Pharma and CMO business relationship: Leading practices to generate full value potential


Partner – Europe, Middle East and Africa
A.T. Kearney GmbH
Dreischeibenhaus 1, 40211, Dusseldorf, Germany

A.T. Kearney GmbH
Charlottenstrasse 57, 10117, Berlin, Germany


This article describes the increasing importance and relevance of contract manufacturing organizations (CMOs) for pharma companies resulting in closer relationships between both of them. This creates a better environment regarding value improvement initiatives. Two case studies are described how pharma companies and CMOs can improve their relationships and, nevertheless, drive out costs: (1) Collaborative Cost Reduction and (2) Supplier Fitness Program. Both examples are based on experiences from real situations. They have been successful in terms of generating cost reductions and identifying the right strategy of how to engage between pharma companies and CMOs in the best way. Therefore, the insights and recommendations from this article aim at contributing to impact for both the pharma and in CMO company. Irrespective from both examples, a holistic transformation started by the pharma company together with the individual CMO is the key success factor to drive cost reduction initiatives and to achieve the full value potential from this relationship.


Relevance of the CMO supply market for pharma companies will be discussed both from external and internal view: Outside the pharma company, Contract Manufacturing Organization (CMO) - market is steadily emerging and becoming more and more a strategic supplier industry for the large pharmaceutical industries. The CMO market has demonstrated sustainable growth in the last years and will reach a market value of >80bn € by year 2020 (see Figure 1).


Although emerging markets such as India and China are catching up fast, the vast majority of CMO players have their footprint still in the US and Western Europe. US and Western Europe are both home to the large, “big pharma” industry with players of strong R&D capabilities like Pfizer, Novartis, Bayer, Merck & Co. Thus, this is one of the reasons for the high importance and network presence of CMO business in these regions: Large “big pharma “players are interested to increase outsourcing for own produced drugs in case the contribution margin drops down to a certain level. Reasons for a margin drop can appear e. ...