Miller» Will pharmaceutical companies and CROs/CMOs engage in risk-sharing arrangements?
Stuart» Yes. This is where significant opportunity lies. The challenge is the ability for the provider to be able to work from a
position of financial strength to carry meaningful shared risked in the arrangement.
Griscti» Absolutely, they are already doing so. The providers, or at least the big ones, recognize this as a way to become embedded
in the pharmaceutical company and to take their relationship to a new level, making themselves more difficult to disengage.
Lynch» I believe this mechanism is fairly well established already. It makes sense that both parties have a stake in the success
of a project, either by sharing development expenses and revenues, or via a series of milestone payments.
Miller» Do you foresee more divestiture of facilities to start-up or established CMOs?
Stuart» As consolidation of the pharmaceutical industry continues, asset divesture will continue to be a factor for new and growing
CMOs. CMOs should be careful when acquiring these assets, which are often being eliminated from internal networks due to excess
capacity. In the mid-to-late 1990s, there was a similar shift in ownership of manufacturing capacity in the contract manufacturing
industry for electronics. The suppliers that emerged strongest from this restructuring of the value chain were those that
offered services in design, engineering, and after-market services as compared with those who attempted to build a business
model strictly on manufacturing.
Griscti» Yes. I do not think the frequency will increase dramatically over what we have seen historically, but I do expect to see
Miller» What kinds of capabilities will niche providers need to have?
Stuart» Beyond the traditional niches of technology specific capabilities, I believe the ability for providers to create offerings
around speed and flexibility of project delivery will be the next big opportunity to create highly valued niches.
Griscti» As I noted, there will likely always be a place for the specialist. I think the market will get much more competitive for
them and it will be harder for them to survive, but I also expect that we will continue to use them, particularly when it
comes to a complicated therapeutic or technology area.
Miller» During the next five years, what would you identify as the greatest challenges facing pharmaceutical manufacturers in managing
an increasingly global supply chain? In particular, what role do you see for CMOs and other contract service providers (e.g.,
third-party logistics providers) in helping to manage that supply chain?
Stuart» Establishing fit-for-purpose facilities and networks that are readily adaptable to changing market and customer needs. Single
purpose and product/technology specific facilities are too expensive to sustain in such a rapidly changing market.
Griscti» Those that can assist with lowering cost and/or easing transport into countries around the world will have a role in the
Lynch»There are two key areas here to consider. One is balancing the benefit of outsourcing with the added complexity of a longer
supply chain. You need to factor in lead times, shipping costs, inventory levels, and the ability to respond in a timely manner
to changes in demand and to new business opportunities. The other area to consider is risk management and business-continuity
planning. How well do you understand inherent risk in your supply chain? Are you prepared to commit the resources to effectively
manage that risk? Building trust and a strong working relationship with suppliers is key to addressing these questions.
For more on this topic, see the online exclusive, "Issue Extra: Executive Roundtable—The Future of Pharmaceutical CMC Outsourcing"
Jim Miller President of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903,