Advances and investment in digital health is growing at an incredible rate and Contract Manufacturing Organizations and Contract Development and Manufacturing Organizations are becoming an essential part of the new pharma value chain. From wearables, to apps, to digital platforms, the data and efficiencies generated by these innovations are opening up important avenues across the pharma ecosystem. As pressure on improving drug development heats up, data, digital and technological innovations are critical to delivering the desired business and patient outcomes, promoting significantly more networking and outsourcing strategies. CMOs are evolving from service providers to strategic partners. CMOs now cover the entire value chain of pharma production, including specialized services such as R&D.

1. PHARMACEUTICAL
CONTRACT MANUFACTURING
FARHAD ZARGARI, MD, PHD, DBA

2. Outline
 1-What is Contract Manufacturing (CM)?
 2-How Does CM Work?
 3-CM Trends
 4-Advantages of CM
 5-Disadvantages of CM
2

3. 3
What is Contract Manufacturing?

4. What is Contract Manufacturing?
 Advances and investment in digital health is growing at an incredible
rate, predicted to register a CAGR of 28% from 2018-2024,6 and many
new technologies are not merely consumer-facing. From wearables, to
apps, to digital platforms, the data and efficiencies generated by these
innovations are opening up important avenues across the pharma
ecosystem. As pressure on improving drug development heats up,
data, digital and technological innovations are critical to delivering the
desired business and patient outcomes, promoting significantly more
networking and outsourcing strategies.
4

5. What is Contract Manufacturing?
 It has been estimated that the cost of bringing a new drug to the
market has risen to $1.3 billion, yet the number of new drugs reaching
the marketplace continues to decline. The remaining patent life of
newly launched drugs is notoriously short, which leaves little time to
recoup the money invested in their development. Most drugs entering
clinical development do not make it to the market and the cost of
these failures skews the average cost of those that are successful.
 To cope with the current complex circumstances, we need to adopt
new strategies in pharma R&D, manufacturing and marketing.
5

6. What is Contract Manufacturing?
 In today’s fiercely competitive market, with growing costs, quality and
efficiency pressures, it isn’t a surprise that pharma is looking to
outsourcing partners to shore up drug development needs.
 Although these relationships have existed for many years, the pressure
on CDMOs and CROs to optimize their offer is more acute than ever
before. Increasingly stringent regulations, growing complexity of
clinical trials, and highly specialized drug manufacturing and
distribution requirements mean quality partnerships are more critical
than in years gone by.
6

7. What is Contract Manufacturing?
 Categories of Outsourcing Transactions in Pharmaceutical Industry:
7

8. What is Contract Manufacturing?
 The Modern Pharma Ecosystem:
8

9. What is Contract Manufacturing?
 These outsourcing partners are specifically looking to data, digital and
technological improvements to gain a competitive edge. Operational
improvements that can drive efficiencies for pharma clients are not
only attractive, but necessary, as jostling for business heats up. Added
to this, is the need to build capabilities in more niche areas, such as
rare diseases, where pharma looks to unlock new markets and new
revenue streams.
9

10. What is Contract Manufacturing?
 The entire pharma ecosystem is evolving, responding to both push and
pull factors driving market growth and opening up new investment
opportunities as these trends come together.
Push Pull
New Markets and Speed to Value:
There is a need to move into new
underdeveloped treatment areas to
create value and generate profit via new
treatments as old ones go off patent or
compete for increasingly smaller share.
This requires more sophisticated clinical
trials, patient recruitment, and data
management. There is also a desire for
improved business processes, speed, and
efficiencies that large pharma is not agile
enough on its own to deliver.
Desire for Transparency and “Patient as
Consumer” trends:
Data privacy concerns have mounted
and consumers are no longer happy with
the status quo ‘Black Box’ relationship
they have with pharma companies
perceived to be using their data for
financial gain. The trend of ‘patients as
consumers’ has increased expectations in
terms of experience, support services,
and treatment efficacy, with minimal
impact on their quality of life.
10

11. What is Contract Manufacturing?
Key Developments
• M&A • R&D • AI • Patient
Recruitment
M&A across the
outsourcing partners
has resulted in a
consolidated CRO
market whilst
fragmentation remains
across the CDMO and
CMO space. The focus
for growth, however,
has shifted to business
efficiencies and
specialty avenues to
optimize profit margin.
The increase in R&D
for targeted
treatments and rare
diseases means that
CROs and other
support services that
underpin drug
development and
diagnostics will be key
investment targets
going forward.
Wider data, digital, and
technological advances can
most effectively tackle the
major problem of patient
retention for clinical trials.
Enabling less complicated
participation in trials as
well as offering access to
trial participation from
home (without need to
travel to a specific trial site)
will greatly improve
participation rates - and as
a result - drug
development timelines.
AI will not only be
important for molecule
identification, but it will
also play a major role in
optimizing clinical trials
(by improving participant
recruitment processes and
retention) and speeding
up time-to-market for new
treatments (by facilitating
the recruitment of the
right patient populations,
drugs will have a better
chance of both endpoint
success and trial
completion).
Key Developments Promoting Outsource Strategies in Pharma Ecosystem:
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12. 12
" We are seeing the continuation of
the trend for large pharma to
consolidate and divest their internal
manufacturing capacity, and move
towards an outsourcing model for
non-core activities”.
Kevin Cook, CEO at Sterling Pharma Solution

13. What is Contract Manufacturing?
CM By Definition:
A contract
manufacturing,
sometimes called a
contract development
and manufacturing
organization (CDMO), is
a company that serves
other companies in the
pharmaceutical
industry on a contract
basis to provide
services for drug
development through
drug manufacturing.
CM is a form of
outsourcing, brand
name companies
focus on product
innovation, design
and sales, while
the manufacturing
takes place in
independent
factories (the
turnkey suppliers).
13

14. What is Contract Manufacturing?
CM By Definition:
Pharmaceutical
contract manufacturing
is a specialty within the
more general umbrella
term of contract
manufacturing and is
the process by which
drug companies
outsource their
manufacturing needs
on a contract basis to
equipped companies.
These (CMOs) spend
their time
developing,
formulating, and
testing products,
allowing the drug
company to focus
on marketing,
discovery, and
scalability. CDMOs
can also provide raw
materials, machines,
and fabricating
services needed for
drug production.
14

