Competing in the Global Contract Manufacturing Market


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The global contract manufacturing market is growing steadily with firms allocating up to four percent of annual organization revenues for contract manufacturing organization (CMO) services, with a likely markup to 11 percent within the next three years. On average, firms partner with six CMOs, indicating high potential for business. However, the overall satisfaction and likelihood of contract renewal is fairly low - around 40 to 50 percent across all product types. To minimize vendor switching, CMOs would do well to invest in marketing their services through outlets such as tradeshows, conference booths and word-of-mouth recommendations from colleagues.

Recent customer research from Frost & Sullivan's ( Competing in the Global Contract Manufacturing Market analysis, which surveyed 312 global decision makers from biotechnology and pharmaceutical firms, reveals that of all parameters used in CMO agreements and selection, volume commitments ranks as the most important, followed by manufacturing capacity and site transfer capabilities.

For more information on this research, email Jennifer Carson, Corporate Communications, at, with your full name, company name, job title, telephone number, company email address, company website, city, state and country.

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Competing in the Global Contract Manufacturing Market

  1. 1. Competing in the Global Contract Manufacturing Market What Pharmaceutical and Biotechnology Companies Want and How to Compete for their Business ND00-52 October 2013
  2. 2. Contents Section Page Research Objectives and Methodology 4 Executive Summary 9 An Overview of the Global Contract Manufacturing Market, Now and in the Future 15 Impact of Attitudes and Perceptions on CMO Outsourcing 22 Preferred CMOs and Drivers of Selection 26 The Outsourcing and Manufacturing Markets: Assessing Growth Opportunities and Threats 58 Areas of Marketing Opportunities 70 Appendices 76 The Frost & Sullivan Story 215 Source: Frost & Sullivan ND00-52 2
  3. 3. Research Objectives and Methodology ND00-52 3
  4. 4. Research Objectives Overall Objective: To provide contract manufacturing organizations (CMOs) a sound basis for formulating an effective strategy to compete in the market, including areas of opportunities and threats. Specific objectives are as follows: Objective 1: To calculate pharmaceutical and biotech companies’ current and future strategy and capacity needs. Objective 2: To understand pharmaceutical and biotech companies’ outsourcing priorities and trends. Objective 3: To understand pharmaceutical and biotech companies’ perceptions/attitudes toward CMOs. Objective 4: To determine pharmaceutical and biotech companies’ CMO selection criteria. Objective 5: To measure pharmaceutical and biotech companies’ price perceptions toward CMOs. Objective 6: To understand the decision-making dynamics within pharmaceutical and biotech companies. Specifically, to identify key parties involved in outsourcing initiation, evaluation, recommendation, approval, and CMO performance evaluation. Objective 7: To identify pharmaceutical and biotech companies’ business models. Objective 8: To compare pharmaceutical and biotech companies’ regional capabilities. Objective 9: To identify preferred areas related to informational marketing of CMO services (such as information sources, trade journals, and conferences). Source: Frost & Sullivan ND00-52 4
  5. 5. Methodology Methodology A mixed methodology was utilized for this customer research, with the use of telephone interviews as the primary method (n=181) and a Web-based survey as a secondary measure (n=131). Sample A total of 312 global decision makers of the final drug form contract manufacturing (non-API) process within biotechnology (biotech) or pharmaceutical (pharma) companies were surveyed from November 2012 to January 2013. APAC Region 26%, n=80 Australia 2%, n=6 China 6%, n=18 India North America Region 49%, n=154 3%, n=9 Indonesia Europe Region 25%, n=78 France Germany 1%, n=3 11%, n=35 Italy 1%, n=4 Russia 5%, n=15 Singapore Spain 2%, n=5 Switzerland Vietnam 1%, n=2 4%, n=14 United Kingdom 2%, n=6 4%, n=13 1%, n=4 Note: Due to rounding, percentages in charts and tables may not sum to 100. ND00-52 4%, n=12 Malaysia 49%, n=154 4%, n=12 Korea United States Source: Frost & Sullivan 5
