While attending CPhI Worldwide, a large exhibition of contract manufacturing organizations (CMOs) of active pharmaceutical ingredients (APIs) and intermediates and fine-chemical suppliers, in Paris this week, I am hearing a familiar theme: business is better compared with what it had been during the last several years, but it has not returned to the levels it had been at prior to the economic crisis. The ongoing pressures felt by the pharmaceutical companies, both large and small, are filtering down to the supplier base as well. In a phrase, cautious optimism.

At its best, contract manufacturing is a “lumpy” business, as I heard one financial analyst say one time in characterizing the sector because it is subject to the vicissitudes of drug development and the commercial marketplace. But that “lumpiness” is more acute as pharmaceutical manufacturers face a more uncertain marketplace. For example, revenue downturns caused by patent expirations and resulting generic-drug incursion is not only a problem for the pharmaceutical majors, but also for contract manufacturers, which may be supplying a pharmaceutical intermediate or API to an innovator-drug company for a given product. The pace of innovation, marked by the addition of new molecular entities to the marketplace, has not been roboust enough to keep pace with those losses, and given the long lead times to bring a new drug to market, innovation is not going to be a short-term remedy to these problems. More cautious public and private investment, which has led to a more tempered financing flow into the emerging bio/pharmaceutical sector, is restriciting projects and causing projects to proceed in a more step-wise fashion, another concern for contract manufacturers and suppliers.  

These conditions are not new to anyone in the pharmaceutical industry, but what will continue to evolve is how suppliers will adjust their value propositions to respond to the new realities of their customers. Whether it be through technology gains, better service offerings, supply-chain improvements, or facilitation of cost-reduction strategies, contract manufacturers and suppliers will have to apply innovation not only to stand out among their competitors but to keep pace with the rising bar for better approaches in drug development by their customers as well.