15. What is Contract Manufacturing?
 Outsourcing has resulted in the development of a new paradigm offers
companies new opportunities for improving their bottom lines through
the conversion of fixed costs to variable costs. They accomplish this by
reducing or eliminating in-house production capabilities and replacing
them with contract manufacturers. As a result, contract manufacturers
that perform custom synthesis and produce intermediates, active
pharmaceutical ingredients, and dosage forms are becoming
increasingly important to the conduct of today’s business.
15

16. What is Contract Manufacturing?
 The modern day CDMOs are now key strategic partners providing
access to new markets, new products, greater capacity and innovative
technologies for both small scale and large scale primary and
secondary manufacturing. CDMOs today provide comprehensive
services from drug development through drug manufacturing.
 This allows major pharmaceutical companies to outsource those
aspects of the business, which can help with scalability or can allow the
major company to focus on drug discovery and drug marketing
instead.
16

17. What is Contract Manufacturing?
 Outsourcing to a CMO allows the pharmaceutical clients to expand the
technical resources, without increased overhead. The client can
manage its internal resources and costs by focusing on the core
competencies and high-value projects while reducing or not adding
infrastructure or technical staff.
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18. What is Contract Manufacturing?
 In the pharmaceutical sector, with the ongoing growth, the
pharmaceutical innovator companies need to stock their pipelines with
new drugs. However, they do not have the resources to discover,
develop, and manufacture products. Hence, the requirement for CMOs
is quite significant.
 Novartis International AG, a multinational pharmaceutical company,
based in Switzerland, established four in-house facilities across the
United States and Europe, in order to build its cell therapy
manufacturing network. These CMO facilities are supposed to be
commercially ready in the second half of 2020.
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19. 19
How Does CM Work?

20. How Does CM Work?
 CMOs are a response to the competitive international nature of the
pharmaceutical market as well as the increasing demand for
outsourced services.
 The best-positioned service providers focus on a specific technology or
dosage form and promote end-to-end continuity and efficiency for
their outsourcing clients.
 With lower-cost international manufacturers capturing an increasing
percentage of the contract manufacturing market, specialization may
be an effective hedge against loss of market share.
20

21. How Does CM Work?
 The pharmaceutical market also uses outsourcing services from
providers in the form of contract research organizations (CROs). In
recent years, the concept of a comprehensive single-source provider
from drug development through commercial manufacture has
emerged. This concept has been implemented by providers known
today as contract development and manufacturing organizations
(CDMOs).
 There are specialized contract companies such as
 Contract research organizations (CROs)
 Contract testing laboratories (CTLs)
 Contract development and manufacturing organizations (CDMOs) which all help
reduce internal costs via outsourcing research, testing, and comprehensive
development, respectively.
21

22. CRO and CDMO Services
22

23. How Does CM Work?
 Contract manufacturing can be classified into two types, i.e. those who
“supply” and those who “toll”.
Supply Toll
2 Types of
Contract
Manufacturing
Supplier is one who supplies
manufacturer’s material for
inventory. This supplier sells
products from its inventory to one
or more companies for their use or
disposition. This type of contractor
is sometimes known as an “original
equipment manufacturer”.
On the other hand, a “toll
manufacture”, or “toller”, is a
manufacturer who contracts to
1-Receive a raw material from
another company,
2-Convert that material into another
form,
3-Return the converted material to
the contracting company for its use
or further disposition.
The basic difference between these two types of contractors is that one manufactures for its own
inventory, while the other manufactures according to a custom order.
23

24. Types of CM Facilities
FCMF
1
PCMF
2
1-Full Contract
Manufacturing Facilities
(FCMF):
These are establishments
that do not have any
product registered by the
Agency and are only
involved in contract
manufacturing operations
for other parties.
2-Partial Contract Manufacturing
Facilities (PCMF):
These are establishments that are holders
of Market Authorization issued by
regulatory body for manufactured products
and are also involved in commercial
contract manufacturing operations for
other parties.
24

25. Services offered by CMOs
 Services offered by CMOs in pharma industry include, but are not
limited to:
 Drug development
 Documenting FDA regulations and obtaining compliance
 Pre-formulation
 Formulation development
 Stability studies
 Method studies & development
 Pre-clinical and Phase I clinical trial materials
 Late-stage clinical trial materials
 Formal stability studies/method
 Scale-up
 Registration batches
 Commercial production
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26. How Does CM Work?
 Objectives and relationship of hiring company and CMO:
CM
Objectives of the CMO Objectives of the Hiring Co.
Outcomes of successful Cooperation
-Quality of Product
-Profitability
-Industry Leadership
-Standardized Technologies
-Filled Capacity
-Long Term Relationship
-Multiple Product Opportunities
-Quality Product
-Reasonable Price
-Flexibility
-Technological Experience
-Available Capacity
-Risk Management
-Reliable Product Supply
-Quality Product
-Long Term Relationship
-Reasonable Cost
-Manageable Schedule
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27. CM Business Model
 In a contract manufacturing business model, the hiring firm
approaches the contract manufacturer with a design or formula. The
contract manufacturer will quote the APIs and other raw materials
based on processes, labor, tooling, and material costs. Typically a hiring
firm will request quotes from multiple CMs. After the bidding process
is complete, the hiring firm will select a source, and then, for the
agreed-upon price, the CM acts as the hiring firm's factory, producing
and shipping units of the design on behalf of the hiring firm.
27

28. Steps of CM Process
 Evaluation of CMOs
 RFP Development
 CMO Selection
 The Business Contract (Supply Agreement)
 Quality Agreement
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29. Principles Guiding CM Arrangements
 A manufacturer may perform all operations and activities or may
engage an outside party or parties to perform some or all of the
operations and activities under contract. Regulatory body shall allow
product owners/manufacturers to contract some of these operations to
any Contract Facility as defined above.
 Contract production and any other activity covered by GMP that is
outsourced must be correctly defined, agreed and controlled in order
to avoid misunderstandings that could result in a product, or work or
analysis, of unsatisfactory quality.
 All arrangements for contract manufacturing including technology
transfer and any proposed changes in technical or other arrangements,
should be in accordance with the marketing authorization for the
product concerned.
 Contract manufacturing may be undertaken only by a manufacturer
who holds a valid manufacturing authorization.
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30. Principles Guiding CM Arrangements
 Contract manufacturers may perform a variety of manufacturing
operations and activities, including but not limited to:
 Product formulation
 Tableting/Encapsulation
 Fill and finish
 Primary/secondary packaging and labeling
 Sterilization
 Stability studies
 Analytical testing and other laboratory services
 Finished pharmaceutical products that are not manufactured in
compliance with GMP requirements are considered to be adulterated.
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31. CM Agreements
The supply
agreement defines
product quantities,
product
specifications,
payment terms, and
duration of the
contract.
The quality agreement is a stand-alone
document, which defines responsibilities
between the client and the CMO and
ensures that all operations are in
compliance with the current good
manufacturing practices (cGMPs).
Generally, GMP regulations require from
CMOs a strong system for standard
operating procedure (SOPs), solid quality
management systems, appropriately
trained personnel, independent quality
control (QC) or quality assurance (QA)
 Once the CMO has been selected, the pharmaceutical company
negotiates and concludes supply and quality agreements with the
CMO.
31

