Five years ago, CMOs geared their strategies to the North American and European markets, where prices were highest and usage
was growing most rapidly. CMOs geared their facility design and quality assurance practices to meet FDA and European Medicines
Agency (EMEA) standards of compliance.
Today, the market focus of the major pharmaceutical companies is turning to the emerging economies, the so-called "BRIC" countries
(Brazil, Russia, India, and China). Serving these countries is an entirely different challenge: they either have their own
stiff regulatory requirements, as in the case of Brazil, or lower compliance standards that make the costs of maintaining
FDA and EMEA compliance uneconomic. In many cases, laws and/or regulatory practices require local manufacture and discourage
imports. Most Western CMOs lack facilities in the emerging economies to take advantage of these expanding opportunities.
Manufacturing and sourcing strategies.
While major pharmaceutical companies have made major announcements about their intentions to outsource more, they have continued
to invest heavily in new facilities and equipment, especially for development and manufacture of large-molecule products.
Capital investment by the 15 largest pharmaceutical companies grew 14% in 2007 to almost $22 billion. With the major pharmaceutical
companies on a spree to acquire or in-license large-molecule candidates, the high-value opportunities that CMOs were counting
on are likely to be staying in-house.
CMOs are also being hurt by sourcing strategies that are increasingly global. Not only has global sourcing introduced new
low-cost competitors in countries such as India and China, it has also greatly extended the pharmaceutical supply chain. Dose
CMOs more frequently are dealing with the inability of clients to ship adequate supplies of APIs, resulting in schedule disruptions
and revenue shortfalls.
Like the French military planners that built the Maginot Line after World War I, CMO executives find that the scenario they
planned for is no longer relevant. In next month's column, I'll cover what the new CMO business model might look like going
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, firstname.lastname@example.org