Why Procurement Can Make or Break a Drug Company

There's always this challenge, right? It's a game of capacity management. You can imagine you're buying capacity at the CDMO. They could sell it to somebody else.

What does that look like? So, I would say one of the things is just how do we start communicating quickly and building those relationships? In this episode of Executive Edge, Greg sits down with Dave Stowe, founder and managing partner of Adventus and a veteran of PWC, Oliver Wyman, Horizon Therapeutics and Purdue Pharma. With decades of experience in life sciences and healthcare, Dave shares how procurement can influence the success of drug development, helping organizations manage risk, control costs and build the supplier relationships that bring innovative therapies to market.

Hello and welcome to this episode of Tenzing's Executive Edge podcast. I have a return guest, my first one, Dave Stowe is again with us again today and he's joined us to continue our discussion from a prior episode. As a reminder, Dave is the founder and managing partner of Adventus, a boutique advisory firm that helps emerging biotech and pharmaceutical companies scale through periods of rapid growth and operational complexity. Dave partners with leadership teams to build the procurement, finance and supply management capabilities needed as organizations move from clinical development into commercialization and face new demands on scale, spend and execution.

Hi Dave, thanks for returning to continue our discussion. Hi Greg, good to be back. I appreciate the invitation, thank you. Sure, yeah, I think it was such a great discussion the last time and we just had to continue this.

I think it was almost mandatory is how I felt when we finished. But the last time we talked, we really were focused on procurement support for the scientific study process during the drug development life cycle. And that was really focused on the R&D activities and how do you support those folks and those functional areas in the organization. And now we've got a drug that's been approved, it's ready to go to production.

And so today I wanna talk about what's it like to support the scale up when you move into the production phase of a drug and start to produce it and ship it and sell it in the market. So we're gonna focus on the operation side, not so much the commercial side, but let's go. What's the first thing, first couple of things you think about as you're getting ready to start production? How do you kind of frame that up?

Yeah, well, this really starts early on in the process, sometimes at preclinical and early stage clinical because you're really talking about some very technical aspects about the molecule, molecule development and what that means in a manufacturing environment. So while the testing is still going on, like I said, in preclinical or even early stage clinical, how you start to think about the manufacturing of it is very important. And this gets into the fact that sometimes you have a very complex molecule, the biologics is a very rapidly growing area in the pharma space.

And so you go kind of the size of the molecule is the large or it's small, traditional, and it can be a situation where just as important as it is to think about the actual drug testing, you're now thinking about how are you gonna make it in a repeatable setup there. So now we get into a lot of aspects of the physics of making the drug, the chemistry of making the drug. So it could be something that's gonna be in a vial, it could be, you know, what's the delivery mechanism, so to speak, is it gonna be in a topical application?

Is it more of a oral substance, you know, a pill that we're gonna take? Those things are obviously gonna be in the early design stages of the drug, but now we're getting into, do we have the right partner to manufacture this? And typically most companies, unless they're extremely large pharmaceutical companies, are gonna start looking with a contract development manufacturing organization, CDMO, and what does that team, that partner, that supplier bring to the discussion? And so there's some evaluation that goes on there, but they may already have partners already, but still, this new drug that's being developed has a life cycle of its own, and an economic aspect to it, too, that needs to be brought together, both science and procurement, so to speak, in the finance area.

Right, and so these contract manufacturers, that seems to be the way most large pharma companies anyway are producing, maybe small ones as well, you can comment on that, but obviously they bring the expertise and the scale and the capabilities to do this, but how much are they involved, I guess, in the procurement of materials and the key ingredients, the packaging, anything like that? Is it a turnkey, where they offer everything, or is it more of a case where you bring us the materials and give us the formula and whatever, and we'll develop the manufacturing process?

What's that like? Help us understand. Yeah, no, it's very complicated global supply chain, so I think a few things, just to take some very basic steps, you have kind of key starting materials, KSMs, these are the chemicals that then go into an active pharmaceutical ingredient, and then there is the making of that from there to the dosage form, the type, right? So if it's a pill or if it's gonna be an injectable or topical application, whatever that might be, there are those very big steps in the marketplace.

