GUEST BLOG: Five Factors Affecting CDMO Revenue Performance and Five Ways to Win
In this guest blog post, Will Downie and Elliott Berger delve into the key factors that are negatively impacting CDMO revenue performance and highlight the foundational elements that should be adopted to ensure success.
We frequently hear that commercial teams within U.S. and European CDMOs are currently facing significant pressure, struggling to achieve their sales targets. This pressure is resulting in profitability difficulties and weakened cash flow for CDMOs, market valuation challenges for private equity (PE) backers and an overall weak environment for successful business exits.
Yet, paradoxically, pharma pipelines are booming, clinical trial initiations are at a record high, and the pace of scientific progress is extraordinary — the market should, by all rights, be thriving. But somehow, it isn’t.
What’s more, customers have become more selective, decision-making has slowed, and procurement departments are exerting increased pricing pressure throughout the industry. Biopharma clients seem comfortable extending current successful projects, but for new ventures, they’re opting for smaller starter projects and driving hard bargains on new molecules.
In short, it’s a challenging period for many.
Why CDMOs are Struggling for Revenue Growth
In a world of unprecedented change, it seems to us that there are five main factors impacting the CDMO market right now…
Geopolitical and supply chain challenges: Trade wars, tariffs, demands for local investment, and geopolitical tensions are making it harder for customers to decide where to manufacture.
Funding slowdown: After the COVID-era boom, venture capital funding for biotech has stalled. While modest recovery signals are finally here, VC and PE money isn’t flowing as fast as anyone would like.
Exit fatigue: The initial public offering (IPO) window is still narrow, and while M&A activity hasn’t stopped, it’s well below historical highs. Coupled with this, is the fact that valuation gaps still exist between prospective buyer and sellers.
Flight to safety: Investors are prioritizing funding of higher-probability, proven assets rather than taking risks on early phase projects — yet CDMOs thrive on activity in both areas, creating a drag on growth in discovery and early development.
Regulatory uncertainty: The FDA and other regulatory agencies are constantly updating approval requirements, which is affecting company strategic planning as well as limiting the progress of new projects.
If this sounds like a perfect storm after the era of plenty during COVID… it is!
Reasons for Optimism
It’s not all negative, however. The fundamental market indicators remain strong: pipelines are growing, outsourcing rates are increasing, and scientific innovation is advancing rapidly across many modalities. There is simply no doubt that CDMOs are indispensable in every phase of product discovery, drug delivery, and manufacturing.
The demand is there — but to capture it, CDMO’s commercial execution needs to be nothing short of excellent, every day of the week. In the relentless pursuit of the next big deal and the provision of a first-class customer experience, CDMOs must have a finely tuned commercial excellence machine to win in this environment — designed, built, fueled, and firing on all cylinders.
Five Ways to Win
So, based on our collective years of experience of building and running the Catalent commercial machine back in the day, together with the work we have done with multiple other CDMOs, we have tried to summarize the five key foundational elements that companies need to adopt to become industry-best:
From strategy to commercial plan: It sounds basic, but in our experience plenty of CDMOs do not have a written strategic plan at all! Fewer still translate their strategy into a dynamic, predictable commercial plan — with specific sales objectives, clear customer segmentation and targeting, and aligned capability/capacity planning and investment. Without this, an organization can often drift with the changing tide. With it, growth accelerates and endures in the long-term. A virtuous cycle.
Do the math: Revenue targets are meaningless without the numbers behind them. How many deals do you need? What’s your win rate? What’s your time to revenue? If your team can’t answer these questions instantly, you may be gambling on the company’s future growth prospects.
World-class commercial leadership and discipline: B2B success demands precision; molecule-level targeting, strong funnel management, true sales craft. Do you have the right leaders and organizational vitality in place to drive sustained growth? Or do you potentially run the risk of leaving millions on the table by accepting ‘just good enough’?
Infrastructure for excellence: Do you have the right systems, sales incentives, and training and development programs for success? Without them, you may not be able to attract and retain the best staff, and you will lose out in the global war for talent.
Marketing excellence: The return on investment from a customer who doesn’t know what you offer is zero! Do you have a strong brand, compelling value proposition, high share of voice and effective lead generation? If not, your sales team will be fighting an uphill battle against better-known, better-differentiated, and better-resourced competitors. It’s unlikely they will win enough!
Operational and Customer Service Excellence Foundation
In this industry, commercial success is not just about business development and marketing. It’s the whole engine — scientific expertise, operational excellence, customer service savvy, and flawless project management. A weak link in any of these areas and customers will see it instantly, which will kill the deal. Even the best sales leader can’t overcome a credibility gap in end-to-end delivery.
Diagnosing and Optimizing
If your commercial machine isn’t delivering, don’t wait. Every quarter of underperformance can lead to missed earnings before interest, taxes, depreciation, and amortization (EBITDA) targets and lower exit multiples. There is a very quick and precise diagnostic approach that in days can provide a plan for the path to excellence. Being good isn’t good enough in an ever-competitive CDMO world. If you want to win act now.
About the Authors
Will Downie is Operating Advisor at Advent and Touchlight; and former CEO at Vectura and Argenta as well as Chief Commercial Officer at Catalent.
Elliott Berger is Board Director, Orientation Marketing; former Chief Marketing Officer at Catalent and Executive at Johnson & Johnson and Ernst & Young.
Photo by Nadiia Ganzhyi on Unsplash