A relatively new development in the life sciences industry is the growing use of contract manufacturing organizations or CMO’s. In response to decreasing profit margins, continuing patent expirations, and the concomitant diminishing product pipelines, companies are turning to CMOs as a way to reduce costs and still invest in R&D. This new development also opens the door much wider for life sciences consulting.
In the 2009 Annual Outsourcing Survey conducted by Contract Pharma, 29% of the respondents indicated that they use CMOs for more than 50% of their commercial (or final dosage) manufacturing. CMOs have become a vital component in the value chain for life sciences because they not only assist in reducing costs, they also offer valuable flexibility, provide additional expertise, and reduce internal requirements for manufacturing support.
The use of CMOs is a cost-optimization strategy that allows life sciences companies, particularly pharmaceutical companies, to eliminate certain internal practices and procedures, but there is a down side. The practice requires companies to manage multiple external relationships which often give rise to communication and quality issues, and sometimes compromise scheduling and supply-chain security. A 2008 study found that 91% of the participants that relied heavily on outsourcing had experienced what was termed a “significant incident” (one that resulted in a loss of $10,000 or more), as opposed to only 59% of those that kept their operations mostly in-house.
While maintaining manufacturing excellence is a major challenge for life sciences companies contracting with CMOs there are also a host of smaller ones, including ensuring supply-chain security, handling tight scheduling, managing multiple contracts, maintaining efficient and accurate data exchange, and protecting exposed intellectual property. Indeed, the situation can grow so complex and unwieldy that outside help sometimes becomes a necessity.
Perhaps the greatest challenge involved in outsourcing to CMOs lies in the fact that the CMO-sponsor relationship and, as a result, management protocols are still evolving. This can result in relationships with, and management, of 10 or more participant sites – especially for complex processes like those in the manufacture of biological products. Obviously there is an enormous opportunity to benefit from life sciences consulting here.
While utilization of CMOs is growing, the management methods are often the same methods used 10 or 20 years ago. Consequently, this strategy very often falls short of achieving the maximum potential value for life sciences companies. Initially, the CMO-sponsor relationship was entered into chiefly as a tactical, specific solution. Later, owing mostly to quality issues that began to crop up, central governance was created. And more recently, in the effort to build global networks, emphasis has been on the supply chain. The dynamics between CMO and sponsor are changing, and they will continue to evolve as time passes.
While life sciences consulting firms can be a huge asset for companies seeking to maximize the value of their use of CMOs, managers have to realize that because of the evolving nature of CMO use, the consultants they call in must be willing to establish long-term relationships. If the consulting relationship is to work, prospective consultants should demonstrate the willingness, have the personnel, and possess the knowledge and expertise to commit to the long haul.
The cost-cutting strategy of using CMOs certainly has its place, and the smart use of life sciences consulting is a way to ensure optimum results from that still evolving strategy.