Now, there are some CDMOs in certain situations that are very specialized and vertically integrated, and they may bring a lot of value to that sponsor of the drug that's buying this drug. So it's important to understand that predominantly in a lot of the KSMs, the key starting materials, they do start in China, about 37% of the chemicals are gonna be globally sourced out of China and are gonna come maybe to another CDMO that's gonna make the API, that could be in Europe, for example, or it could be in the US or Japan, and then how does it go from there to the next step, which is the dosage form, and then you're gonna put it in a primary packaging and then a secondary packaging, and then you're going to ship it to the distribution point, however it's been designed to get to the patient there and the physician as they administer it.

So those kind of steps are very important. Now, the CDMO marketplace is hundreds of billions if you look at that wide range of all those steps that I just talked about, but even like in a biological situation, which is really where a lot of the growth is going on with a lot of these drugs, that in itself is rapidly growing, probably forecasted over the next seven years at a compound annual growth rate of 8% to 12%. So you're talking about some very rapid growth in the manufacturing of these drugs on a global basis.

There are things that we can maybe, as this conversation unfolds, we'll talk about a little bit more in the global marketplace, but the essence of what you're asking there is we're gonna start to really work with a CDMO early, early in this process, and you really need it to be a very strong relationship. And maybe this gets into like the concepts of partnerships that we wanna have with any supplier, but in this situation of a drug manufacturing, we will have the technical and the regulatory aspect to it, but the start of this should be, what's the partnership look like?

What are those shared goals, business, scientific? What are some governance process? How are we really gonna work together as a partnership, as a supplier to a customer? And then what are some definitions of success?

How do we wanna look at it? That kinda, I think, regardless, again, whether it's a CMO, CDMO, or it's somebody else providing another service to any customer is think about that partnership, and it really is gonna be, it could be a decades-long relationship. It could be, it's gonna be a long-term relationship. You do not wanna have this type of a supplier situation go south because it'll be very dangerous and costly for a company.

Now, that said, that kinda sets up the tone of what's the, how do you look at the marketplace, and that's a relationship, people-to-people relationship. And there are, then, you need to get into kinda that technical abilities as you look at it, and you need to look at the quality and regulatory compliance of the CDMO, how good are, how they've been able to comply with FDA or other government regulatory bodies. What's their operational and project management capabilities? So once they take this, you want them to take a drug into production, how are we gonna work together to bring it?

And then, of course, there's the financial stability and business health of these CDMOs that are very important to discuss. So that's really a big framework, Greg, of kinda how to think it through, but it goes deep as you go out each leg there. Right, it sounds like you start early, though, right? As you get a better indicator of that this drug's gonna be successful, it's gonna pass, and move into production, I think you get them engaged very early in the process, right?

Yeah, and they're probably gonna be making those drugs that are gonna be in the testing environment, too, so that's, now, there's a couple variables in there, but basically, that type of relationship starts, but it starts, needs to be solidified, and so when you get into this kinda technical capabilities, you know, you're getting into, like I said early on, the molecule type, you're getting into kinda the delivery form, what does that look like? And then maybe the therapeutic areas, right?

So some CDMOs may be very good in certain therapeutic areas of cancer, or in cardio, or in diabetes, or other, you know, rare diseases, whatever it might be, but you wanna have that relationship so that you know that maybe we're gonna start in a small area of small batches, and production, because we're actually gonna go into more of a clinical trials, but then over time, as you start to get to late-stage clinical, which is really where your volume, if you can, you're gonna have more and more patients trying the drug out, and then you're gonna get some indications from the FDA that this really has potential for approval.

They may, FDA may even fast-track that development, and that means you're gonna move even faster into full-scale production. That's kinda how you really kinda think about that as you go through it, but it takes, you know, it's gonna be a years-long type process. It's not gonna be something that happens in six to 12 months. You're talking about something that could be, you know, two to five to 10 years as you develop it and going through it.