  6. 6. Methodology (continued) Sample (continued) The following company and product types were represented in this research. Product Types Currently Being Outsourced: Global, 2013 Company Types* Represented: Global, 2013 Virtual/emerging 55%, n=171 14%, n=45 Small Molecules Small/medium biotech/pharma 31%, n=96 21%, n=65 Inhalation therapies Big biotech/pharma Dermatological formulations 19%, n=59 Injectables 41%, n=127 Liquid dosage compounds 33%, n=103 Nasal sprays Basic oral solids (i.e. tablets, capsules) Advanced oral solids (i.e. controlled release, fast dissolve, softgel) Large Other small molecules ND00-52 54%, n=167 28%, n=88 5%, n=16 Mammalian 24%, n=76 Microbial 24%, n=75 Other large molecules *Company types are categorized based self reported company types and organizational revenues. 17%, n=52 2%, n=5 Source: Frost & Sullivan 6
  7. 7. Methodology (continued) Sample (continued) The following titles of respondents were represented in this research. Respondent Titles: Global, 2013 Corporate management (e.g., CXO) 24%, n=76 Quality/QA/QC 21%, n=65 Business product leaders (e.g., marketing, product development executives) 19%, n=58 Manufacturing/operations 13%, n=41 Research and development 12%, n=38 Purchasing/procurement/sourcing/outsourcing 11%, n=34 Source: Frost & Sullivan ND00-52 7
  8. 8. Executive Summary ND00-52 8
  9. 9. Executive Summary Market dynamics and CMO selection is as follows: • Overall satisfaction and likelihood of contract renewal are in the 40-50% range across all product types, indicating opportunity for CMO vendors switching in the future as the majority of respondents are dissatisfied and do not have intentions to renew. • Of the top 15 CMOs, Baxter Biopharma Solutions, Boehringer Ingelheim, and Pfizer CentreSource are rated as having the highest degree of premium pricing which also correlates with these companies having the highest ranking for full service offerings or a broader number of services available. • Overall, pharmaceutical and biotechnology companies prefer to outsource to CMO companies that possess operations in the same region (i.e. European biotech companies are more likely to select European CMOs). • Overall, 37% of respondents indicated they are likely to partner with a CMO that functions as an external consultant, specifically for manufacturing process consulting expertise. • Of all parameters used in CMO agreements and selection, volume commitments, ranks as the most important criterion, and capacity and site transfer ranks as second. Source: Frost & Sullivan ND00-52 9
  10. 10. Executive Summary (continued) Criteria for business that is most or least likely to be outsourced to CMO companies: • The most prevalent service capabilities being outsourced to CMO companies are packaging, logistics, and clinical trial supply. • The most prevalent service capability being planned for outsourcing to CMO companies is drug delivery technology services. • The least likely service capability to be considered for outsourcing is research and development—likely due to concerns regarding competitive intelligence and an inability to select and hire key staff. • Within the next 5 years, it is expected that the largest proportion of lot sizes for preclinical, clinical, and commercial phase manufacturing will remain the same. However, 43% expect that commercial phase manufacturing will get larger. Source: Frost & Sullivan ND00-52 10
  11. 11. Executive Summary (continued) Preferred CMO marketing exposure outlets are defined as follows: • The most preferred methods for learning about CMO services are tradeshow and conference booths and word of mouth recommendations from colleagues. • The top trade journal read is Pharmaceutical Outsourcing but other journals closely behind in ranking include Pharmaceutical Manufacturing, Contract Pharma, BioPharm International, and Pharmaceutical Technology. • The top 2 trade shows attended or planned to be attended are BIO Annual Meeting and AAPS Annual Meeting. o The BIO Annual Meeting and Bio Europe ranked the highest for the virtual and emerging category. • The top 2 e-newsletters read worldwide are Outsourcing Pharma and Fierce Biotech. Source: Frost & Sullivan ND00-52 11
  12. 12. Executive Summary (continued) • Baxter Biopharma Solutions and Boehringer Ingelheim are the most preferred CMO companies, earning the largest share of preference (22%). • No single CMO company was able to achieve the highest preference across regions: o Baxter Biopharma Solutions is the most preferred CMO by US respondents. o Baxter Biopharma Solutions and AAl Pharma Services are the most preferred CMOs by European respondents. o DSM is the most preferred CMO from APAC respondents. CMO prevalence by company and product type: • Abbott is the most prevalently used company for basic oral solids due to its personnel background and expertise, indicating the high importance of a positive reputation. • Baxter is the most prevalently used company for injectables due to their overall quality highlighting the importance of quality assurance for injectables which have the highest standards of quality. • Abbott is the most prevalently used company for liquid dosage compounds, with the core reasons related to manufacturing capacity and personnel background and expertise. Source: Frost & Sullivan ND00-52 12
