A should cost model is an all-important technique for deriving and forecasting the actual cost of a product/service over the forecasted period. It serves as a competitive edge for supplier negotiations by determining the actual price for the cost components. The outcome helps procurement leaders to understand detailed fact-based cost drivers for the category.
In the CDMO market procurement intelligence report, we have estimated and forecasted pricing for the key cost components while availing services from CDMOs. For our research, we have considered API CDMO services. The cost structure of API CDMO services can be categorized into type major segments; production costs and overhead costs. The production cost accounted for more than 80% share of the overall CDMO service cost. Key cost components of production cost include project planning, medical writing, project management, regulatory affairs, data management, machinery and accessory, raw materials, drug assay, etc. These cost components are majorly driven by the salary fluctuations of personnel involved in the same. Major cost components in the overhead segment include insurance, taxes, and site management cost.
Every organization and its procurement team wants to negotiate the best deal while procuring a set of products or services. Rate benchmarking uses price/cost comparison of more than one set of products/services to analyze the most efficient combination that will help the procurement team to get the optimum rate.
As we have considered API production cost for small molecules, the size of the batch is one of the most important aspects while analyzing the rate benchmarking of an API CDMO service. In our research, we have analyzed the rates of 100,000 and 50,000 vials batch size in the APAC. By using rate benchmarking analysis, we found that running two production batches of 50,000 vials is 5%-6% more cost-efficient than running one production batch of 100,000 vials. Hence, it is advisable to have multiple small batch production lines rather than having a single large batch production line.
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Labor is one of the key cost components incurred while offering a product or service. Understanding the pricing structure of salary is important for organizations in selecting the appropriate supplier and to build a good negotiation strategy. It is also an important factor in determining whether the category under focus should be outsourced or built in-house.
Our research indicates that Lonza operations managers earn 20%-30% higher salaries than operations managers from other key CDMOs like Patheon and Siegfried. However, the YoY increment rate in such companies largely depends on KRAs.
It is cumbersome for any organization to continuously track the latest developments in their supplier landscape. Our newsletter service helps them remain updated, to avoid any supply chain disruption which they may face, and keep a track of the latest innovations from the suppliers. Outsourcing such activities help clients focus on their core offerings. Our research on the CDMO market has identified the following developments:
In August 2021, AGC Biologics, a biopharmaceutical CDMO, announced the acquisition of Novartis’ Longmont, Colorado, manufacturing facility for the commercial production of cell and gene therapies. The 622,000 square feet facility significantly expands AGC Biologics’ capacity for producing cell and gene therapies, with additional space to expand.
In February 2021, Quotient Sciences, U.K.-based drug CDMO announced the acquisition of another U.K based CDMO Arcinova. The acquisition expands Quotient’s service portfolio and will enable the integration of drug substance, drug product, and clinical testing capabilities under one organization.
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Component wise cost break down for better negotiation for the client, highlights the key cost drivers in the market with future price fluctuation for different materials (e.g.: steel, aluminum, etc.) used in the production process
Offering cost transparency for different products / services procured by the client. A typical report involves 2-3 case scenarios helping clients to select the best suited engagement with the supplier
Determining and forecasting salaries for specific skill set labor to make decision on outsourcing vs in-house.
A typical newsletter study by capturing latest information for specific suppliers related to: M&As, technological innovations, expansion, litigations, bankruptcy etc.
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