Yeah, so as we prepared for the call, you talked about really three main categories. One is the manufacturing, you know, partner, if you will, the materials, which is, you've talked about key ingredients, and, you know, all the different ingredients that are mixed, I guess, to create the chemistry and create the product, and then the logistics was the third one, and I'm interested, you know, why you chose the topic of logistics. Everybody always maybe thinks of that after the fact, but why is logistics an important consideration?

Well, you know, the stability of that molecule as it's gonna be transported, and it could be a situation where you could have a, it needs to be in a cold chain. Okay. It could be ambient temperature, you know, a pill, you know, just an over-the-counter pill of Tylenol, right? That's ambient temperature, but now if there's something that has to be for a variety of scientific and technical needs transported in a cold chamber or cold chain, it's gonna have to do that.

You can have also radioisotopes, and so you've got half-lives. You could have something that really, maybe you might wanna actually make the drug in the middle of the U.S. in, call it Indiana, and then you're gonna ship it overnight, but it has a five-day half-life, and so you're gonna, you know, need to have it in the patients administered in a very short time period.

Again, those are parameters that are very important to consider, and that's why, you know, where you, where the actual CDMO is located can have also a very big impact on how you get to market, so those facilities obviously are gonna be fixed. They're not gonna be moved. You're not gonna change those over the life of the cycle of the drug itself, and you may wanna continue to have other drugs developed in that same location, so those are kind of very important things that have to kind of be thought of in addition to the technical and regulatory aspects of your CDMO.

I get it now. Suffice to say, you're not going out to buy a trucking, less-than-truckload-on-the-spot market for these products. Right, right, right. Okay, so it has to do with the, you know, the environment the drug needs to be in, and also it sounds like there's a real speed issue sometimes when the half-life is rather short.

Yeah, so you've got the core primary packaging around the drug itself, and then you've got the secondary packaging, which we typically think of folding cartons in corrugated boxes, but you can even have the chamber itself that is gonna be put on a plane or it's gonna be shipped on a truck, whatever that might be. However that is, you've got to think through that design as well and talk about what that means in terms of getting it to the marketplace. Okay, so in terms of selecting suppliers and managing those suppliers ultimately once they've been selected, what are maybe some of the considerations people should need to be aware of and should take into account as they set up and go out?

What is the sourcing criteria, right? What kind of regulatory oversight do we need to be aware of? Touch on sort of the sourcing process and the considerations during that, please. Yeah, so the governance structure that you want to employ as a sponsor or as the purchaser of the services is very important.

So in that kind of governance area, you're gonna have a team that's gonna be much more technically focused. Then you have the team that's quality and regulatory focused. And then you've got kind of the overall kind of supply chain management process that's going on there. But in that regulatory area, which is a lot of the FDA oversight and other, if you're making it outside of the US, other government oversights, but basically that government agency, you're gonna have that whole quality management system.

And so one of the things that I found important is that the people that come together from the sponsor that are the customer they're gonna be buying it, the purchasing team needs to have some good representation folks that would have a strong experience and opinion maybe of some of these CDMOs and what they think about them. One of the things I started to realize in some of these sourcing events is that a director of regulatory of quality, he or she is going to maybe observe certain aspects of how good the CDMO is at documenting information of keeping track of information in their system or not doing that.

And in that situation, those people that I found those opinions are very important, those observations, because no one person is gonna be able to see the whole picture of those CDMOs. You're gonna need a team to look at that and provide that insight and observation. And so definitely we can have kind of the traditional, let's look at the supply market, let's try to understand it, but then you go deeper into that. And how do you know that those quality management systems at the CDMOs are gonna be dependable?

And then when you look at the quick wave, obviously you can go to the FDA site and you can see when the, what they call the 483 reports are, if they've been cited for certain issues at the CDMO that they have to fix before they can go into production. So there's a lot of important information to gather in that environment, but it's also a observation of people of how they feel they can work with them. And so the governance structure needs to be written down. You have a master service agreement, you have a quality agreement.

