Pharmaceutical CDMO: Why paying for services?

In the field of pharmaceutical outsourcing where competition is raging, a change of mentality has been taking place in recent years. Where the buyers agreed to pay a little more in their drug unit price, they are today focused on any cent. The contracting of outsourcing relationships causes that the CDMO, in return for the requested tariff reduction, removes services, formerly implicitly included in the unit price … Is the more than ten years ago air flights trend transposed to the pharmaceutical market?

CDMO services

Are we moving from “all-inclusive CDMO” to “low-cost CDMO”?

What is certain is that our generic customers in particular, facing with the government pressure on the tariffs reduction as well as with the regulatory requirements increase, require overall “all-inclusive-low-cost-CDMO” … Beyond of the commercial’s answer on the difficulty of complying with this request, let’s try to analyze this emerging trend.

CDMO and Client: what binds us

What binds the CDMO and its client is the contract. A contract in which the commitments of each others were described at a certain time, usually the time of drafting and signing (if they could be concomitant). A contract lasting a long time, and freezing the relationship … in a world that moves faster and faster … and where immobilism is “deadly”. A typical example between our generic client and our quality department who have been trying to sign a quality agreement for five years, adding clauses between two reviews because regulations changes (ICHQ3D, FMD Directive, etc …).

In short, this contract and the associated commitments have an impact on the resources of the CDMO. These resources are there to do their work which corresponds to the commitments of the sum of the contracts of the CDMO. If unit rates are tight, resources are tight and the organization of the CDMO is optimized to remain competitive based on the contract.

CDMO: Associated Services

If the contract includes services, the resources are adapted and do the work they are paid for (by the contract).

If the contract does not include services, and sometimes, for good relations between the CDMO and its Customer, or to compensate for the last delivery delay, or for any good reason, the CDMO provides a free service to his Client, the resources will do a job for which they are not appointed. These resources are therefore delayed on the work that falls under contract and is disorganized. And as this work is done late, the customer requests a free service. This service will be done instead of a service included in the contract. You can see the vicious circle that starts, even with the appointment of resources for free services at the CDMO, whose indirect costs will increase and create the conditions for non-competitiveness…

On the other hand, if we look to the subject in the other direction, on the low-cost side … or right price … the virtuous circle side … I am a generic customer, I need a low unit price and a perfect service. I agree to pay for additional services such as ICHQ3D, FMD but also SoG or RQP. My CDMO makes profit of its current resources and equips itself to answer my requests. Teams make the work required on time. I’m happy … in the same way that I sip my paid soda in my low-cost flight, or that I sit at rank 1A thanks to the paid option of my low-cost airline…

In this competitive world, where agility is important, it also has a cost, the cost of quality of service rendered in the given time. So if you want to have a satisfactory relationship with your CDMO, agree to pay the additional services!

 

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