32. The Supply Agreement(Contract)
 After the contractor is chosen, the next phase is to negotiate a supply
agreement and a quality agreement. Each focuses on different sides of
the business; the supply agreement focuses on the terms of the
business. It will address minimum and maximum product quantities,
payment terms, and contract duration. It will also define product-
release criteria, product specifications, testing responsibilities for both
companies’ quality units.
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33. The Supply Agreement(Contract)
 The business Contract, or supply agreement (SA) defines the terms of
the business relationship. The supply agreement details the costing,
minimum and maximum delivery obligations, forecasting, and
termination clauses (key Component of the supply agreement). It also
provides for important procedural matters, such as technical transfer,
product testing and release, dispute resolution, site representation,
regulatory inspections, process changes and improvements, and
regulatory requirements. The SA also defines the need and
responsibilities for important quality processes.
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34. The Supply Agreement(Contract)
 Key Component of the Supply Agreement:
 Contract term
 Testing and specification for release
 Lot quantities, yield
 Price and payment terms
 Capital expenditures
 Minimum and maximum supply
 Lot rejection
 Termination review period
 Forecast and purchase orders and inspections
 Raw material purchase and vender qualifications
 Technical transfer
 Process changes and continuous improvement
 Dispute resolution
34

35. The Supply Agreement(Contract)
 1-There must be a written contract between the contract giver and the
contract acceptor which clearly establishes the responsibilities of each
party, covering the outsourced activities, the products or operations to
which they are related, communication processes relating to the
outsourced activities and any technical arrangements made in
connection with it.
 2-The contract must clearly state the way in which the authorized
person, in releasing each batch of product for sale or issuing the
certificate of analysis, exercises his or her full responsibility and ensures
that each batch has been manufactured in, and checked for,
compliance with the requirements of the marketing authorization.
 3-Technical aspects of the contract (the Quality Agreement) should be
drawn up by competent persons suitably knowledgeable in
pharmaceutical technology, analysis and GMP. The Quality Agreement
should be a separate document, or at least severable, from the
commercial contract.
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36. The Supply Agreement(Contract)
 4-All arrangements for production must be in accordance with the
marketing authorization and agreed by both parties.
 5-The contract should describe who is responsible for contracted activities,
e.g. knowledge management, technology transfer, supply chain,
subcontracting, testing and releasing materials, undertaking production
and QC, in-process controls, sampling and analysis.
 6-Manufacturing, analytical, distribution records and reference samples
should be kept by, or be available to, the contract giver.
 7-Accessibility to any records relevant to assessing the quality of a product
in the event of complaints or a suspected defect, or to investigating in the
case of a suspected falsified product or laboratory fraud.
 8-The contract must state that the Contract Giver and the Agency have the
right to inspect the facilities of the contract acceptor.
 9-The handling of starting materials, intermediate and bulk products; and
finished products if they are rejected should be described.
36

37. The Quality Agreement
 Quality Agreement is a comprehensive written agreement between
parties involved in the contract manufacturing of pharmaceutical
products that defines and establishes each party’s manufacturing
activities in terms of how each will comply with GMP. Quality
agreements should not cover general business terms and conditions
such as confidentiality, pricing or cost issues, delivery terms, or limits
on liability or damages. Quality agreements may be reviewed during
inspections.
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38. The Quality Agreement
 A quality agreement describes the Contract Giver’s and the Contract
Acceptor’s roles and manufacturing activities under GMP.
 A well-written quality agreement should use clear language, define key
manufacturing roles and responsibilities and establish expectations for
communication and providing key contacts for both parties.
 It will specify which products and/or services the Contract Giver
expects from the Contract Acceptor and who has final approval for
various activities.
 Quality agreements should state that manufacturing services provided
by contract facilities will comply with GMP.
 Manufacturing activities are the most important element in a quality
agreement and the most critical pieces are quality and change control.
38

