INDUSTRY FRAGMENTATION
From a business perspective, one of the defining characteristics of the contract manufacturing industry is how fragmented
it is. When an industry is fragmented, it means that there are many companies competing in the industry, and each has a relatively
small market share. Fragmentation often is an indication of industry immaturity, i.e., the industry is relatively young and
the sources of long-term competitive advantage have not yet been established. Fragmentation also suggests that barriers to
entry for new competitors are low, and that there can be a lot of instability as companies fight for enough business to stay
afloat.
That degree of fragmentation in the dose contract manufacturing industry was recently documented in an analysis of FDA approvals
by PharmSource. In our analysis, we found that 200 of the 487 products receiving FDA approval (NDA and BLA) during the period
2005–2010 involved a contract dose manufacturer. Of those 200, we were able to successfully identify the CMO for 185 (92%)
of them.
In total, 72 different CMOs had at least one of the 200 outsourced FDA approvals granted during the 2005–2010 period. Of those
72 CMOs, 44 (60%) received only one FDA approval over the five years covered by this analysis. Nearly half of the CMOs getting
approvals (34 of the 72) are selling excess capacity and are not dedicated to the CMO business.
There does seem to be market leadership emerging in the CMO industry. The 12 companies receiving the most approvals accounted
for 105 (52%) of all approvals involving a dose CMO.
The analysis suggests that we should see more industry consolidation in the coming years. Consider that over 60% of CMOs
listed in the PharmSource ADVANTAGE database that claim FDA compliance received no new FDA approvals in the period, while
most CMOs that did receive an approval, received only one.
It's hard to see how a dedicated CMO can survive long-term on one approval every five years, let alone none. Legacy products
and technology transfer products (previously approved transferred from another manufacturing site to a CMO) may cover costs
for a significant period, but new products are needed to replace the older products and drive the growth necessary to attract
further investment.
Jim Miller is president of PharmSource Information Services, Inc. , Springfield, VA, 703.383.4903, jim.miller@pharmsource.com
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