  13. 13. Executive Summary (continued) CMO prevalence by company and product type (continued): • Catalent is the most prevalently used company for advanced oral solids, with overall quality being the core reason. • No single company dominates mammalian product manufacturing, indicating opportunity for manufacturers with interest in the space. • Lonza is the most prevalently used company for microbials, with overall quality being the core reason. • Abbott is the prevalently used company for dermatological formulations, with the core reason related to overall quality. • GlaxoSmithKline is the most prevalently used company for inhalation therapies, with overall quality and personnel background/expertise being the core reasons. • GlaxoSmithKline and Sanofi are the most prevalently used for nasal sprays. Source: Frost & Sullivan ND00-52 13
  14. 14. Overview of the Global Contract Manufacturing Market ND00-52 14
  15. 15. Regional Comparisons of Company Types Represented Among Respondents Regional Comparisons of Company Types Represented Among Respondents: Global, 2013 Big bio/pharma Small/med bio/pharma Europe 11% United States 55% United States 37% Europe 37% Virtual/emerging United States 82% Europe 9% APAC 33% APAC 9% APAC 26% Base: All respondents (n=312). ND00-52 Source: Frost & Sullivan 15
  16. 16. Following the Money The CMO Budget Picture: Global, 2013 Total Sample (%) United States (%) Europe (%) $1,054,006,410 $1,306,331,169 $269,230,769 Product manufacturing budget* $35,000,000 $35,000,000 Proportion of org revenues for product manufacturing budget 3% Proportion of product manufacturing budget to CMO expenditures Averages Organization revenues Product manufacturing budget dedicated to CMO expenditures Amount of organization revenues for CMO expenditures Number of CMOs used Budget allocated per CMO Big bio/pharma Small/med bio/pharma Virtual/ emerging $1,333,437,500 $3,117,187,500 $95,175,438 $369,444,444 $10,000,000 $35,000,000 $375,000,000 $10,000,000 $10,000,000 3% 4% 3% 12% 11% 3% 35% 39% 34% 28% 34% 31% 52% $12,312,820 $13,811,363 $3,383,333 $9,887,500 $129,218,750 $3,108,479 $5,227,778 1% 1% 1% 1% 4% 3% 1% 6 6 7 6 8 6 5 $1,959,999 $2,201,811 $498,865 $1,701,075 $15,662,879 $564,878 $1,036,344 $13,829,186 $15,381,057 $3,904,401 $10,500,947 $143,362,889 $3,502,679 $6,325,391 11% 10% 13% 6% 10% 11% 17% APAC Future expectations (next 3 years) Estimated future CMO expeditures Estimated percent increase of future CMO expenditures CMO expenditure budget toward specific areas Development services $2,644,494 $3,216,971 $576,034 $2,207,384 $29,437,646 $591,156 $1,466,101 Analytical/clinical supply $2,769,595 $3,552,390 $608,132 $2,045,477 $29,491,488 $674,413 $1,297,651 Final form drug manufacturing $5,222,688 $6,356,815 $1,384,998 $3,649,723 $55,510,221 $1,327,375 $2,100,405 Other areas $1,676,043 $685,187 $814,169 $1,984,916 $14,779,395 $515,535 $363,621 Source: Frost & Sullivan *Medians rather than means are used to control for outliers. ND00-52 16
  17. 17. Following the Money Summary • Overall, companies serviced by CMOs globally earn on average of $1 billion in annual organization revenues. Notably, those in Europe have significantly reduced organization revenues compared to regional counterparts. • Of these annual, global revenues, roughly 3% is allocated toward product manufacturing, led by big bio/pharma companies—allocating 12%. • Further reduced is the amount left toward CMO expenditures, which is 1% globally of annual organization revenues ($12.3 million). Notably, big bio/pharma companies allocate 4% of annual organization revenues toward CMO expenditures ($129 million). • Globally, companies partner with 6 CMOs, on average—providing an estimated $2 million per CMO. Those in Europe use 7 CMOs on average, estimating less per CMO ($500,000). Conversely, big bio/pharma use 8 CMOs on average, estimating $15.6 million per CMO. • Overall, within the next 3 years, increased spend toward CMOs is expected at a rate of 11%—with the greatest growth expected in Europe (13%) and virtual/emerging companies (17%). • Universally, more of CMO budgets are allocated toward final form drug manufacturing (42% on average, an estimated $5.2 million), compared to development services, analytical/clinical supply, and other areas. Source: Frost & Sullivan ND00-52 17
