The pharmaceutical industry has undergone significant evolution within the past few decades, most notably within the past 10-15 years. Specifically, recently extremely relevant biopharmaceutical companies (even more so, now, due to the COVID-19 pandemic) have become increasingly reliant on outsourced contract services for various elements of their value chain. This article compares two essential types of outsourced contract organizations – CMO’s and CDMO’s – and elaborates on a top example.
We’ll begin with a quick primer on the pharmaceutical value chain to get a significant picture foundation of this industry and further explain what part of that value chain CMO’s and CDMO’s play. We’ll then analyze. Lastly, a top example of a prominent CMO/CDMO during the currently prime time for biopharmaceutical companies (again, in light of the ongoing pandemic) will be described.
The pharmaceutical production process typically goes through five distinct stages. These include drug discovery, drug development, drug manufacturing, drug distribution, and drug marketing/sales. Drug discovery is where research on new potential medicines is performed. Drug development is then where those candidates are then tested. After passing the relevant trials, drug manufacturing occurs – this is where the drugs are physically made. Drug distribution is where delivery networks are formed so that hospitals, providers, patients, etc., can access the medicine. Finally, drug marketing/sales is how end-users consume the now fully developed candidates.
There are other outsourced contract organizations aside from CMO’s and CDMO’s (such as CDO’s and CRO’s), but CMO’s and CDMO’s are the more prominently referred to ones. CMO stands for Contract Manufacturing Organization, and these businesses mostly serve pharmaceutical companies with outsourced contract services related to the third stage of their value chain – drug manufacturing. CDMO stands for Contract Development and Manufacturing Organization. These particular businesses largely serve pharmaceutical companies with outsourced contract services related to drug manufacturing and the second stage of their value chain – drug development (hence the name Contract “Development and Manufacturing” Organization).
As a relevant side note, CDO’s are Contract Development Organizations that independently handle drug development, whereas CRO’s are Contract Research Organizations that typically do both drug discovery (first stage) and drug development (second stage). Some CDMO’s also help with drug discovery on top of being fully committed to drug development and drug manufacturing, thereby performing the entire first three value chain stages for their pharmaceutical industry partners. The fourth and fifth stages – drug distribution and drug marketing/sales, respectively – are typically handled in-house by pharmaceutical companies as they carry less financial risk than the first three.
CMO’s were originally used by pharmaceutical companies who needed additional manufacturing capacity for their most popular medicines. However, as the industry evolved over the past few decades, these same pharmaceutical companies increasingly relied on contract manufacturing for most if not all their drug manufacturing processes. CDMO’s partake in both drug development and drug manufacturing… with some even participating in aspects of drug discovery on behalf of their pharmaceutical industry clients. With that said, because drug production is such a specific process, the end-to-end services offered by CDMO’s restrict the size of their capacity while increasing the minute differences in offerings that are specific to different types of medications. For example, a CDMO may specialize in cell/gene therapy versus injectables. Therefore, it can be argued that CMO’s are better for large-scale manufacturing of more general drugs, whereas CDMO’s are better for the production of particular medicines.
However, around the 2007-2008 Financial Crisis, private equity funds began consolidating outsourced contract organizations as more qualified management became available. In particular, CMO’s began combining with CDO’s to form CDMO’s. These CDMO’s further developed to become fully integrated, one-stop-shops comprised of end-to-end services, including elements of drug discovery. Hence, modern-day usage of the term CMO is often interchangeable with CDMO. Technically, however, CDMO’s are still an evolution of CMO’s and provide more comprehensive offerings.
A mainstay example of a prominent CDMO is Samsung Biologics. They are headquartered in Incheon, South Korea, and have a current massive market cap of around $39 billion to $40 billion at the time of writing this article. As a modern CDMO, they provide the full spectrum of services associated with the first three stages of drug production: drug discovery, drug development, and drug manufacturing.
Samsung Biologics accomplishes this fully integrated approach through combining their Contract Research Organization (CRO), Contract Development Organization (CDO), and Contract Manufacturing Organization (CMO) functions. Some of these CRO functions are biosafety testing services and analytical testing services. More specifically, development stage to drug substance products for lot release tests of mycoplasma and virus detection, cell bank manufacturing, cell line characterization, and viral clearance study. Some of these CDO functions are cell line development, process development, performance, and manufacturing, and more specifically, cell line development, MCB banking and characterization, upstream process development, downstream process development, formulation development, analytical method development, non-GMP drug substance, and drug product production, drug substance and drug product IND stability, cGMP drug substance manufacturing, cGMP drug substance stability study, cGMP drug product manufacturing, cGMP drug product stability study, and IND filing support. And some of these CMO functions are drug substance and drug product options, specifically, tech transfers, clinical and commercial manufacturing, aseptic fill/finish, and analytical testing.
It is of note that each of these divisions can function independently. Hence, their CMO arm for pharmaceutical clients who require only large-scale manufacture of medicine can provide manufacturing services. Therefore, Samsung Biologics can technically be considered a CMO as part of a CDMO, on top of being colloquially known as a CMO and CDMO.
Altogether, CMO’s and CDMO’s are very similar organizations but can serve different functions within the broader pharmaceutical industry. CMO’s are more for large-scale manufacturing, and CDMO’s more so function as very precise but thorough drug development and manufacturing (and even drug discovery) partners. Samsung Biologics is a prime example of a modern CDMO that has both independent and integrated CMO processes.
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