CHARACTERISTICS OF AN EFFECTIVE CMO
We believe the analysis above helps establish that the following factors are critical for a CMO to achieve its desired results:
- An effective CMO should have access to significant amounts of capital—on the same order as the large biopharmaceutical companies.
- An effective CMO should build a reputation to help attract top talent in all aspects of biologics manufacturing.
- Biologics manufacturing technology is expected to change rapidly. Therefore, a CMO should have access to top research, with
a goal of being at the cutting edge in its field.
- The first few products for each plant will probably produce financial losses. A CMO must be able to absorb these initial shocks.
For the conservative model we used (calculated using an average of the four revenue scenarios), a CMO will have to produce
at least four products in a plant before it becomes an overall positive NPV investment.
- To help a CMO manage its operational risk, it should effectively collaborate with drug development companies. This relationship
should facilitate process development and the effective transfer of the drug from clinical development to large-scale production.
- Finally, a CMO should be well-versed and experienced in advanced risk management techniques. The risks inherent in biotech
products require tight risk management through contracts and appropriate selection of customers and products.
As this analysis shows, contract manufacturing organizations (CMOs) can play an important role in the biotech industry and
can help create a potentially valuable investment. Based on our research, the CMO market is relatively undeveloped, especially
in mammalian cell technologies, and represents a significant opportunity. However, sizable capital requirements and long set-up
times for a manufacturing plant to begin operations often create barriers to entering this market.
However, we believe that a company with significant financial clout, an appetite and ability to take on risk, and the reputation
and ability to recruit top talent, can be well positioned to lead the biologics CMO market. With adequate scale and superior
operations, such a company could very well dominate the CMO market and potentially realize high economic returns.
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Jayant Lakshmikanthan is a senior consultant at Deloitte Consulting LLP, 415.783.5288, firstname.lastname@example.org