  18. 18. Outsourcing by Product Types—Current and Future Generally, all product types are expected to have increased outsourcing in the short term (an average 5% increase). The most prevalent product—basic oral solids—is currently outsourced by 46%, with the expectation that this will increase to 49% within the next 3 years. Notable other areas of potential outsourcing growth are advanced oral solids and inhalation therapies (both expecting 6% increases). Percent of Outsourcing by Product Types—Current and Future: Global, 2013 Injectables Currently outsourced Liquid dosage compounds Advanced oral solids Mammalian Future Microbial outsourcing (within next 3 Dermatological formulations years) Inhalation therapies Nasal sprays In order of product type prevalence Basic oral solids 46% 49% 49% 51% 39% 43% 38% 44% 42% 47% 37% 42% 40% 41% 39% 45% 37% 42% Base: All respondents (n=312). Q1a. What percent of product manufacturing do you currently outsource to contract manufacturing organizations (CMOs) by product type? Q1b. What percent will you most likely outsource within the next 3 years? Source: Frost & Sullivan ND00-52 18
  19. 19. Past Behavior is a Good Predictor of Future Behavior Overall, in the past year, more outsourcing CMO projects were delayed, rather than cancelled (37% versus 14%). Within the next year, delays or cancellations are expected but at a lower proportion than the past year. However, those who reported delays or cancellations in the past have a higher likelihood of delaying or cancelling future projects. Notably, those who cancelled in the past are significantly more likely to cancel future projects (31%). Impact of Outsourcing CMO Project Delays and Cancellations: Global, 2013 Delayed Outsourcing CMO Projects Cancelled Outsourcing CMO Projects Yes 14% Yes 37% No 50% Don't know 13% No 73% Don't know 13% Likely to delay project in future Total sample Delayed past projects Cancelled past projects 14% 25% 29% Likely to cancel project in future Total sample Delayed past projects Cancelled past projects 8% 15% 31% Base: All respondents (n=312). Q5. Within the past 12 months, has your organization delayed or cancelled outsourcing CMO related projects? Q6. Within the next 12 months, what is the likelihood that your organization will delay or cancel any outsourcing CMO related projects? Source: Frost & Sullivan ND00-52 19
  20. 20. Outsourcing—Role in Commercial Products End Revenue Result Approximately half of outsourcing contributes to product development that earns companies less than $200 million in revenues and less than 100,000 units annually—primarily with significant differences between big bio/pharma and small/medium bio/pharma. Outsourcing’s Role in Commercial Products End Revenue Result: Global, 2013 Averages Total sample (%) United States (%) Europe (%) APAC (%) Big bio/ Pharma (%) Small/med bio/pharma (%) Virtual/ Emerging (%) Annual outsourcing spend allocated to commercial products with following revenue potential Less than $200 million 54 51 59 53 32 66 53 $200–$499.9 million 21 25 15 18 30 16 19 $500–$999.9 million 13 12 12 15 22 8 10 More than $1 billion 13 12 14 14 16 10 19 Commercial product manufacturing annually outsourced within the following categories Less than 100,000 units/year 100,000–500,000 units/year 500,000–2 million units/year More than 2 million units/year 45 42 55 40 23 54 57 26 30 20 25 31 24 23 17 16 15 18 27 13 8 12 11 10 16 19 9 11 Base: All respondents (n=312). Q8. What percent of your total annual outsourcing spend is allocated to commercial products with the following revenue potential? Source: Frost & Sullivan Q9. What percent of commercial product manufacturing do you outsource for products in the following categories? ND00-52 20
  21. 21. For More Information Jennifer Carson Corporate Communications (+1) 210.247.2450 Source: Frost & Sullivan ND00-52 21
  22. 22. The Frost & Sullivan Story ND00-52 22
  23. 23. The Frost & Sullivan Story Pioneered Emerging Market & Technology Research Partnership Relationship with Clients Visionary Innovation • Global Footprint Begins • Growth Partnership Services • Mega Trends Research • Country Economic Research • GIL Global Events • CEO 360 Visionary Perspective • Market & Technical Research • GIL University • GIL Think Tanks • Best Practice Career Training • Growth Team Membership™ • GIL Global Community • MindXChange Events • Growth Consulting • Communities of Practice Source: Frost & Sullivan ND00-52 23
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