All those are part of the legal arrangement that comes into working with these suppliers, but it's a people business, right? And so how do we feel that we can capture that information? If there are issues and we find them, how do they wanna talk about them? What do they wanna say?

Sometimes a lot of this information is very public, so it's not gonna be hidden. You're gonna be able to find it very fast. But if, what would that mean on capacity and their ability to meet your demands? And so there's a lot of factors you wanna kind of work through, and it's not just a simple RFP and it's not just a simple solution that we can just pick somebody because they fit certain criteria.

You have to have a team looking at that criteria and talking about it and then making the decision. And then ultimately that governance team structure that you're gonna have is gonna mean each month we're gonna have a review. What does that review look like? How are we looking at not just production, but quality, regulatory compliance?

If they have the FDA coming in for inspections, what does that mean? It doesn't mean that it's always bad. The FDA comes into all these manufacturing sites at random times or whenever they wanna come in, and so you just work with people, right? What does that mean and what are the findings?

What are some of these things coming up? So it's a communication. It's a give and take as people build a relationship that's gonna last a long time. Right.

Sounds like there's a lot of different functional stakeholders in this that you need to manage and seek input from. I think you used the term opinion a few times there. Obviously there's opinions, there's data, there's all sorts of information. And does that elongate?

To me that just sounds like, ugh, gonna be a longer process potentially when that's, but is there a way to speed things up if you have the right governance and you can get everybody around the table to reach a decision more quickly? Yeah, I mean, yeah, there's always this challenge, right? It's a game of capacity management. You can imagine you're buying capacity at the CDMO.

They could sell it to somebody else. What does that look like? So I would say one of the things is just how do we start communicating quickly and building those relationships? Now over time you already have a CDMO.

Maybe now they're in the same therapeutic area you're at. They're expanding their capacities. That's the partnership and you start to build on that and continue for the next drug and the next idea. So nothing is made purely in a kind of clean sheet way of doing it.

There's a lot of kind of discussions and people know people. So this is rare that you find something that's really unique and it's rare that you're gonna get too much caught off guard but I do find that to speed it up, to answer your question, I don't know if there's a magic way of doing it but what it is is it's diligence on the sponsor side. It's the sponsor team being prepared as a team. So you're gonna have, like I said, quality people, technical ops people.

You're gonna have people that are maybe looking at the clinical trials. You're getting input from there. Some of these issues around, I know that in one situation it was around the viscosity of the molecule, right? And so this was a situation where you had a parenthal which is an injectable type, needle type situation and it was a very small, like under five or 10 milliliters in the syringe and so there's a certain viscosity that they were looking at and they really had to get to that level of technical understanding with the CDMO which I thought was very important because if that's done the right way, then you can make this in mass quantities the way you need to do that, right?

And so those definitely take some time but it's the information the sponsor's gathering. The sponsor is going about with their team to capture, document and discuss it. The CDMO is gonna work at the CDMO's pace. They're gonna try to respond very quickly but there's also, if you as a sponsor aren't capturing that information, the CDMO may or may not know how to respond to you.

So I'd say it's really on the sponsor, the customer's side, how they go about sourcing this. Okay. The reason I ask, I know that this competitive market the speed to market matters in pharmaceutical. Sometimes there's cases such as with the COVID vaccine, right, that was the warp speed.

I'm sure that had a lot of express lane type decisions made during that to bring that to market faster, to get it out faster. So I'm always just curious about that because with all these parties, it sounds like it can get bureaucratic. So I just wanna understand how you manage that. So thank you.

Yep. Yeah, and speed is, just to follow up on that, is it is very important, right? Because if you do have a patent on your drug, that patent has a time period to it and you're trying to get it to the market and then you can optimize the economic value of that to then, again, grow your business and reinvest. And so if you miss those or you're delayed in production, so even if the clinical trials are moving along but there's some problems with the manufacturing of it or regulatory of the CDMO where they're failing some FDA issues, which are serious, then you've got a whole nother delay that just is extremely costly.

