them understand.

Another process is pricing policy that defines how price is decided and a re-pricing policy that will make sure that material increases will be passed to the customer if a clause like this is mentioned in the contract.

A quotation form template or an immediate quotation tool will definitely be useful for the CDMO and are tools that do not exist within a pharmaceutical company which does not offer services to third parties. But all those tools and processes will be essential to the little brother growth.

6.      Take advantage of the economies of scale and synergies resulting from the integrated nature of the CDMO

Disconnecting from the rest of the organization does not mean lose all the contact with the family. On the contrary, there are significant benefit an integrated CDMO can gain. For example, being experienced on the manufacturing of a specific API or a product developed by the company for example will give a benefit to the CDMO vs the competition. This type of products should be the focus of the CDMO when it comes to find new customers.

Gains can also be expected with investments made by the company in a manufacturing vessel or a packaging line for their own products. The high returns of the operations coming from the rest of the organization will help the little brother grow.

 

Some of these steps should be obvious, but unfortunately experience has shown that are not. And if you are looking for the appropriate CDMO partner try to find out which of the above are applicable. Definitely there are pros with cooperating with an integrated CDMO but also mind for the cons. Ask the CDMO that you are about to cooperate with if they follow any of these steps and then take an informed decision regarding potential cooperation.

If you are a pharmaceutical company thinking about performing CDMO activities, take a look at this list which hopefully will give you some food for thought. And if you need support, get in contact with us and we will help your little brother together!

Fuliginous Management Ltd offers services to CDMOs and to Pharmaceutical companies cooperating with CDMOs.