39. The Quality Agreement
 Most quality agreements contain the following sections:
 Purpose/Scope— to cover the nature of the contract manufacturing
services to be provided.
 Definitions — to ensure that the Contract Giver and Contract Acceptor
agree on precise meaning of terms in the quality agreement.
 Resolution of disagreements — to explain how the parties will resolve
disagreements about product quality issues or other problems.
 Manufacturing activities — to document quality unit and other activities
associated with manufacturing processes as well as control of changes to
manufacturing processes.
 Life cycle of, and revisions to, the quality agreement.
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40. International Guidelines/Regulations
 Contract Manufacturing (Outsourcing) is a commercial activity
undertaken by the pharmaceutical and other industries around the
world. The Regulatory Authorities in the world including WHO and
EMA have formulated and implemented guidelines in order to
minimize the risks associated with the outsourcing. These guidelines
are followed across the globe by the industry. On the other hand the
Industry is also taking protective measures to minimize the risks
associated with outsourcing specially related to intellectual property
loss and quality control as any failure can hurt the global image of the
company.
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41. WHO Guidelines
 7. Contract production and analysis
 7.1 Principle. Contract production and analysis must be correctly defined,
agreed and controlled in order to avoid misunderstandings that could
result in a product or work or analysis of unsatisfactory quality.
 General
 7.2 All arrangements for contract manufacture and analysis, including any
proposed changes in technical or other arrangements, should be in
accordance with the marketing authorization for the product concerned.
 7.3 The contract should permit the contract giver to audit the facilities of
the contract accepter.
 7.4 In the case of contract analysis, the final approval for release must be
given by the authorized person.
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42. WHO Guidelines
 The Contract Giver: (a legal entity who has legal ownership of the finished product and
who will be applying to the Agency for Marketing Authorization or entity that orders the
conduct of a component of manufacturing to be carried out on their behalf by another entity).
 7.5 The contract giver is responsible for assessing the competence of the
contract accepter in successfully carrying out the work or tests required, for
approval for contract activities, and for ensuring by means of the contract
that the principles of GMP described in this guide are followed.
 7.6 The contract giver should provide the contract accepter with all the
information necessary to carry out the contracted operations correctly in
accordance with the marketing authorization and any other legal
requirements. The contract giver should ensure that the contract accepter
is fully aware of any problems associated with the product, work or tests
that might pose a hazard to premises, equipment, personnel, other
materials or other products.
 7.7 The contract giver should ensure that all processed products and
materials delivered by the contract accepter comply with their
specifications or that the product has been released by the authorized
person.
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43. WHO Guidelines
 The contract Accepter: (Contract Manufacturer/Contract Acceptor: an entity that
engages in GMP activities, including implementation of oversight and controls over the
manufacture of drugs to ensure quality on behalf of other parties).
 7.8 The contract accepter must have adequate premises, equipment,
knowledge, and experience and competent personnel to carry out
satisfactorily the work ordered by the contract giver. Contract manufacture
may be undertaken only by a manufacturer who holds a manufacturing
authorization.
 7.9 The contract accepter should not pass to a third party any of the work
entrusted to him or her under the contract without the contract giver’s
prior evaluation and approval of the arrangements. Arrangements made
between the contract accepter and any third party should ensure that the
manufacturing and analytical information is made available in the same
way as between the original contract giver and contract accepter.
 7.10 The contract accepter should refrain from any activity that may
adversely affect the quality of the product manufactured and/or analyzed
for the contract giver.
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44. WHO Guidelines
 The Contract
 7.11 There must be a written contract between the contract giver and the
contract accepter which clearly establishes the responsibilities of each
party.
 7.12 The contract must clearly state the way in which the authorized
person, in releasing each batch of product for sale or issuing the certificate
of analysis, exercises his or her full responsibility and ensures that each
batch has been manufactured in, and checked for, compliance with the
requirements of the marketing authorization.
 7.13 Technical aspects of the contract should be drawn up by competent
persons suitably knowledgeable in pharmaceutical technology, analysis and
GMP.
 7.14 All arrangements for production and analysis must be in accordance
with the marketing authorization and agreed by both parties.
44

45. WHO Guidelines
 The Contract
 7.15 The contract should describe clearly who is responsible for purchasing,
testing and releasing materials and for undertaking production and quality
controls, including in-process controls, and who has responsibility for
sampling and analysis. In the case of contract analysis, the contract should
state whether or not the contract accepter should take samples at the
premises of the manufacturer.
 7.16 Manufacturing, analytical, distribution records and reference samples
should be kept by, or be available to, the contract giver. Any records
relevant to assessing the quality of a product in the event of complaints or
a suspected defect must be accessible and specified in the defect/recall
procedures of the contract giver.
 7.17 The contract should describe the handling of starting materials,
intermediate and bulk products and finished products if they are rejected. It
should also describe the procedure to be followed if the contract analysis
shows that the tested product must be rejected.
45

46. CROs
 CRO relationships have become an essential part of modern drug
development. Pharma outsourcing to CROs has experienced strong
growth over the years, driven by the need for partners that can deliver
increasingly complex clinical trials. Now, expectations are even greater,
with the need for support in rare diseases and niche therapeutic areas
as well as for innovative and efficient services more broadly. CROs that
deliver specialized regional activities such as patient enrolment, market
research, and market access services have the greatest margins.
46

47. CROs
With accelerating pressure on
pharma companies to speed
up drug to market timelines
whilst generating cost
efficiencies, the CRO market
is poised to reach US$45
billion by 2022 (5.4% CAGR
between 2017-2022 and
accounting for 60% of all
drug development).
Current trends within the
market indicate that small to
medium-sized CRO businesses
offer the greatest potential for
growth. These smaller firms are
demonstrating that they have
the agility and the dexterity to
create and innovate in order to
better meet the needs of
sponsors.
47

48. CDMOs Evolution
 The pharmaceutical industry is experiencing a dramatic change.
 Pipeline challenges
 Pricing pressures
 Emerging global markets
 These changes are redesigning the way these companies operate.
Providers to the pharmaceutical industry, such as CDMOs, will need to
alter and update as well.
48

49. CDMOs Evolution
 In the years to come, contract manufacturers that distinguish their
offerings and abilities will be able to retain customers and grow their
business within this highly competitive marketplace. Those that are
able to adapt quickly, by taking benefit of the transformative nature of
the industry, will position themselves as market leaders.
49

50. CDMOs Evolution
 CMO customers are not only expecting competitive pricing but also
regulatory compliance, flexibility on the production capability and on
time delivery. Overall it is required that CMO complies with good
manufacturing practice from their client and regulatory bodies such as
Food and Drug Administration
50

51. 51
CM Trends

52. CM Trends
SWOT
S
O
T W
Strength
Threat
Weakness
Opportunity
-Strong growth of the CM market in coming years
-Increased demand for CM due to global increase in medications consumption
-CM helping big Pharma to meet the market demands
-Stiff competition in the global market posing threats for leading players to win
contract for manufacturing
-Stringent regulation affecting market growth
-Manufacturing site approval by regulatory bodies
-Innovation in new drugs
-Stringent regulation affecting market growth
-Adoption of new technologies in pharma CM
-Increasing demand for biopharmaceutical products
-Difficulty in meeting international regulations for drug manufacturing
-Unable to cope up with the frequent changing preferences for drug
manufacturing
52

53. CM Trends
53
CMOs are evolving
from service
providers to
strategic partners.
The past five years have
seen roughly 50% of new
drugs manufactured by
CDMOs, emphasizing the
significant reliance big
pharma has on these
partners. Looking ahead,
the space is predicted to
grow significantly by 2023.
CMOs now cover the
entire value chain of
pharma production,
including specialized
services such as
R&D.
The one-stop CDMO
concept could be the
direction the industry is
heading by offering the
whole spectrum of
development services (e.g.
development, production
and analysis).
New agreements and
stronger partnerships are
emerging, with CMOs
buying manufacturing
sites or taking on
construction projects to
support manufacturing
requests.
Outsourcing to CDMOs is
increasing due to the
reduction of
manufacturing facilities
across pharma, as well as
the increased reliance on
the more efficient services
provided by CDMOs.
Less waiting between R&D
projects and faster time to
market for a drug means
less wastage and better
margins. The knowledge,
tools, and processes that
CDMOs offer are
invaluable resources for
pharma companies.

