The global pharmaceutical market can trace its roots back to the mid-1800s, if not earlier, and is a constantly developing, highly regulated and hyper-valuable industry. It has also proven to be extremely adaptable - changing frequently to suit an ever-changing world of therapeutic challenges, increased regulation and consumer demand.
The pharma industry is one which expects growth; a recent PWC study indicated that nearly two-thirds of pharma CEO’s were very confident of their own company’s growth over the next year, the highest across all industries surveyed.
However, profits are becoming harder to come by. The cost of developing a drug has increased dramatically over the past few decades, as can be seen in the table below:
Source: Scientific American
The rising costs of drug manufacture has also driven the high growth of Contract Manufacturing Organisation’s (CMOs), which offer outsourced manufacturing operations – allowing pharma companies to remain competitive and cost efficient.
This article is predominantly focussed on the manufacturing of New Chemical Entities (NCE’s) and not the Generics industry. To cover both would involve writing something approaching a white paper, and I wouldn’t expect anyone’s attention for long enough to cover both!
As the cost has been transferred from the pharma businesses to the CMOs, they’ve looked at ways to provide the most efficient and economical service. We’ve recently seen CMO’s involved in their own internal battles to cut production costs, but we’ve also seen the pitfalls that these cheaper options can create.
Journey back a few decades, and the vast majority of pharma manufacturing services took place in the US and Europe. However several factors, including the global recession and a rapidly rising cost of drug development coupled with Indian and Chinese economic growth and development led to a shift in manufacturing being outsourced to Asia with CMO’s in the East, offering a cost-effective solution.
But as they say, the past is the past.
More recently, quality issues and rising costs have seen China and India lose some of its eastern promise, and in recent years we’ve seen pharma manufacture gravitate back towards North American and European sites.
So if the last few years are anything to go by, can we expect to see CMOs swinging from East to West like a pendulum for the foreseeable future?
I doubt it.
I see a few of avenues that we could see CMOS heading down:
#1 – Eastern Manufacturers Up Their Game
While this would likely keep significant business in the region, would this then drive the cost of Eastern manufacturing close to that of Europe and North America?
#2 – Back to the West
A continued shift back to the traditionally higher regulated, higher cost markets of the West. It certainly seems that the Trump administration (in addition to the numerous other industries President Trump intends on ”fixing”) has placed a focus on pharma manufacturing returning to the US.
On the face of it, this sounds like a positive development for the US economy, however President Trump’s commitment to lowering the cost of drugs at the point of sale could also result in a reduction in regulation – leading to a potential drop in quality for drugs produced in the US.
Or, on the flip side, could the determination to produce US drugs in the US lead to an increase in the cost of drugs at the point of sale to maintain profit margins?
#3 A Brave New World
We could see a whole new region come into the fray. This article from 2010 highlights Latin America as the new growth area of pharma manufacturing. In my experience, we’ve yet to see this development come completely to fruition, but the consequence of a burgeoning middle class and countries becoming more wealthy will inevitably lead to a focus on the super profitable pharmaceutical industry.
The region’s close proximity to a major market – the US – combined with lower labour and production costs could also see some of the larger CMO’s make a move into the territory.
Last month I attended Chemspec in Munich, and whilst I was there I spoke with a number of senior executives who felt the CMO industry was one led by quality over cost. The general consensus was that the cost to the manufacturers of a lower quality, and therefore potentially inferior, drug was dramatically higher both financially and in terms of reputation, than the savings that can be found by moving production to a cheaper location.
The consensus there was to take the Benjamin Franklin route whereby
“The bitterness of poor quality remains long after the sweetness of low price is forgotten”
An adage which clearly rings true today, and in the future of the CMO market!
How do you see the CMO market developing in future? Is there anything I haven’t covered here? I’d be really interested in hear the thoughts and predictions of my network!