CMOs Face a Kodak Moment - Pharmaceutical Technology

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CMOs Face a Kodak Moment
The evolving bio/pharmaceutical business model poses risk for CMOs.


PTSM: Pharmaceutical Technology Sourcing and Management
Volume 8, Issue 4

CHALLENGE FOR CMOS

The changing bio/pharmaceutical manufacturing requirements and technologies present a major challenge to CMOs. Much of the manufacturing capacity of the dose CMO industry is compromised of legacy facilities acquired in the past 10 years from global bio/pharmaceutical companies and embodies the large-scale, inflexible, and high-cost batch manufacturing processes that were dominant 20 years ago. As the manufacturing needs of the bio/pharmaceutical industry evolve in the next 5–10 years, CMOs risk being left behind with underutilized facilities that are unsuited for their potential clients' needs.

Only a few CMOs can be considered innovators in manufacturing technology and practice despite the fact that manufacturing is only the thing they do. To a large degree, the CMO business forces them to focus on their clients' current and near-term needs. CMOs deal with a lot of older products and even with new products, their bio/pharmaceutical company clients are unwilling to take on the risk of new manufacturing technologies unless they absolutely have to. CMO profit margins generally do not allow much room for investment in innovation, and most innovative technologies housed at CMOs have been developed and paid for by their clients.

Unless CMOs become more forward-looking about their technology choices and investments, they risk losing out to new entrants and potential clients. The new technologies will often require less investment in facilities and utilities. Because they are smaller and more self-contained, more companies will be tempted to build their own facilities. Because they will operate more-or-less continuously and be highly automated, they will produce drugs less expensively than the older technologies.

Today, the competitive challenges that CMOs seem most focused on are how to differentiate themselves from their many North American and European competitors while keeping a wary eye on producers in emerging markets. By not appreciating the changing manufacturing requirements of their clients and the related new technologies, they risk being made obsolete.

This scenario bears a strong resemblance to what happened to Kodak, which recently filed for bankruptcy protection in the US. Because it was focused on preserving its cash cow—the film and photo processing business—the company viewed its primary competitive threats as coming from Fujifilm and other low-cost film manufacturers. As a result, it overlooked the emergence of digital photography, the new technology that ultimately undermined the company. CMOs could now be facing their Kodak moment.

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


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