The Year(s) Ahead for CDMOs
An outlook of pain points and opportunities
Headed into the mid-decade, the CDMO segment remains prey to the same fluctuations and pressures impacting the broader biopharma sector. Recent industry shifts suggest CDMOs will have to execute on three main catalysts going forward: Talent, manufacturing, and technology.
Human capital
Amongst the biggest pain points for CDMOs since the pandemic and entering 2024 has been accessing talent. Felt across the industry, the talent shortage can be explained notably by potential candidates joining a “younger” tech industry, seen as more innovative. CDMOs have therefore multiplied internship opportunities, graduate and training programs to attract and retain talent. When asked about the catalysts ahead for the CDMO segment through 2030, Nick Shackley, Veranova’s SVP and CCO, mentioned the pandemic was an eye-opener for firms regarding the value of human capital: “Post-pandemic disruptions and the evolving workforce landscape require a continued focus on recruiting, training, and retaining talent.”
Faced with a talent drought, CDMOs have started to be less picky regarding candidates’ academic experience. Previously, an industry-wide push of requiring four-year degrees and advanced technical competencies (less than 5% of employees at Charles River Laboratories have less than a two-year degree) has restrained access to a wider pool of talent. Andrew Mears, CEO of Lead Candidate, a Newcastle-based talent consultancy for the life sciences sector, who notably has been assisting INCOG in its rapid growth since 2021, shared: “There is a move away from predominantly looking at a candidate’s academic background, and the more forward-thinking organizations are not only focusing on technical capability and experience but also the cultural fit and values alignment to the business.”
Attracting talent is one thing, retaining it is another. With great technical abilities and comfortable with being client-facing, notably during the many tradeshows during the year, CDMO employees are highly marketable individuals. For CDMOs, not being able to retain their most senior people could represent nothing short of an existential threat going forward. In a study of the main factors causing retention issues in the industry, Lead Candidate found that more than compensation, the primary reason for people leaving a company was related to career development and the lack of progression opportunities. The CDMO of tomorrow ought to put the necessary investment onto creating new leaders to navigate an increasingly complex environment. “Just because someone is great at their job does not mean that they will be a good leader. We have to now try and play catch up in this area, and the businesses that recognize this are the ones making investments into their existing talent populations to ensure that they are giving them the training and skills to continue to grow their careers in the organization” concluded Mears.
“On the CDMO side, the US does not have many large manufacturing firms that could absorb all the demand, and some raw materials are only available in China. Bringing manufacturing capabilities back to the US represents an opportunity, but one that will come at a price for all involved.”
Michael Quirmbach, CEO and President, CordenPharma
The onshoring conversation loses steam
COVID-19 exposed the weak supply chain structures of certain drugs vital for the US population. For the past two years, lawmakers, policy-makers, and life sciences stakeholders alike have called for the majority of manufacturing to take place in the US. This however poses at least two substantial challenges. First, that of capacity. As over 70% of drug manufacturing happens overseas, producing domestically products, APIs, and chemicals needed for drugs will require large manufacturing capabilities that very few CDMOs could absorb in the US. Capacity-wise, the US does not even manufacture certain chemicals needed as the outsourcing model has been established for decades. Chen Zhou, CEO and co-founder of ChemPacifc, said: “Currently, it is a daunting task to make a swift transition. Over the past decade or so, many big pharmaceutical companies have shut down their research and development centers and pilot plants in the US, opting to relocate operations overseas.”
And while CDMOs continue to make large greenfield and brownfield investments to expand their facilities (with CordenPharma for instance inking a US$1 billion multi-year deal to expand its large-volume peptides output at its Boulder, Colorado facility), the reality is that many supply chains lead back to raw materials made in China.
“We are seeing an oxymoron where the industry is at the cutting edge of science and innovation, but also extremely risk-averse and slow to adopt modern trends... Life sciences are competing with these forward-looking sectors and need to be prepared to take risks and adapt to the changing working landscape.”
Andrew Mears, CEO, Lead Candidate
However, the hardest barrier to overcome to bring manufacturing back domestically is that of price. From biopharma firms to CDMOs, players have felt that the cost-efficiency calculation has still not tilted towards favoring onshoring supply chains. In 2023, API manufacturer Noramco launched the Noramco Group, a “North American pharmaceutical supply chain provider” aimed at addressing rising drug shortages and quality issues in the US through improved supply chain performance. Noramco’s CEO, Lee Karras, explained: “While there is a clear mission to bring manufacturing back to the US, the feasibility of this largely depends on market demand and pricing dynamics.”
Concerns over drug shortages and supply chain security will keep onshoring discussions going, but there remains uncertainty as to conversations turning into action. In November and December 2023, White House statements emphasized a national security approach to supply chain resilience. However, the hyperbolic conversations in conference rooms and political circles do not appear to match the reality on the ground. In a 2023 Cytiva report, less than 20% of executives questioned said that enhancing supply chain resilience was a top domestic priority for the upcoming two years. For CDMOs, the point will be to remain flexible and grow their international footprint to make their supply chains more robust in light of other possible disruptions. As concluded by Victor Swint, CEO of Florida-based Formulated Solutions: “Supply chain resilience has become increasingly important. The recent fluctuations in global supply networks have underscored the necessity for robust strategies to mitigate disruptions.”
“Digital and automation advancements have brought about better management tools in terms of analyzing data and trends. The technological tools available on the market today are superior and allow for increased efficiency and insights – the industry must embrace and adopt these technologies going forward.”
Raul Cardona-Torres, Chief Quality and Regulatory Officer, Simtra BioPharma Solutions
The CDMO differentiator: AI
One of the advantages of gathering business intelligence over repeated years is that one gets to see the evolution of phenomena into trends – or not. In 2020, during CPHI (contract manufacturers’ largest gathering), a panel discussed for the first time “Introducing Artificial Intelligence and Machine Learning” in the contract manufacturing space. Fast forward three years and the panel topic has grown from introducing to “Loading (the) Potential” of AI. A few months after CPHI 2023, DCAT, the other leading CDMO event, organized as its “flagship event” a panel on the emerging role of AI in supply chain management. Separate from the hope AI brings in drug discovery, leveraging this tool at the supply chain level is where CDMOs will most likely make the greatest strides in the coming five years.
In the future, AI will likely change how biopharma firms and suppliers do business. The advantages are many: AI can facilitate the automation of production lines, visual inspection, quality control, processing, and proactive equipment maintenance. Specifically for CDMOs, it can enhance supply chain management by predicting demand, optimizing inventory levels, improving logistics efficiency, detecting anomalies for quality control, and automating routine tasks to streamline operations. “In essence, we anticipate AI to enhance efficiency, particularly in supply chain management, and play a pivotal role in advancing research and development,” shared Saurabh Gurnurkar, managing director of Uquifa, a CDMO.
For CDMOs that are helping clients move into the commercial space, AI can be useful to repetitively produce high-quality products based on the data gathered and processed quicker and more efficiently. Aragen, the only CRO/CDMO with a Chief Digital Officer, recently embedded all its facilities with automation capabilities to support customers with AI-based assistance from discovery to manufacturing. Moving forward, the industry will likely see CDMOs getting even more serious about AI.
Article header courtesy of Aragen Life Sciences