Competition Yields Benefits For Pharma Companies Outsourcing API Manufacturing

t’s no surprise that cost savings motivate outsourcing. However, the affordability of an individual company’s services does not necessarily ensure that it will win a project ahead of costlier competitors. Strategic outsourcing tends to bring various benefits to the sponsor organization beyond cost savings, including the ability to focus on core competencies, increased productivity, and access to additional or specialized scientific expertise.

Nice Insight surveyed buyers of CMO services to identify the motivations for engaging contract manufacturers, and results showed that the top three reasons for strategic outsourcing are to improve quality (54%), improve time-tomarket (49%), and reduce fixed costs (45%).

Beyond probing what motivates these buyers to engage contract manufacturers, the survey asked specifically which products and services respondents acquire from CMOs. Forty-three percent said they purchase small molecule APIs from contract manufacturers, and 30% go to them for potent APIs. While the percentage of respondents who acquire drug product from CMOs (50%) was higher, the large number of innovator pharmaceutical companies that subcontract API production highlights a clear shift from the twentieth
century mindset when pharmaceutical companies tended to complete the final stages of API synthesis in-house.

As intellectual property protections improved, the necessity for in-house API production became less imperative. Parallel quality control testing indicated that outsourced API met the same standards as in-house product, and, as a result, CMOs advanced from manufacturing late-stage intermediates to APIs. Pretty quickly, the API contract manufacturing market was flooded with excess capacity and companies competing for business that largely precluded differentiation in capabilities. These issues were compounded by the emergence of low-cost manufacturers in Asia. Yet the result of these problems for CMOs — price
erosion — provides an advantage for pharmaceutical innovators.