Getting the thoughts together – Conclusion.

In order to conclude you need to start first. So, everything starts here. Expectations. In the CDMO business you need to ease your expectations, especially when it comes to timing. If you don’t have patience, then it’s better to choose another industry to invest in. But it’s not only timing. It is also important to know what to expect in terms of growth and profitability. Knowing your competition and understanding the value that your services add to your customers will help. If you produce simple tablets or liquids, don’t forget that there are more than 200 CMOs in Europe that produce exactly the same and that nowadays a pack of tablets maybe less expensive in the pharmacy than a pack of chewing gums in the kiosk. So, if you want to achieve high profits, think how to better position yourself in the market and differentiate from the masses.

Then there is Customer Satisfaction. Don’t forget that customers pay your salaries in the CDMO industry. Upsetting them will immediately result in no new business and may also result in discontinuation of existing products. And if this happens, then you need to see what to do with your costs. Because if you keep the same costs but with reduced revenue, then your CFO will complain about low / unacceptable profitability.

And this takes us to profitability measurements. From the different ways to calculate profitability at product level, there is no one that fits all CDMOs. It has to do with your overheads absorption and your capacity utilization. Think twice before deciding which is the best way to calculate the profitability for new and existing business, because this will affect your short and long term success. Choosing the wrong profitability measurement might result in taking wrong decisions going forward.

Talking about costs, it is important to remember that Cost is different than Price. And providing a price in the CDMO industry takes more than calculating your cost and then just add a profit on it. You need to know what your customer is willing / could afford to pay for the specific product that you are about to quote, and it wouldn’t hurt if you also knew what your competition is offering. If you don’t spend time to do so, then you risk either to leave value on the table or worse, to be considered expensive and lose the business. Having also a rough idea on average manufacturing profitability of similar products in the market, would also help.

And it is a good idea to spend some time understanding the competitive environment that your CDMO business operates in. What pharma companies look for in a CDMO? It might be quality, reasonable pricing, good customer service, high OTIF etc. but all these are for given. Pharma companies nowadays also look for expertise. Because new products in the market or products that will enter the market in the next years, require technologies not so many CDMOs have. So, knowing what those technologies in need are, understanding which from your competitors have already invested in such technologies, but also knowing how to price a product that uses these technologies is important.

Finally, someone has to do all this work. And usually, it is your people that have to deliver. Asking them to deliver unrealistic results or demanding to change their mentality overnight in order to align with the new company culture, it is not the way forward. People need to understand the vision, need to adapt to potential changes and unfortunately most people don’t enjoy big changes. Push them too much, and you will lose them. And although everyone is replaceable, it is nice to remember that nobody wants to work in a toxic environment for a long time.

They messed up and left a fictitious CDMO but the mess that was created was huge. Let’s hope that the above pages will inspire caution and give some food for thought to those involved one way or another in the pharmaceutical CDMO industry.