So these relationships are strategic for these companies' survivals, whether they're emerging or they're even established companies. I mean, when you have a large pharmaceutical company that may outsource some of this, they stumble on, if the CDMO stumbles for whatever reason, that can definitely impact the large pharma's finances extremely adversely. Okay, well, about the markets. So as you look at each one of these areas, I'll separate it again into the categories we discussed, which is manufacturing, materials, including packaging, and logistics.

What are the characteristics of those markets that people may need to be aware of and think about as they start looking for suppliers or evaluating suppliers that would be part of this value chain? Sure, so, of course, if you take a look at the key starting materials, the chemicals that are going on, that's really a global marketplace. So you need to understand what those are. There is a lot of issues today with tariffs and discussions about the origination source of the material and how it goes through the overall supply chain, global supply chain.

So you could have a situation where things are made in China and then they ship them to Europe, like I said, for API manufacturing, and then they can come over to the U.S. for the fill and finish, you know, and putting them in the final primary packaging materials and then secondary as you ship them out to wherever they're going, to the hospital or the provider or they're going to an over-the-counter situation or a pharmacist, whatever that might be. So there's all those needs to think about.

But I guess to answer your question is if you're gonna, they do break that down. I mean, obviously the packaging market runs at a different type of, you know, supply and demand than the raw chemicals are doing it. And, you know, depending on your relationship and the decisions you make, the CDMO may be able to have some of that already in their operations. And so they may run a lot of that, those steps underneath, so to speak, one organization, but there could still be steps within that organization that you have to manage and monitor.

A lot of that is just also within there as there's a lot of that regulatory that I wanna say. Each one of those steps is gonna have regulatory oversight that needs to track a master file of the material, the batch coming through. And what's the quality management system? How is it tracking all that information to make sure that what you're buying at each step of the way is in compliance?

And if there's an issue, you can address it. And again, when you go to more of an integrated, you know, CDMO, it's much more able to manage a lot of that. You can maybe work with them much easier, but sometimes you can't do that. You have to pick along the lines and buy things or work with the end CDMO, but you're kind of coordinating across that whole supply chain.

So that's very important to think about. So what's driving each one of those markets? How are things like geopolitical and tariffs impacting the ability to do that? You're seeing in the U.

S. right now, a big debate, but a big push for onshoring. So there is a lot of effort. Some of the extremely large branded pharmaceutical companies have made multi-billion dollar commitments to building in the U.

S. So now they're in a different situation. Lilly or, you know, Merck and Pfizer, they have the ability to really kind of have that capital to do that. But most drugs are going to be in a situation where they might be more in an emerging situation and maybe Lilly or the big pharma are not yet interested in buying them.

So they're gonna have to think through their own manufacturing and really build that out and scale that up. And so it's not always an easy thing that for some of these companies that are doing drug development to think that a big company might buy them and their manufacturing problems and supply chain problems be solved by somebody else. It's got to really be thought through. And I think that's also the value that any company would bring, potentially if they want to be acquired, which is what happens a lot in this industry.

But they have to show that they have an extremely robust supply chain to make the drug. And then, you know, big pharma can usually find ways to expand that market potential and grow the sales of it once it's there. But that whole process, you need to really work with a partner in CDMO or, you know, understand that marketplace deeply. Gotcha.

Okay, let's talk about a subject that it seems like it comes up all the time. I just had another podcast about risk. But how do you manage the supply chain risk? These are, as you mentioned, global raw materials.

I think you said 30 some odd percent generally is coming out of China, right? You've got, you know, different supply chains here. You have packaging coming in a whole different way. That's a whole different chain than the raw materials are.

And how do you put all that together in a way that, you know, mitigates any risk or manages at least the risk to an acceptable level? Is there alternate sources of supply? I mean, some of these, I assume some of these chemicals are pretty specific and there's not like, you know, that many suppliers you can provide, especially the actives. But maybe I'm wrong.

