A Rise in the Number of Contract Manufacturing Pharmaceutical Plants
December 24, 2018
Before we venture to look at the four reasons as to why there has been a rise in the number of contract manufacturing pharmaceutical plants, it is essential for us to briefly acquaint ourselves with the said plants.
It is in the course of making such an acquaintance that contract manufacturing pharmaceutical plants turn out to be those that undertake to manufacture pharmaceutical products on the behalf of others. The arrangement is usually one where a given pharmaceutical company (typically a big, popular brand owning pharmaceutical company) approaches another company with idle/non fully utilized production facilities. The idea is to have the former use the latters production facilities, at a cost, for a given duration of time.
If the company with idle/non fully utilized manufacturing capacity is amenable to the arrangement, it can undertake to manufacture the products of the client company, for a given duration of time, and for a given cost. More often than not, the contract manufacturing pharmaceutical plant will avail to the client company all its production facilities (including the staff).
This way, the client company only has to avail to the contract manufacturing pharmaceutical plant its formulas, and the latter creates products (for the client company) as per those formulas. There have even been cases where the contract manufacturing plants ship the products to the distributors; meaning that the client company only has to focus on marketing/brand-building issues, with all production and shipment issues being handled by the contract manufacturing pharmaceutical plant.
Now we have seen, in the last few years, a remarkable rise in the number of such contract manufacturing pharmaceutical plans. And this is where it emerges that there are four major reasons behind the rise in the number of contract manufacturing pharmaceutical plants:
1. The growing popularity of the outsourcing business model: what the contract manufacturing pharmaceutical plants do is basically taking outsourced pharmaceutical manufacturing jobs. As such, they have been major beneficiaries of what is considered business best practice today: outsourcing everything that can be outsourced.
2. The eagerness by pharmaceutical brand owners to concentrate on their core businesses: more and more companies are subscribing to the idea of concentrating on their core businesses, whilst outsourcing non core jobs to specialist firms. Many major pharmaceutical companies have come to believe that their core business is that of marketing and brand building, and that they are better off outsourcing things like production and shipment of products. The beneficiaries, naturally, are these contract manufacturing pharmaceutical plants.
3. The cost advantages offered by the contract manufacturing pharmaceutical plants: there is no denying that some of these contract manufacturing pharmaceutical plants offer their clients major cost benefits. Word about these cost benefits offered by the plants, naturally, spreads in the industry; leading even more brand-owning pharmaceutical firms to enlist the help of the contract manufacturing pharmaceutical plants.
4. The growing competitiveness of the pharmaceutical industry: as more and more pharmaceutical brand owners enlist the help of contract manufacturers, they end up being in a position to sell their products cheaply. This in turn forces the other companies which had’t enlisted such help of contract manufacturing pharmaceutical plants to do so, or risk being pushed out of the market by their more cost-effective competitors.