When a pharmaceutical company needs to outsource the production of a drug product to a CMO, the multiple pricing proposals it receives are guaranteed to be different. Line items that are included—or, more importantly, not included—are difficult to compare directly. It can be tempting to choose the lowest price, but this is likely to lead to frustration down the road. Have you ever selected the lowest bid only to be disappointed when the final cost was much higher than expected, as unlisted services kept adding up during the course of the project?

We want your experience as a pharmaceutical professional responsible for evaluating and selecting a CMO to be different. This article will help you be prepared when choosing a CMO from among multiple candidates.

The CMO industry has a reputation for pricing services to win business. It’s challenging for procurement teams to evaluate multiple proposals when line items are different or missing. It becomes their task to weigh the value of all the services and determine the true cost.

For CMOs, there’s a better way to do this, one that’s fair to the customer. Transparent pricing provides a realistic sense of what the actual cost will be. As software developers refer to the total cost of ownership, we think of transparent pricing as the total cost of relationship. Transparent pricing outlines what it will actually cost to get you to your end goal, whether it’s PPQ or a BLA.

Let’s use two examples of what can happen when you’re seduced by the lowest price.

Once a CMO is selected, the project is handed off to an account manager

The primary goal of those in charge of procurement and the selection of a CMO is to limit costs. They’re likely to go for the proposal that has the lowest bottom line. Once they’ve chosen the CMO and accomplished their goal of limiting costs for that fiscal year, the project is passed onto an account manager. The account manager is surprised when hidden costs that were not in the proposal pile up as the project progresses. By the end of the relationship the company has paid the CMO an amount that is close to higher proposals it had received. Not only is the account manager frustrated they had to pay more, they’re saddled with the additional work and stress of explaining to management the need for an increase in the project’s budget. Beyond this being time-consuming and annoying, it interferes with a company’s long-term, accurate budgeting.

This example shows the problem of a lack of accountability for decisions. If the procurement manager had chosen the transparent proposal at the beginning—the one with a higher bottom line but that included everything they might have to pay for—they wouldn’t have encountered this situation. They would have paid the same amount, but without any of the headaches or surprises. Remember, a board of directors will ask why project costs increased. Our list of potential hidden costs (see sidebar) can be used with your board of directors to educate them about the true costs of the project.

A company hires two CMOs—and is able to compare experiences

A company dual-sources its outsourced manufacturing needs to two CMOs to manufacture a monoclonal antibody. Both CMOs had the same scope of work, but one used the transparent pricing model, while the other CMO used a change order model for its proposal and came in with a lower upfront cost. In the end, both CMOs charged the same amount. However, the CMO with the initial low bid hit its partner with 20 change orders, driving costs up and creating excess work for the account manager and their company. This example shows that, in the end, project managers have to request several rounds of additional funding for low-bid CMO’s work, whereas the transparent pricing model deliver as expected.

To be successful, a long-term partnership needs to be flexible. Take expedited orders. Say you had an order expected for October and now need it delivered in August. If we can make something work for a partner, we do. The end goal—for all of us—is to keep the patient in mind. If we have available capacity and resources to get that order out in August, we do it for the betterment of the partnership.

Beware rapid delivery of a proposal. Customers are usually in a rush and CMOs are under pressure to deliver a proposal as quickly as possible. We know that proposals can’t be treated as a one-size-fits-all exercise. For this reason, an AbbVie CMO transparent proposal may take longer to prepare but we aim to do it once and get it right.

How to know the true cost of a proposal

Here are some services that should be included in every proposal, but frequently are not. The truth is these aren't optional—they’re likely to add to your costs, either upfront or down the road. Ensure all these services are explicitly listed in the contract and, if a cost estimate is unusually low compared to other proposals, scrutinize the details. If one or more of these is not included, ask why not and what the likely cost will be. 

