The CDMO Evolution

With Harry Simpson

CDMO (Contract Development and Manufacturing Organisations) are a crucial part of the Life Sciences industry. Some companies and organisations simply don’t have the resources or expertise to manufacture certain products.

So, they turn to CDMOs to produce their latest developments. Strangely, despite its current prominence, the CDMO industry is a relatively young one. There have been significant developments over its short lifespan, and we’re likely to see even more growth in the years to come.

In this article, I’m going to explore:

• A Brief History of CDMOs
• The Industry Right Now
• What the Future Holds

A Brief History of CDMOs

Although CDMOs have been around for a while, they’ve only become critical to Bio and Pharma organisations within the last 20 years. In fact, before 1996, dedicated contract drug-product manufacturers were quite rare.

“I first got involved in the CDMO industry 5 years ago and in that time the partnerships between client and customer have changed dramatically. Transactional relationships are in the past; innovation and collaboration is the way forward.”

Instead, it was common for major Bio & Pharma companies to manufacture products for similar businesses — especially if it didn’t enable competition.

A key turning point was in 1996, when Patheon began purchasing various facilities, while Lonza secured Celltech and cemented its position in Contract Biologics.

With these acquisitions, Patheon and Lonza alerted other organisations to the opportunity that outsourcing product development and manufacture could provide. In turn, individual CDMOs began popping up and sparked the development of the industry. This was the birth of CDMO as we recognise it today.

A decade later, the financial crisis had mixed effects on the CDMO industry. Several organisations were forced out of business, while some others benefited from investments from private-equity firms. The low-interest investments and long-term prospects were very persuasive in attracting investment, and many were able to purchase production facilities being offloaded by pharmaceutical companies.

Typically these facilities were obtained for very reasonable prices, and in exchange, exclusive contracts were signed that provided the Pharma companies with cheaper production methods.

The Industry Right Now

Currently, the CDMO industry is in a ‘melting pot’ of change. Recent events like the Pandemic and the Talent Crunch have plunged the industry into another period of change. In response, some organisations feel the need to expand and diversify offerings in order to maintain their market presence.

“There is a huge strain on Manufacturing Capacity & Supply to help take some of these new technologies, like cell therapies, to market — CDMOs don’t have the capacity right now, but it’s coming.”

The Pandemic

The Covid Pandemic provided a massive boost to the CDMO industry. While Biopharma and Biologics businesses developed Covid vaccines, there simply wasn’t enough internal production capacity available to produce the quantities needed.

CDMOs filled this gap in supply and worked to meet the global demand. If not for the role Contract Organisations played, the effects of Covid could’ve been far more severe.

In response, the Contract industry has cemented itself as a crucial part of the Life Sciences industry.

The Talent Crunch

Something else that is influencing the development of the CDMO industry is the Talent Crunch. The diminishing workforce means that CDMOs (along with other specialised industries) are going to struggle to fill their available roles.

The main challenges during the talent crunch will be the attraction and retention of employees. After all, there’s no point in hiring new employees if they’re leaving at the same rate you’re onboarding them. A great solution to both problems is to make your team feel happy and valued.

Ensuring your employees are happy does more than retain your workforce, though. In fact, they outsell content employees by 56% and use 10% fewer sick days. It’s becoming obvious that to remain competitive amidst the talent crunch, life science businesses will have to keep investing in their team.

What the Future Holds

With the industry still so young, it’s difficult to know exactly how it’ll change and grow over the coming years. By analysing previous trends and how world events impacted the industry, we can predict certain developments with some accuracy.

“With the CDMO space expected to achieve 7.29% CAGR between 2020 – 2027 and grow to a nearly $300bn industry in the next 5 years, the future is bright.”

Here are my predictions for the CDMO industry:

CDMO Becoming PDMO

Some CDMOs are expanding their services and swapping their ‘contracts’ for ‘partnerships’, evolving the term ‘CDMO’ into ‘PDMO’. By getting closer to their partners, CDMOs can move past some of the pressure, and instead, offer consultative support or innovation to develop products in new ways.

The Outsourcing industry has always been quite fast-paced. Moving to this new model allows businesses to be more efficient in bringing new life-saving advanced therapies and drugs to the market.

Private Equity Investment and Development

Now is a prime time for Private Equity firms to invest in CDMOs. With Pharma organisations selling off facilities and outsourcing production instead, CDMOs with sufficient investment have a prime opportunity to scale up at an exponential rate.

If enough CDMOs manage to source this investment, we could see massive industry growth over the next several years. We saw something similar happen after the financial crisis of 2008. While some individual companies may not survive, the industry as a whole is likely to expand drastically.

Pharma Selling Off

Pharma companies continue to sell off their development and manufacturing sites. Producing drugs, medicines, and other medical equipment themselves remains expensive — especially when you consider the cost of running and maintaining the facilities and their staff.

By selling their facilities to Contract Organisations, Big Pharma is saving money and reinvesting back into the R&D of new products. This allows them to maintain a more constant revenue stream, and have multiple active projects at any one time.

Meanwhile, the CDMOs can focus their attention on improving their value chain and meeting demand with greater efficiency. The more facilities Contract Organisations can gain ownership of, the fewer shortages we’ll see.

Interested in Learning More?

Harry Simpson, Head of Outsourcing Business Unit at Fraser Dove International, is a growing presence with keen insights into the CDMO sphere. His position provides a unique viewpoint into an industry he is extremely passionate about.

If you’re looking to change careers, or fill certain roles in your organisation, send Harry a message on LinkedIn.