Tell me, how do you manage risk among this, in this supply chain? So, yeah, and they're very important. And I think there's a lot of discussion about what they call China plus one in the marketplace. And so, yes, 37% of the key starting materials are coming roughly from China.

Some of the, you know, a lot of licensing deals are coming out of China, so the actual molecule. But there is something about how do you look at things in terms of alternates? It's time consuming, it's costly, but today's day and age, you need to look at it. And that doesn't mean you always have multiple agreements for sourcing, but you have to understand what those options are.

And so looking at the capacity of these CDMOs, looking at the growth and the capital expenditures that the large CDMOs are making in the marketplace, what does that mean? And so that's one area. The second area of understanding this is much more regulatory oriented. You need to be on top of this issue of any time the FDA or a potential supplier is maybe had issues with a 483 finding or anything out there that seems to indicate that they might be challenged at meeting and getting approved to make things from a regulatory perspective in their own facility.

So those are areas that you wanna monitor. So I would say you've got the basic kinda, what's the global market doing? What's then at the regulatory level? And that's also global too.

So the FDA, if you're buying something out of China to come into the US, the FDA is gonna be looking at that. But you know, you got China, you have India, you have a global marketplace. So I think that's a very important thing. The other aspect about risk is the longer, we all know there's the longer supply chain is, the chance of more risk is in there, right?

So if you have a facility in North Carolina that makes predominantly everything you're looking for, that's one way to look at a simplified risk. But if now it's coming across three or four different countries to get into the US, that's another area. So now we've got to start to look at the whole logistics and the important export issues and transportation costs and disruptions from that. And again, what's your mode of transportation?

Once you start getting into more of a finished product, the transportation is no longer some, you know, bulk shipments, it's now much more individual shipments. So that plays a different role in how people should be looking at risk. So I think you got to maybe just summarize it. It's the raw material global market area, it's the regulatory compliance, and it's gonna be this kind of how long is your general supply chain and what does that make sense?

And I feel like we're all coming, regardless if we're in the pharma industry or other industries to a realization that we should be careful that we have, if we have just a very long supply chain, because we think the costs are all gonna be lower, that could be dangerous in terms of the risk. And I think people are looking at near shoring, on shoring or shortening that supply chain. Right. Yeah, I think there's in Pennsylvania where I live, there's been a couple manufacturing plants announced by some of those large branded pharmaceutical giants that you mentioned.

And I think that's precisely it. There's a bit of a made in America, bring back manufacturing here. And I also think it is a big mitigation against a longer supply chain and the risk that that introduces. Not to mention, depending on ownership, right, there's a lot of working capital tied up in a longer supply chain based on who owns it, at what point in that supply chain.

So very interesting to see companies sort of position a bit more manufacturing in the US. I found that quite interesting. But, you know, there seems to be damn good reasons for it. Yeah, and maybe I would like to add a few things here that's starting to evolve.

This is a bit more future oriented thought on US manufacturing is that, not only do we just talk about the supply chain risks and if you could on-shore things, but there's another thing that goes on, which is the green manufacturing, if you will. The issues of how these chemicals are made traditionally can be very adverse to the environment. And there's a lot of good research going on into the actual, we'll call it green manufacturing areas, which is good on the chemistry side.

So we got to remember, we start with the molecule. We don't start with, you know, say steel, like for a car. But what I'm getting at is that molecule is very important. The second piece of this is the transition that's going on over time to more from a batch production perspective to continuous flow manufacturing.

And there's been a lot of good research. There are companies that are specializing more and more into flow manufacturing. As we all know, kind of the batch gives the ability for quality control to be managed. So if there's an adverse event in the marketplace, then we can go back to the batch and we can figure out that we had an issue.

We can pull that batch out of market. But in the continuous flow, that means that quality management systems need to evolve. How we look at, how we sample, how we manage that, working with FDA compliance for good manufacturing principles, all those need to be kind of worked through. Those are all things that are, in a good way, moving along, and a lot of support from the FDA too.

