The full name of CDMO is Contract Development and Manufacturing Organization, which refers to the commissioned development and manufacturing service, i.e., the pharmaceutical company commissions the CDMO factory to carry out the development or manufacturing of the drug. This division of labor is similar to the OEM model in Taiwan's electronics industry, in that as the cost of manufacturing increases, the industry begins to seek outsourced manufacturing in order to efficiently allocate resources. The R&D process for a new drug can take as long as 10 to 15 years from the laboratory to the market, and consume 15 to 20 billion Taiwan dollars in capital. If you look at the whole R&D process in detail, it can go through three stages: drug discovery, preclinical testing, completion of Phase III clinical trials, and approval before the product is finally launched on the market.

Because the development of new drugs is too time-consuming, the division of labor in the pharmaceutical industry chain is becoming more and more refined (Figure 1As a result, specialized outsourcing has become an important strategic choice for pharmaceutical companies. The rise of CDMOs is due to two reasons: 1) the high cost and time-consuming development of new drugs, and the high risk for pharmaceutical companies; 2) the high cost of operating and maintaining pharmaceutical plants. In order to produce drugs, it is necessary to invest in equipment and plants, but owning a pharmaceutical plant makes it difficult for a pharmaceutical company to achieve economic scale, so pharmaceutical companies would rather focus more on new drug development, grab patents and get a license. CDMOs, on the other hand, focus on providing clinical trials and mass production for pharmaceutical companies, supplying a wide range of manufacturing needs, so that pharmaceutical companies can focus on drug development and patent licensing, after all, the licensing fees after the launch of a new drug is the real huge profits (Figure 2). More importantly, if manufacturing is left to CDMOs, it is more likely to ensure that each batch of drugs is as consistent as possible. In addition, since the composition of drugs comes from a variety of sources, CDMOs are specialized in assisting in the adjustment of formulations at different stages to test the most suitable dosage forms. Therefore, while large pharmaceutical companies still rely on CDMOs to ensure the quality of their drugs, small pharmaceutical companies are even more reliant on CDMOs for their services.

Figure 1 Outsourcing Services in the Pharmaceutical Industry

Organized by Ji-Pu Industrial Trend Research Institute 2022/9