The pharma trends leading to higher demand for CDMOs

nimble start-up

Recent discoveries and advances in pharma for lower demand illnesses/indications have resulted in an increase in the number of smaller start-up organisations. The focus of pharma has shifted from high demand blockbusters to specialty pharma drugs with higher margins and smaller patient populations. 

So, it’s a good time to be a small, nimble start-up in pharma. But when it comes to manufacturing their products in commercial quantities, the limited size of a small start-up can become a hindrance.

That’s where contract development and manufacturing organisations, or CDMOs, come in. 

“I think a lot of the opportunities that we’re seeing in new drug product applications aren’t necessarily with the large, branded companies any longer,” Tom Lewis, VP of global supply chain and CDMO management at Lannett, told pharmaphorum. “They’re with start-up entities who have a small footprint established. They typically have a small staff with scientific expertise and obviously individuals from a business aspect, but they lack  a manufacturing facility that includes quality, technical, and operations support”

These organisations have various choices when it comes to choosing a CDMO – they could go domestic, where the market-leading CDMO’s are extremely large and less agile to launches of smaller demand products, or overseas where the cost basis is low, but the management of supply chain is complicated. In addition consideration has to be given to quality, cost, and speed, as well as manufacturing capabilities.

We spoke with Lewis to get some ideas about what companies are looking for when they make these decisions and what emerging trends can influence the choice of a manufacturer.

Key factors to consider in choosing a CDMO

The primary focus of most entities choosing a CDMO, Lewis says, is narrowed down to three main considerations: speed, quality, and cost. And while it can be hard for a smaller company like Lannett to compete on the latter, as compared against Indian-based operations, Lewis says cost tends to be less of a factor for new drug products.  

“Surprisingly enough, it’s our experience in the CDMO arena, that sets us above the rest of our competitors. Since most of our CDMO opportunities are new drug applications -- so they're not generics and there’s limited competition -- cost is not the leading factor. It's typically third on that equation. Normally, it’s ability to respond quickly and the quality of what we provide that's most important.”

Speed, and its cousin, flexibility, are key differentiators for smaller shops like Lannett. 

“The quicker our customer can get to market, the quicker they start realising profit and revenue,” Lewis said. “We're not the jolly Green Giant like some of our competitors are. We’re very nimble, quick to react, and we've demonstrated that in the past with all our customers.”

Companies should also consider whether a CDMO has all the capabilities they need – and how accessible those capabilities are.

“Our capabilities in solid oral dose and liquid manufacturing, for example, are not unique. There are a lot of sites in the US who can manufacture these type of drug products. What does make us unique, though, we are a one-stop shop and perform everything, from tech services, manufacturing, labs support, [to] quality, warehousing, and distribution at one site. They're all in one place versus many of our competitors who have these capabilities scattered throughout many sites, ultimately resulting in longer lead times.”

Finally, quality is of paramount importance to small companies that have often staked their whole business on a single product.

“Quality is extremely important to them because, again, that improves the likelihood that their product will receive prompter approval,” Lewis said. “And because the agency is going to review the site it's being manufactured at, our prior history of exceptional quality standards will be key to their approval.”

American or overseas?

Another big decision for US pharmas and biotechs is whether to keep manufacturing in the United States or outsource to another country.

“What most consumers probably don't realise is 70% to 80% of the US generic market for pharmaceuticals is being supplied outside of the US from other countries, with a significant majority of the supply being imported from the Indian market,” Lewis said. 

These manufacturers have a competitive advantage over US-based manufacturers because they have a lower-cost labour market, and they manufacture vertically, producing more of their own ingredients. 

This market inequality intensified during the pandemic.

“With the addition of COVID restrictions, the FDA’s ability to perform necessary audits was limited,  ” Lewis explained. “And as a result, and I'm not sure if it was strategic, but many of these foreign competitors may have taken advantage of that, lowering their level of quality and, as a result, lowering their cost. They priced other companies, particularly US-based companies, out of the market, gaining market share and decreasing the number of competitors.  As of late last year, the FDA has restarted its foreign audits and as a result we are now seeing significant quality issues with many of these sites, resulting in some import alerts, preventing companies from shipping into the US, and several major 483’s. As a result of limited US-based manufacturing and these foreign quality issues, we are starting to see some product shortages in the US market.”

While this problem will continue to plague generic manufacturers, for Lannett’s CDMO customers – the smaller companies working on novel therapies, rather than generics – the recent quality concerns simply drive home the importance of quality and flexibility over pure cost considerations.

Looking ahead to continuous manufacturing

One opportunity that Lewis believes will support the return of US-based manufacturing, is the recent trend focused on new technologies, such as continuous manufacturing, a relatively new innovation in producing pharmaceutical products that Lewis thinks will take hold in the US over the next five to 10 years, and that his company is already experimenting with.

Today, he explained, most pharmaceutical manufacturing is performed using “batch processing”. 

“Essentially, you have a defined batch size and individual rooms that perform specific processes. So, the product physically moves from room to room from dispensing, to blending, coating, compressing, packaging, etc. This takes a lot of time and effort”

In continuous manufacturing, all those individual processes can be replaced by one continuous process/machine in something analogous to an assembly line – a paradigm shift that has been more challenging to implement in pharma, Lewis says. This has major advantages.

“You can customise your output,” Lewis said. “resulting in less lead time, lower costs, lower safety stocks, increased cash flow, etc.”

However the future of manufacturing evolves, it seems clear that, at least for the short term, innovation will continue to outpace scalability for many small pharmas and biotechs. As long as that tension exists, CDMOs will have an important role to play in enabling start-ups to turn ideas into products. If they can do that quickly, cheaply, and with a high degree of quality, so much the better.

Lewis says Lannett sees itself as hitting the right mix of those factors – and their partners agree.

“We're lean and mean,” Lewis said. “We have demonstrated our flexibility and how quick we get products to market. Our CDMO customers have come back to us time and time again for more products, and we want to offer this same level of service to new customers as well.”

About the Interviewee

Thomas LewisTom Lewis is the Vice President of Supply Chain and CDMO Management for Lannett Company, Inc. With over 23 years in pharmaceuticals with companies such as Schwarz Pharma, UCB, Kremers Urban, and Lannett Company, Inc., Tom’s wealth of knowledge in Finance and Supply Chain functions have contributed to significant accomplishments and awards. Under his leadership, his team’s proactive focus has led to in-house transformations of global supply chain practices and strategies.

Tom also carries prior experience in chemical and automotive with the likes of General Motors, Archer Daniels Midland, and Valeo Sylvania. He earned a Bachelor of Science degree in Accounting from Indiana University’s Kelly School of Business.

About Lannett
Lannett CDMO has an extensive history of manufacturing unique pharmaceutical products. As a long-established CDMO, we utilize our deep industry knowledge and provide our clients with end-to-end solutions that meet their needs. Safety, quality, and productivity are of the utmost importance when choosing a manufacturing partner. Understanding this, our dedicated staff utilizes in-house talent and extensive manufacturing capacities to ensure that these business objectives are met.

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13 April, 2023