So this is like a lot of research going on and efforts with kind of collaborations with the FDA to try to figure out how to make it, let's just call it a lower cost perspective. And maybe what had happened in the last 25, 35 years, people started looking at offshoring because they could think about labor costs, but environmental costs differently. Now we bring it back onshore. We still want to have good wages and we want to have good environment.

And so those are things that are very important. And then also responsiveness in a supply chain environment when you can have more of continuous flow versus batch, that's always benefits there. So those are evolutions, I think, Greg, that are going to take place. And I'm very optimistic that that can also help with us calling this still a good economic value to reshore here in the U.

S., not just because of tariffs or something like that. It's interesting about the shift from batch to continuous and sort of, I think about how do you control that if there is an issue, right? I assume everything's still getting time date stamped, right?

So that we know the production window. Serialization is huge, yeah. Serialization, right. So that it can be traced back, but we see that in, you know, I have a client who's in the food and beverage business making beverages and they make batches, but then those go into tanks and then it runs through, but everything is stamped, where it was made, when it was made, what time it was basically bottled, right?

Very clearly so that they can control any escapes, if you will. So I guess the same principles would apply, but certainly that would be from a, if I put on my manufacturing hat, that would be a much efficient operation to run it in a continuous flow versus batch. And it would be, maybe that's one way we bring down drug prices, right? Right, because you gotta be able to manufacture it at a reasonable cost.

Right, and I think that is also where you can start to balance risk and cost, right? I mean, we maybe went offshore for costs, but now we see the risks there. Right. Bring it back onshore, people might think inherently there's a higher cost, but I think the beauty of continuous improvement, the beauty of innovation and collaboration with people is we can find ways to take the, we'll call it the waste out, but do it in the right way.

And those are really some exciting things that are going on. Regardless of maybe the geopolitical concerns, I think the market, the pharma market, needs to have more of this thought process on the making of the drug in that kind of, we'll call it the green continuous flow of manufacturing and maybe closer to a point of sale to do that. Now, again, there's a lot of variables when we go down to specific cases and specific businesses and specific drugs, but that's the concepts that are going forward.

And so there's a really strong industry look at trying to do that type of solution there. Sure, makes a lot of sense. So what else is coming in the future? Any other sort of predictions or projections based on trends you're seeing out there?

Well, so as we go, the biologics marketplace is growing. There is in the therapeutic thought process of how they look at cancer treatments or other areas of these applications, weight loss, diabetes, those are huge growth areas, potential and existing growth volume. And also you see some of these aspects of growth, not just in the U.S.

market, but globally. And I feel that we all know that diseases don't just stop at the border, they go globally. And so how do you service that? And so maybe a commentary like on treatment of diseases in Sub-Saharan Africa or something like that.

And we talk about logistics. You know, there's companies that make certain packaging materials where if the temperature, they're shipping a vaccine in cold chain in a certain defined temperature parameter. If it goes out of that, they get a visual warning and then they can pull that batch off. So you see like innovations like that, again, trying to ship it to long distances, get it to those point of care.

So on a global basis, we're not just thinking about the U.S., but we're thinking about how we service human health across the globes. I think those are very nice, innovative.

I mean, some of that's been around the market a long time, but it's also how it continues to evolve. And then more with thinking of the point of care, what does that point of care look like to helping people with their health, wherever they might be? So many things are kind of evolving and that's the exciting part of this whole industry is that we're not just talking about, I have cancer and I want to treat that, or I have diabetes and I want to treat that. We're talking about how do we help people flourish?

Kind of back to some of our conversations from the first podcast, we were talking about the innovation of drug development. Now, maybe a good way to summarize this is how do we think about a supply chain to the point of care, right? And that's where the physician and the patient and the hospital and the clinician, those people are at in Africa, like I said, Latin America, Asia, wherever it might be to servicing them. So I think those are some exciting things that are going on, which then gives us opportunity why you see the growth in the CDMO marketplace going at an eight to 12% compound annual growth rate is that there is opportunity to continue to grow.