54. CM Trends
 Pharmaceutical manufacturing services are expected to be the largest
revenue contributor to the CDMOs market in 2019. The large share of
this segment can be attributed to:
 The growing need to reduce manufacturing cost
 The requirement for high-quality bulk manufacturing
 Growing demand for generic drugs
 High cost of operations
 Lack of in-house manufacturing capacity
54

55. CM Trends
 Before the financial crisis of 2007–2008, 75% of the candidates that
outsourced services were small and mid-sized biotechnology and
pharmaceutical companies. Following the financial crash in 2008 the
CMO industry started to be funded by private equity as a result of a
substantial growth and a more qualified management.
55

56. CM Trends
 Demand for CDMOs in regard to service offerings and technological
requirements is growing. Historically, pharma companies turned to
outsourcing for chemical active pharmaceutical ingredients (APIs) and
simple finished dosage forms (FDFs), primarily in generics and
consumer health. Now, they are outsourcing high-potency APIs, bio-
APIs, biopharmaceuticals, advanced bulk, and new molecular entities.
56

57. CM Trends
 Combining onerous regulatory processes with intense market pressure
necessitates the implementation of innovations that data, digital, and
technology can offer. Such optimization has propelled the industry
forward, facilitating its ability to respond to diverse client needs,
underpinning CMO growth. So market conditions continue to favour
CDMOs, with record levels of investment supporting the pharma
ecosystem’s growing needs.
57

58. CM Trends
 The increasing diversity of CDMO solutions works to meet the needs of
evolving customer expectations. This in particular includes the targeted
treatments in oncology, and the rare disease space - critically in the
spotlight as a major growth area.
 Innovations in data, digital, and technology along the drug
development pathway are the next frontier for improved services that
CDMOs can offer.
58

59. CM Trends
 A range of factors are behind the growing importance of CMOs within
the production line for drug development. Certainly the digitization of
the supply chain and services that extend beyond many in-house
capabilities, are among key drivers of success. With increasing
consumer influence over price, quality, and service, pharma companies
require a strategic CMO partner for the benefit of delivering
capabilities most mid-sized pharma companies cannot afford to deliver
in house.
59

60. CM Trends
 The CMO landscape is highly fragmented, with more than 400 companies
holding less than 2% of the market and as much as 49% of revenue
coming from the top 10 CMOs. Our research reveals six categories of
CMOs:
 Portfolio broadness: The number of types of API, bulk, and FDF capabilities.
(Note: A supplier that covers more than three of five categories—solids, semi-
solids and liquids, injectables, small APIs, and large APIs—is considered to have
a broad portfolio.)
 Technological fitness: The high-tech technologies the CMO offers: large-
molecule APIs, special products, or sterile products (bulk and FDF)
 Economic scale: Company revenue (US dollars) and revenue growth (CAGR)
 Ownership: Private-equity owned, publicly traded, or family owned
 Because suppliers in the same category have similar predispositions, CMOs can
use our categorization to inform decisions about factors such as M&A,
partnerships,
 Technology: while pharma players can use it to find a CMO that fits their needs.
60

61. CM Trends
 Novel Business Models and Partnerships: We believe three business
models will transform CMO–pharma relationships:
 Value-chain expansion. CMOs become strategic partners, offering pre-
clinical development and research services to create a one-stop shop that
covers the entire value chain of a product group.
 Flexible capacity. CMOs invest in equipment and facilities to build
dedicated capacity and offer flexible production capacity with full-service
capabilities for a specific product group.
 Risk sharing. CMOs reduce their prices but gain benefits if the product is
successful (mostly small, virtual pharma players seeking to improve their
credibility).
61

62. CM Trends
 Several companies are already using these models:
 Patheon has a flexible capacity partnership with Flexion Therapeutics and is
responsible for building a manufacturing site, installing and validating
equipment, and manufacturing Flexio’s FX006 drug.
 Catalent has entered a value-chain expansion partnership with Mitsubishi
Gas Chemical Company to promote Catalent’s GPEx technology in Asia.
Catalent will engineer the cell lines and carry out development, and
Mitsubishi will provide phase III and commercial manufacturing and use
GPEx technology to offer biosimilar cell lines to pharma partners.
62

63. CM Trends
INFORMATION
INFORMATION
INFORMATION
01
The modern day CMO
needs to create
an efficient information
interface with the
pharmaceutical company
particularly in terms of
forecasting,
ordering and delivery.
Big pharma companies
require modern CMO’s to
be efficient, low
cost and innovative in
developing
manufacturing, quality and
service
improvements. Innovations
are often
progressed in collaboration
between
the Pharma company and
contractor.
It is essential for the
modern day CMO to excel
in performance by
delivering a quality product,
at a
competitive cost, with good
service and a responsive
interface. What
management system is
required to
deliver this performance
and what KPI’s are most
effective?
Performance
Lean
Manufacturing
Systems
Integration
63

64. CM Trends
INFORMATION
INFORMATION
INFORMATION
01
Although there will always be short-
term tactical contract
manufacturing, there is a progressive
move towards longer
term strategic partnerships with some
pharmaceutical companies looking at
contractor sites as an extension of their
own network. The modern day CMO
needs to build
long term alliances with their clients,
becoming a strategic partner. This
requires increasing trust and
confidence between both parties over
the outsourcing of products and
volumes in the longer term.
With so many products being developed
outside of the main R&D functions of big
pharma companies, the industry is moving
to the point where much of the discovery
stage is being done by small start-ups and
virtual biotechs. The larger companies are
in-licensing these products for the
final phase of development and
commercialization. The modern day CMO
needs to be able to provide development
as well as manufacturing services. It needs
to be able to take in compounds at an early
stage, develop formulations and CMC
packages, manufacturing processes and
scale up
from laboratory to production.
Development Capabilities Strategic Alliance
64

