Opening the door to new customers in the CDMO industry

Sorry George, but we will not participate, we are a small CDMO and we have too many running projects at the moment”. This was a reply from the CEO of a small CDMO when I asked him if they would be interested in participating in one event, where Fuliginous Management Consulting has been invited to talk about CDMO landscape Trends and Pharma Co’s Outsourcing Patterns.

At the same time, we received positive feedback from other CDMOs that are somewhat a bit bigger or medium sized. And then I started thinking how a small CDMO located in central Europe is full of projects and they don’t have the interest in participating in an event which would also give them the opportunity to make several one-to-one meetings with prospects.

And then I started looking at the capabilities of this small CDMO and compare it with the capabilities of the midsize CDMOs. There must be something that this small CDMO does very well and maybe its competitors don’t do it. Fuliginous Management Consulting’s capability mapping for finished dosage forms for small molecules is so complete that it was easy for me to compare the manufacturing capabilities of different CDMOs.

So, I refreshed my memory about European CDMOs and their capabilities. Nobody forgets the big names of the industry that usually offer a big range of products such as solids, steriles, liquids, creams etc. But there are also small CDMOs out there that seem to be successful and kept busy. What can differentiate a small CDMO from the 330 others that operate in Europe and also offer CDMO services? Located in central Europe, costs cannot be much lower compared to competition. Customer focus might be higher than some bigger CMOs, but again it cannot explain how busy this CDMO is. Pricing (which is different than cost) might play a role in success but then again, pricing has to do with so many parameters (or at least should do so) that alone cannot guarantee success. Other factors like quality, delivery performance etc. are of course important but again, something else should make the difference. Good quality and delivery performance do not open the door to new prospects. They are important to keep customers in, but something else needs to bring them in first. And the same more or less goes for competitive pricing. It is important to open the door to a new customer, but first the new customer should knock at the door.

So, what makes a customer knock at the door and ask a CDMO if they have the capability to quote for a specific product? Being in this industry for almost 20 years, out of which the last 5 of them spent in understanding the CDMO market, my opinion is that small CDMOs can survive in this competitive landscape if they do something different and something better than the masses.

So, “Specialization” is the word I was looking for.

Many (almost 70%) of small molecules European CDMOs for finished dosage forms can produce OSD (Oral Solid Dosage) forms. And around 50% can produce Sterile products. But how many of those producing OSD can produce high potent OSD and how many of them can offer hot melt extrusion or spray drying? And from those producing steriles, how many have the capability of producing high potent steriles and sterile bags or PFS?

The answer to the above is that less than 20% of European CDMOs produce PFS, less than 7% offer high potent steriles and only around 5% can fill sterile bags. And the same goes for spray drying and hot melt extrusion. Around 5% of European CDMOs have these capabilities. If someone is looking for capacity in PFS, they will have a bigger choice since around 20% of European CDMOs can now offer them.

But what was this % some years ago? Not only for PFS but also for all the above-mentioned technologies? I cannot say for sure but definitely 10 years ago, you could not find so many CDMOs offering high potent OSD and prefilled syringes. The reason for this increase and the evolving number of CDMOs offering new technologies is of course the demand for such technologies.

Taking a look at the new drug approvals from the FDA during the last 5 years it is clear that there is a trend. New products entering the market are high potent, steriles, OSD difficult to be manufactured due to poor API solubility, lyophilized etc. Moreover, within sterile category, prefilled syringes % grows year after year. More specifically, new drug approvals in PFS accounted for 30% of sterile product FDA approvals in 2023 while in 2022 and 2021 the figure was 20% and before 2020 even lower. And the opposite goes for other technologies that used to prevail some years ago, but not anymore.

This means that CDMOs that understand the market trends and follow the demand, before competition, have a competitive advantage. CDMOs that specialize in certain technologies and are very good at it due to expertise, also have an advantage compared to competition.

Spending time and resources to build the right CDMO strategy for the future, certainly is something that will pay off eventually. Where to invest, what to expect from this investment in terms of revenue and profitability and what customers to contact, is something that is a requirement in today’s environment. Deciding to specialize in ampoules as opposed to PFS or lyophilized vials for example has some implications. Different technologies have different demand, require different pricing and bring different profitability. The profitability % that a CDMO should expect from producing conventional tablets should be less than this of lyophilized vials for example. And the opposite goes for the annual volume. Probably annual demand for conventional tablets is more than this of lyophilized products. So, you need to know what to expect in order to build the right business plan and strategy.

If as a CDMO you don’t do anything and just wait for a new trend to become mainstream, then you can reassure your boss that you do well in managing your risk but at the same time, you should manage expectations when it comes to growth and profitability discussion.

Being smart enough to invest at the right time in the right technology separates the best from the rest.