Simpler is Better - Pharmaceutical Technology

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Simpler is Better
What does it mean when the two largest dose CMOs are for sale?


PTSM: Pharmaceutical Technology Sourcing and Management
Volume 3, Issue 1

Overcoming complexity

As experience has shown, the acquisitions entailed business and regulatory risks that often could not be foreseen or were easily overlooked. But, those risks were compounded by the challenges of operating such complex organizations. Integrating and operating these global manufacturing networks successfully requires a broad range of technical and business skills and systems and a cadre of experienced people. These are assets that take years to build. It can be argued that that the architects of Patheon and PTS failed to appreciate fully the operating complexity of what they were building.

A further complicating factor has been the fact that the vision of the market that provided the underlying rationale for PTS and Patheon has not been borne out. Major pharmaceutical companies have not embraced outsourced manufacturing to the degree that was expected ten years ago. Furthermore, the secondary role of contract manufacturers has meant that size and global capabilities have not proven to be the competitive advantages they were expected to be.

In today's CMO market, companies that offer a limited range of capabilities from a small number of sites appear to be enjoying the best results. They have grown organically by understanding their markets well and responding quickly to new opportunities. Focused offerings enjoy several advantages, including far less complexity in operations and a clear business development message. In addition, they can target their capital spending and innovation efforts to add cutting-edge capabilities that provide real competitive differentiation and advantage. Examples of focused manufacturing and packaging companies include DPT Laboratories (San Antonio, TX) in semisolid and liquid manufacturing and Fisher Clinical Services (Allentown, PA) in clinical packaging.


Company Web sites
The large clinical CROs figured out the power of focus and simplicity years ago. Revenues and profits at Covance (Princeton, NJ) blossomed after it shed its clinical packaging and biomanufacturing businesses early in this decade. Pharmaceutical Product Development, Inc. (Wilmington, NC) has grown to $1 billion in revenues and strong profits by focusing on excellent delivery of plain-vanilla clinical research services. Charles River Laboratories (Wilmington, MA) divested its Phase II–IV clinical research operations earlier in 2006 to focus on its core strengths in research models and preclinical toxicology.

Of course, any given business model does not remain successful forever; companies must continually adjust to the changing demands of their customers. Over the next few years, as major pharmaceutical companies seek to consolidate their vendor bases to gain savings in cost of goods, it may be that multicapability suppliers will have advantages over vendors that can offer only a single service. But, that advantage will be sustainable only if the business model makes financial sense and companies deliver excellent performance across all service offerings.

Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905,
http://www.pharmsource.com/


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