• Audit support and responses
  • When this is not included in a proposal, it’s the biggest red flag that you’re not seeing an estimate of the true cost. When this is overlooked in a proposal—or listed as an hourly fee with no cap on the number of hours—it will add significantly to your expense down the road, sometimes as high as six figures.
• Project management
  • This should always be included in a proposal. Is it an hourly rate? For how many people? Is it a yearly charge? A transparent proposal will list all of this.
• Pulling samples
  • Samples are retained from batches in case of a quality complaint. One sample-pulling can add $10,000 to your costs, which, in itself, isn’t a large additional expense. But when added to other services on this list, your costs can unexpectedly inflate quickly. Be sure to understand what is, or isn’t, included.
• Creating documentation (e.g., batch records)
  • This is part of any tech transfer and should be included.
• Annual product quality reviews
  • This is a regular cost of doing business and should be included every year with no extra fee.
• Expedited orders
  • Your plans change. You need to speed up production to get to market one month early. Or capacity constraints mean you want to push off production by two months. This need not incur additional expense. If your CMO can make this work, why would they charge for it?
• Handling returns and complaints
  • This is potentially part of any project and should be included.

We highlight regulatory support because it’s so important and can be expensive. Regulators regularly need to perform an audit at the PPQ or BLA stage.

Watch to out for

• A proposal that includes audit support as an hourly fee. Is this capped? For how many people are you being charged this hourly rate? Such an open-ended cost gives you no idea what the final cost will be.
• If audits are included but not responses.

What a transparent proposal contains

AbbVie CMO has found including support for 3 audits is usually sufficient and provides a fixed cost for this support. The procurement team can go to their company’s board of directors with confidence of the cost of audit support. And, of course, this includes audit response.

Company A accepted a cost proposal from a CMO that did not include audit support. When the regulators decided to audit, Company A was billed by its CMO for an additional $400,000 for audit support.

Given that experience, the company made sure the next CMO they contracted included audit support and response. But this time the estimate of cost was included as an hourly fee, with an uncapped total cost. Essentially, this resulted in the same problem when the CMO came back to say they needed a 40 headcount to support the audit and the cost increase to cover that. 

These were expensive lessons. Now, Company A makes sure a contracted CMO includes audit support and response, and that this service is capped.

There are instances where additional services may exceed the scope and cost of a project due to unexpected changes. These will result in additional charges. This doesn’t mean they can’t be estimated in a proposal ahead of time. It’s just that they aren’t certain to occur.

1. Additional batches (manufacturing runs)

2. Modification of a method

3. Adding quality methods

• Example: A partner contracts a CMO, which completes the minimum GMP-required testing—4 analytical tests—to release product from its site. The partner then has its own centralized lab that does the other 15 tests that ensure quality. If the centralized lab can no longer test their product, they may need the CMO to take on the full analytical panel of 15 tests. This large change in scope of work requires those testing methods to be transferred into the CMOs facility, validated and run routinely.

4. Manufacturing process changes

• Example: Unexpectedly, the CMO determines that an entire process needs to be temperature controlled to maintain stability. This means the CMO needs to buy and validate jacketed vessels to control the temperature through the whole process. This includes needing additional engineering runs.

To avoid surprises, your contract with the CMO should include how any scope modifications will be priced. For example, additional batches might have the same price as current batches or development work could be priced at an agreed-upon hourly rate.

Knowing what questions to ask when evaluating CMO pricing proposals will reveal potential hidden charges. Demanding transparency will help keep you within budget—and confident that the lowest-priced vendor may not be the safest bet.

The AbbVie CMO model ensures transparent pricing

When working with Abbvie CMO you can be sure our quote is the accurate price because transparent pricing is ingrained in our culture. As part of AbbVie, AbbVie CMO has learned from the best how to accurately plan, price, and transfer programs. This forces us to accurately identify the total cost for scale up to commercial production, knowing we’ll be held accountable internally and can’t ask for additional funds later. Not only does this experience give us confidence about what is needed to transfer a program into one of our sites, it allows us to be honest with our external partners.

What does this mean for you? The foundation of our pricing model—whether a transfer is internal or external—is to be transparent about all-inclusive costs. No surprises. No down-the-road shocks. We don’t think of you as a ‘customer,’ and pricing, for us, is not transactional. It’s the foundation of a long-term relationship with you, our partner. 

If you have experience choosing a lowest-bidding CMO, only to find the price increased over the term of the project, it’s worth getting it right from the start. You need to work with a CMO that promises pricing transparency—AbbVie CMO.

To learn more about what a transparent proposal looks like, contact us.