65. CM Trends by Service
 Pharmaceutical Contract Development and Manufacturing Market, by
Service:
 Pharmaceutical Manufacturing Services
 Pharmaceutical API Manufacturing
 Pharmaceutical FDF Manufacturing
 Parenteral/Injectable
 Tablet
 Capsule
 Oral Liquid
 Other Formulations
 Biologics Manufacturing Services
 Biologics API Manufacturing
 Biologics FDF Manufacturing
 Drug Development Services
65

66. CM Trends by Service
Pharmaceutical Contract Manufacturing Market by Service:
66

67. CM Trends by Service
 The market is divided into three segments:
 APIs
 intermediates (bulk)
 FDFs
 These include solids, semi-solids, liquids, and injectable doses. The
largest segment is API and intermediate CMOs, with around 80% of the
market and predicted growth of 8% until 2020. 95% of revenue is
generated by CMOs that focus on chemical APIs. However, by 2020,
CMOs focusing on biotech APIs will increase their revenue share to
9.5%, and generic APIs will make up 65% of the market (source: Frost &
Sullivan). FDFs are predicted to grow at 9% until 2020, mainly due to
the need for oncology and immunology products.
67

68. CM Trends by Service
 Most of the companies in this industry are increasingly focusing on the
development of biological APIs, which is driving the API manufacturing
segment of the market studied. The general prescription drug
subsegment has more demand for API manufacturing, as compared to
OTC drugs.
 Other factors driving the growth of the API manufacturing segment
include the increasing government initiatives in the healthcare sector,
innovation in biologics, and rise in the incidence of cancer and age-
related diseases. However, strict regulatory policies in regions like
Europe may hinder the segment’s growth.
 The increasing emphasis on high-potency APIs is driving the growth of
the segment. The novel technologies for HPAPIs can potentially change
the in-out balance of CMOs in this fast-growing segment.
68

69. CM Trends by Service
 Active Pharmaceutical Ingredient (API) Manufacturing is Expected to
Register a Significant Growth. The demand for API manufacturing has
witnessed a sustained rise over the past few years, and it is expected to
continue rising steadily, with further patent expiries expected in the
future and a subsequent increase in the global generic production
capacities.
69

70. CM Trends by Service
 Finished dose formulations are expected to register the fastest growth
in the coming years.
 Contract research services for oncology dominated the market and are
anticipated to maintain the dominance in the coming years.
 Active molecules from small companies are always acquired by the big
pharmaceutical companies.
70

71. CM Trends by Region
 Various studies of more than 300 CMOs sheds light on the technology
distribution across regions, supporting the theory of Europe as a global
hub and confirming Asia Pacific’s growing capabilities.
71

72. CM Trends by Region
 The CDMOs market in the Asia Pacific is estimated to grow at the
highest CAGR during the forecast period. This is due to the following
factors, all of which are driving outsourcing of pharmaceutical contract
development and manufacturing to the Asia Pacific:
 Its growing manufacturing sector
 Favorable government regulations
 Increasing emphasis on off-patent drugs
 Highly skilled workforce
72

73. CM Trends by Region
 Asia Pacific is Expected to Account for a Highest Growth
 China is becoming the most attractive country for outsourcing. The
majority of the CMOs operating in China today offer mainly API and bulk
drug products manufacturing for approved branded and generic drugs.
Some of the leading API and chemical intermediate CMOs of the country
include Beijing Second Pharmaceutical, Asymchem Laboratories,
Chongqing Huapont Pharmaceutical, Shandong Xinhua Pharmaceutical,
Porton Fine Chemicals, Venturepharm Laboratories, and Tianjin
Pharmaceutical.
 With the advent of multinational pharmaceutical organizations and their
rapidly growing presence in India, the concept of contract manufacturing
has steadily evolved and quickly adapted to encompass services, such as
formulation development, basic manufacturing of medicinal products,
stability studies, and various stages of clinical trials.
73

74. CM Trends by Region
 Asia Pacific is Expected to Account for a Highest Growth
 India is also taking advantage of this growth in the domestic CMO market,
encouraging the Japanese pharmaceutical industries to set up their
locations in the country, either wholly-owned or in partnership with Indian
companies.
 The CMO market in Japan is still immature. However, the country witnessed
incremental growth over the past few years. The Japanese CMO market
witnessed a growth of about 30%, following the recognition to separate
manufacturing and sales by the Pharmaceutical Affairs Act. The growth
trend has been continuing ever since. The number of CMO manufacturers
of significant size in Japan is low and includes players, like Bushu
Pharmaceuticals, Nipro Pharma, and CMIC.
74

75. CM Trends by Region
 Outsourcing to India and China!!
 Although many emerging markets are experiencing rapid growth in
pharmaceutical outsourcing, demand for the services of CMOs in India
and China is much higher than in others. China is the world’s leading
manufacturer of APIs, with 60% of the countries exports going to the
US, the EU, Japan and India.
75

76. CM Trends by Region
 Europe and the US could benefit, thanks to advanced equipment,
labor, and technologies. This will most likely balance out any short-
term revenue losses from manufacturing low-cost off-patent molecules
and low-end intermediates or solid-dose manufacturing in Asia Pacific.
However, as Asian companies upgrade their facilities and focus on
quality, manufacturing speed, equipment use, and product yield, the
region will become more attractive
76

77. CM Trends by Region
77

78. CM Trends by End Users
 Pharmaceutical CDMOs, by End User:
 Big Pharma
 Small & Mid-size Pharma
 Generic Pharmaceutical Companies
 Other End Users
78

79. CM Trends by End Users
 The big pharma end user segment accounted for the largest share of
the CDMOs market in 2019. This is attributed to the emergence of new
medicines and therapy forms, pricing pressure, pipeline challenges, and
growing opportunities in emerging markets.
79

80. CM Trends by Players
 Competitive Landscape
 The pharmaceutical CM market is highly competitive and consists of
several major players. In terms of market share, few of the major
players currently dominate the market. These major players with a
prominent share in the market are focusing on expanding their
customer base across foreign countries. These companies are
leveraging on strategic collaborative initiatives to increase their market
share and increase their profitability.
80

