Investing in the Future, Demand for CROs and CMOs is Rising


For CROs and CMOs, the industry’s goal to be increasingly capital efficient is a good thing. Many pharma companies, not just those with underutilized lab space and personnel, will continue turn to CROs and CMOs to reduce overall costs in 2016.

In fact, demand for U.S.-based CROs and CMOS is growing because they have become more competitive as Chinese wages increased, rising an average of 12 percent per year since 2001, according to The Economist. This will likely drive renewed interest in the U.S. for drug manufacturing because as the gap between wages in China and the U.S. decreases, the other advantages – in language, time zone, culture, logistics, etc. – become more significant.

But in an interesting development, many companies working with U.S.-based CROs and CMOs are looking for more than lower costs.

They’re looking for specialized expertise.

A recent Boston Globe article reported on a trend of ad hoc drug discovery teams coming together like a Hollywood production team, working on a project through a milestone (which depends on the goals of whoever owns the intellectual property), then disbanding and moving to the next project, perhaps with a different team of all-stars. That business model is likely to continue beyond 2016 as demand continues, driven by a raft of new drug development programs initiated in 2015.

Demand for U.S.-based outsourcing partners is increasing, particularly for international companies looking to get FDA approval to sell their drugs in the world’s largest market.  Thanks to GDUFA, which has funded more stringent inspections of foreign facilities, those companies — both inside the U.S. as well as those outside the country — are taking  significant risks when working with CROs and CMOs outside the U.S. — risks related to quality controls and analytics as well as a lack of understanding of guidelines, regulatory scrutiny, etc. In fact, a local company asked for help when its partner in India failed inspection and that their product which was expecting imminent approval would be held up indefinitely. The problem was: a sample of the reference listed drug (RLD) that was utilized during development had now expired and with no new RLD available, redeveloping the product would not be possible. The net result: significant investment and years of work now sit indefinitely in regulatory limbo.

As an example in dealing with the shifting priorities of regulatory scrutiny, we’re seeing new guidance on a drug substance’s impurities that is pushing people to better address how they identify and determine their potential toxicity. Those that don’t appropriately respond to the new guidances will have their applications rejected and thus   won’t be able to achieve key milestones. And in a capital-efficient environment, meeting key milestones is the most important way to get additional (and necessary) funds. So it is critical that companies and their outsourcing partners keep abreast of the latest changes in the regulatory guidance.

Meanwhile, another trend that will benefit CROs and CMOs is that companies are recognizing that they need to invest in their IP In order to maximize the potential payout, whether when going public, getting FDA approval or, as is increasingly the case, when they license or sell their IP.

Big pharma is doing more due diligence on the assets that small biotechs are trying to sell them. That means there’s value in investing into your assets. Like a potential homeowner, big pharma will demand discounts if, after its due diligence, it sees the equivalent of needing new plumbing and other upgrades before they can use it. In order to maximize value, biotechs needs to put the right team and have the right capabilities in place. The best, and most capital efficient way to achieve that may be assembling a team of all-star outsourcing partners.