What’s Driving CMO’s

According to BCC Research, a leading information resource company for the pharmaceutical and high tech industries, overall sales in the pharmaceutical contract manufacturing and contract research market were worth nearly $143 million in 2007, which increased to an estimated $177 million in 2009. By 2014, sales are projected to increase to nearly $299 million, for a 5-year CAGR of 11.1%.

The largest segment in the market, contract manufacture of over-the-counter (OTC) and nutraceuticals, was valued at $82 million in 2007. This increased to an estimated $103 million in 2009, and is projected to reach $177 million in 2014, for a 5-year CAGR of 11.4%. Sales in the contract manufacture of bulk- and dosage-form drugs segment were worth $36 million in 2007, and were to increase to nearly $44 million in 2009. By 2014, they are projected to increase to $73 million, for a 5-year CAGR of 10.8%. U.S. pharmaceutical companies have been increasingly turning to Contract Manufacturing Organizations (CMO’s) solely to achieve efficiencies in cost, capacity and time-to-market, or to obtain a specific expertise not available in-house. Today, these factors still play a role, but now the most dynamic driver behind the use of CMO’s in the pharmaceutical industry rapidly is becoming the unique, innovative, and state-of-the-art process and production technology they offer. More and more pharmaceutical companies are leaning towards sub-contracting or outsourcing to CMO’s in order to concentrate on marketing their products, without spending time in new drug discovery and process of manufacturing. This also applies to some “virtual” companies that exist by the simple fact they can rely on CMO’s and researchers. Today’s basic question for many pharmaceutical companies remains is; “If the resources used to manufacture low margin products could be applied to higher margin activities, why not sub-contract?”

Pharmaceutical, biotech and generic drug companies have concluded that by sub-contracting some and / or all parts of their manufacturing process or services, the resultant savings could be invested in the development of new products that should provide higher margins and a potential competitive edge. Over the past 75 years, pharmaceutical companies have been one of the main sectors recognizing the financial benefits of CMOs. In addition, the U.S. Government has been increasingly turning to CMO’s for production of controlled substances, such as methadone in order to maintain cost effectiveness and control. With respect to the past and current Administration, as part of their overall healthcare reforms for Medicare, there is much greater emphasis on reducing the cost of prescription drugs via generics which can be achieved through sub-contracting to CMO’s in the U.S. versus off-shoring to highly competitive CMO’s overseas.