81. CM Trends by Players
 The companies operating in the market are also acquiring start-ups
working on enterprise network equipment technologies to strengthen
their product capabilities.
 February 2020 - Catalent has signed an agreement with Zumutor Biologics,
Inc., to manufacture Zumutor’s, ZM008, for the treatment of solid tumors.
Zumutor is a biologics company that develops novel immuno-
oncotherapeutics to drive transformational improvements in cancer
treatment.
 December 2019 - Thermo Fisher Scientific Inc. opened its new USD 90
million viral vector CDMO (contract development and manufacturing
organization) site in Lexington, Mass. The 50,000-square-foot facility will
add more than 200 jobs and support the development, testing and
manufacture of viral vectors, which are critical to advancing new life-saving
gene and cell therapies worldwide.
81

82. CM Trends by Players
 Key Market Players: The prominent players in the market include:
 Thermo Fisher Scientific Inc. (US)
 Catalent, Inc. (US)
 Lonza Group Ltd (Switzerland)
 Recipharm AB (Sweden)
 Vetter Pharma International GMBH (Germany)
 FAMAR Health Care Services (Greece)
 AbbVie Inc. (US)
 Aenova Group (Germany)
 Consort Medical plc (UK)
 Almac Group (UK)
 Siegfried Holding AG (Switzerland)
 Boehringer Ingelheim International GmbH (Germany)
 Evonik Industries AG (Germany)
 Grifols International, S.A.
 Baxter BioPharma Solutions
 Dalton Pharma Services
 Patheon
82

83. CM Trends by Players
83

84. 84
Contract manufacturing
is a strategic option for
many companies.

85. CDMOs Market Size
 The global pharmaceutical contract development and manufacturing
market is projected to reach USD 126.6 billion by 2024 from USD 90.0
billion in 2019, at a CAGR of 7.1%. Many pharmaceutical companies
have identified the potential profitability in contracting with a CMO
(contract manufacturing outsourcing) for both clinical and commercial
stage manufacturing.
85

86. CDMOs Market Size
 Pharmaceutical CDMO Market:
86

87. CDMOs Market Drivers
CDMOs
Market
Drivers
The rising demand for generics and biologics
Increasing cost in pharmaceutical R&D and
manufacturing
The capital-intensive nature of the pharma
business in high tech products
Investments in advanced manufacturing technologies,
facilities, specialized knowledge, capabilities for regional
regulatory/language complexities by CDMOs
The growing need for state-of-the-art processes and
production technologies, which have proven highly
effective in meeting regulatory requirements
The growing need to reduce manufacturing cost
The requirement for high-quality bulk
manufacturing
Increasing tendency of governments and
insurance sector to more inexpensive products
87

88. CM Trends
 The CMO space has demonstrated the greatest agility in changing
market conditions. It is the most fragmented of the three (vs. CDMO
and CRO spaces), yet has shown rapidly expanding capabilities that
directly address evolving customers needs.
 CMOs have been particularly adept at delivering rare disease and
personalized treatment drug manufacturing services. A comprehensive
review conducted by Mordor Intelligence stated that the “biggest
factor driving the growth of CMOs in the pharmaceutical industry is the
growing need for state-of-the art processes and production
technologies, which have proven highly effective in meeting regulatory
requirements.”
88

89. Global CMO Market Restraints
 Assessment and selection of optimal contractor network
 Regional variations in cost, quality and service
 Tactical contracting versus Strategic Partnership
 Time and cost of outsourcing or changing CMO
 Growing number of contractors and increasing complexity of network
 Infrastructure required for management of CMO’s
89

90. CMOs M&A
 M&A activity in the fragmented CMO landscape is spiking. This is
leading to plans for geographic expansions and upgrading of
technological capabilities.
 CMOs are consolidating as a means of improving profitability in the
competitive market. Through consolidation, the large CMOs can
expand their geographical presence and penetrate the niche markets.
The small CMOs can leverage the technical expertise and resources of
larger CMOs. For instance, in September 2019, SK Holdings, the
holding company of South Korea's SK Group, established a US-based
consolidated contract manufacturing organization (CMO), SK
pharmteco, a collaboration between SK biotek in Korea and AMPAC
Fine Chemicals (AFC) in the United States.
90

91. CMOs M&A
 The acquisitions that have been finalized in 2017 in CMO and CDMO
industry brought some of these companies to a level that allows them
to compete with global bio/pharma companies. The value of the
mergers and acquisitions in 2017 was likely to exceed $20 billion,
below are some examples of these M&A:
 Another aspect of these acquisition is coming from CMO that are acquiring
manufacturing site from bio/pharma companies.
 In 2017, Pfizer established a manufacturing site in Liscate, Italy, which was
followed that same year by AstraZeneca in Reims, France.
 Novartis Sandoz acquired a site in Boucherville, Canada in 2018, as well
as Glaxo Smith Kline, which began manufacturing out of South Carolina in
the United States.
 Samsung Biologics built three manufacturing plants with a capacity of more
than 360,000 liters, making it the world's largest contract-based
manufacturer in the biopharmaceutical sector at a single site as of 2018.
91

92. 92
The global pharmaceutical contract
manufacturing/contract research
market is anticipated to reach USD
238.3billion by 2025, according to a
new report by Grand View
Research, Inc.

93. 93
Advantages of CM

94. Advantages of CM
 Businesses choose contract manufacturing for a few primary reasons,
all of which make it easier and less expensive to bring new products to
the market and distribute them broadly. The biggest cost benefit of
using contract manufacturing is from not having to build a production
facility and staff it with workers and managers.
94

95. Advantages of CM
 Companies may save money by hiring a manufacturer based in a low-
wage area or country. The location of the manufacturing plant might
also offer savings in energy, overhead, and raw material costs as well as
tax savings.
95

96. Advantages of CM
 Contract manufacturing frees up people at the hiring firm to stay
focused on their core strengths of marketing and, possibly, sales. If the
owner has a background in those areas, they may be able to hire fewer
people to assist them.
 The company may be able to easily introduce its products into the
country in which they're made. It could also gain entry to the markets
of neighboring countries.
96

97. Advantages of CM
 Summary of the benefits of CM:
 Cost savings – Companies save on their cost of capital because they do not
have to pay for a facility and the equipment needed for production. They
can also save on labor costs such as wages, training and benefits. Some
companies may look to contract manufacture in low-cost countries, such as
India, to benefit from the low cost of labor.
 Mutual benefit to contract site – A contract between the manufacturer and
the company it’s producing for may last several years. The manufacturer
will know that it will have a steady flow of business until then.
 Advanced skills – Companies can take advantage of skills that they may not
possess, but the contract manufacturer does. The contract manufacturer is
likely to have relationships formed with raw material suppliers or methods
of efficiency within their production.
97

98. Advantages of CM
 Quality – Contract manufacturers are likely to have their own methods of
quality control in place that helps them to detect counterfeit or damaged
materials early.
 Focus – Companies can focus on their core competencies better if they can
hand off base production to an outside company
 Economies of scale – Contract manufacturers have multiple customers that
they produce for. Because they are servicing multiple customers, they can
offer reduced costs in acquiring raw materials by benefiting from
economies of scale.
98

99. Advantages of CM
 Why outsource pharmaceutical manufacturing?
 Pharmaceutical manufacturing is time-consuming, difficult, and laden with
regulations. It makes sense for a drug company to outsource this
production to third parties, as it not only reduces internal costs but also
allows the company to focus on more important items. Drug companies
using a CMO have an increased ability to:
 Fast track time to market
 Improve drug discovery and marketing
 Reduce labor and training costs
 Keep up with growth trends
 Limit financial risk in case of late-stage product failure
99

100. Advantages of CM
 The bio/pharma companies used to build and staff dedicated
manufacturing capacities for drugs in development only to see them
cancelled if the product failed in Phase III of clinical research; working
with a CMO limits that financial risk.
100

101. When to Work with CDMOs?
 How to determine when a contract manufacturer is needed:
 The need for service of a contract manufacturer can occur at any time
during the development phase and/or commercial manufacturer of a
product’s life cycle. Such situations occur when:
 Specialized manufacturing capabilities are required that are not available in
house.
 Assistance is needed with product and/or process development.
 The need to establish the market potential of a new product is required
before investing in specialized capabilities.
 Difficulty is encountered in breaking into the manufacturing schedule in a
timely manner to produce small research, clinic, or commercial batches.
 Production requirements cannot be accommodated when sales exceed
capacity.
101

102. When to Work with CDMOs?
 The following checklist will help. Three or more items mean it’s time to
consider a strategic discussion on outsourcing:
 We are much better in some parts of drug development than others.
 We struggle with project handoffs between discovery and development,
and development and manufacturing.
 We have little or no infrastructure for producing our drug at Phase 2 trial
volumes.
 Our FDA approval is contingent on complex refinements to our
development-scale manufacturing processes and CMC preparation.
 We have two or more products in differing clinical phases and only have
resources for one.
 Staff scientists are expert on our compound, but we have limited expertise
on the semisolid (or other type) formulation that we want to develop.
 We spend less per year on training per development/manufacturing
employee than we did two years ago.
102

103. 103
Disadvantages of CM

104. Disadvantages of CM
 Summary of the risks of CM:
 Lack of Control – Hiring company loses a significant amount of control over
the product it outsources. It can only suggest strategies to the contract
manufacturer; it cannot force them to implement them.
 Relationships - It is imperative that the company forms a good relationship
with its contract manufacturer. The company must keep in mind that the
manufacturer has other customers. Most companies mitigate this risk by
working cohesively with the manufacturer and awarding good performance
with additional business.
 Quality concerns – When entering into a contract, companies must make
sure that the manufacturer’s standards are congruent with their own. They
should evaluate the methods in which they test products to make sure they
are of good quality.
 Loss of flexibility and responsiveness – Without direct control over the
manufacturing facility, the company will lose some of its ability to respond
to disruptions in the supply chain. It may also hurt their ability to respond
to demand fluctuations, risking their customer service levels.
104

105. Disadvantages of CM
 Intellectual property loss – When entering into a contract, a company is
divulging their formulas or technologies. This is why it is important that a
company not give out any of its core competencies to contract
manufacturers. It is very easy for an employee to download such
information from a computer and steal it.
 Outsourcing risks – Although outsourcing to low-cost countries has
become very popular, it does bring along risks such as language barriers,
cultural differences and long lead times.
 Capacity constraints – If a company does not make up a large portion of
the contract manufacturer’s business, they may find that they are de-
prioritized over other companies during high production periods. Thus,
they may not obtain the product they need when they need it.
 Pricing – This addition of a second company and second profit margin to
be achieved, adds in cost to the product. The impact is seen either in a
higher selling price to the customer or in a reduced profit margin for the
company.
105

106. Disadvantages of CM
 Perhaps the biggest disadvantage of contract manufacturing is a lack
of direct control over the quality of the final product. The hiring
company can't manage what goes on day to day, and it might not get
exactly what it wants on a consistent basis.
 A business that hires a contract manufacturer should keep in mind that
it won't be the only customer and may not be as important to the
manufacturer as other, larger clients.
106

107. Disadvantages of CM
 The hiring company also runs the risk of having its ideas appropriated.
Some unethical contract manufacturers have been known to give away
product ideas from one client to another favored client or to produce
its own similar product with only a slight tweak or two. Business
owners should hire an attorney to get a strong legal contract that will
protect against any such behavior.
 When dealing with an overseas manufacturer, business owners should
take care to identify which country's legal system the contract is
governed by.
107

108. Disadvantages of CM
 When Your Contract Manufacturer Becomes Your Competitor
 IBM essentially created the personal computer industry. It won’t be long,
however, before the company’s nameplate disappears from PCs and IBM
leaves the business, except for the joint venture it recently formed with PC
maker Lenovo. Founded in 1984 as a distributor in China of equipment
made by IBM and other companies, Lenovo will eventually affix its own
logo to the PCs.
108

109. Disadvantages of CM
 Cultural and language differences may also be a consideration if a
business is working with a manufacturer in another country. In
addition, potential political and economic risks should be weighed
when choosing a manufacturer.
109

110. Disadvantages of CM
 The pharmaceutical client using the services of a CMO does not have
direct control of the project in regard to scheduling, cost, quality, or
accountability. Data security is an issue to be considered when
selecting a CMO, as intellectual property and other proprietary data are
exchanged between client and service provider.
110

111. Disadvantages of CM
 One of the major risk, as mentioned earlier, remains in the lack of
control over the CMO's compliance for the client, for example when an
FDA warning letter is issued, a resulting interruption of production may
result in major delay or interruption of shipping. The rise of the CMO
industry led to an increase of inspectors from various divisions of the
Food and Drug Administration.
111