Okay. In one sense, and call me an idiot if I'm being one, I see it's almost as though this manufacturing process and everything is moving more toward a consumer product, right? Maybe taking on some of the best practices that consumer products go through, continuous manufacturing being an example, but putting it closer to the point of use, right? So that the logistics costs are less and you just have a less expensive way to get product to the customer.

I look at the patient as the customer here and it seems like some of the trends you're talking about, it's still heavily regulated. We're not gonna dismiss risk completely here, but manage that risk and make it look a bit more like a consumer products company. The lines maybe would blur a little bit maybe between a pharma company and a consumer products company. I know that's a big leap, but at least it sounds like some areas can be looked at that way and improve that way.

Yeah, well, you get to some things like generics, right? So generics are low cost, right? Because there's no more patent protection on it, it's not a branded. And the other thing too is I think roughly 90% of at least the US market consumption of some drugs is generic drugs, right?

So the cost needs to be lower. And the other aspect about this maybe is to say that the economics sometimes, if you don't take the core cost lower, like we just talked about with continuous flow manufacturing and certain collaborations with the FDA on your quality management systems for managing and tracking the drug itself when it's in the market to track all that stuff, concern could be that the costs are still high. If the costs are still high and you have a generic where the prices are low, you're gonna see manufacturers exit the market.

That's also another thing where most people are trying, especially as they age, they're starting to take statins or whatever it might be for their health. And those are typically a little bit more generic oriented. And so that could be a big concern. So we need to keep the costs coming down, but in a smart way of doing that.

And you use the kind of consumer model, the consumer package goods, so to speak, whether it be a soft drink or whatever it might be, bottled water, those are still consumed by the human person, but they're consumed differently. And a drug obviously has a very specific application. You want, in many situations, they're not always over the counter. They're done by prescription for a reason so that the physician, the clinician, he or she can work with the patient to get the right prescription.

So all those play into the point of care and where's that point of care and what does that look like? But if you can think about, how do we start to really look at cost structures and look at more partnerships with manufacturers, contract manufacturers, how do we then take that cost so that it is competitive and it can be for generics as well as branded pharmaceuticals? And that's, I think, where some of the debate is kind of going on there is how can we do that? Otherwise, we end up in an importation situation and then we have other challenges that are out there, which aren't bad in themselves, but they're also the quality, you get into the regulatory, there are concerns that sometimes some things that are imported are not the same raw material rigor that goes into validating those raw materials.

And sometimes people say, I have to stay on more of the branded pharmaceutical than the generic because of some of those inherent molecular level type drugs or components that are in there. And doing that, not to say that all generics have those issues, it's just that sometimes those things can impact your body differently than my body. And sometimes you see physicians and clinicians kind of do that type of changing in prescriptions to do that. Again, all to the goal of human health and improving that in an efficient way.

Right, right. Yeah. That's awesome. Well, Dave, I really appreciate you coming back to discuss this part of the life cycle of a drug and very operationally focused here.

Obviously, there's a lot of considerations. It's a very complicated supply chain, very complicated manufacturing operation. And I think some of that complexity comes from the regulatory nature, which needs to be there to protect the public health and the people. But it seems like you've got a good grasp, if not a great grasp on how it works today and where it could be going.

So I appreciate you sharing that with the audience today. Any closing thoughts you have about this part of the drug life cycle that maybe we missed or I failed to ask you about that you wanted to bring to the party today? Well, I appreciate the discussion here. One of the things that maybe just the thought process is that so often people, this is more of a public perception of drugs, is they look at companies that make them that are publicly traded.

So they see the financials and they see the cost of goods sold, making of the drug, can be maybe that the cost is 10 to 15 to 20% of the total cost structure of a pharma company. And they look at those margins and they say those gross margins are very high. And what I say is definitely the math is there. So you see that the margins are high, very high.

However, the idea is that you take that money and you plow it back into more drug development or acquisition of emerging pharmaceutical companies for the next elevation of human health and development there. So maybe just a perspective that people might miss there as they look at this and the debate and a lot of pharmaceutical companies sometimes might take a little bit of a public, you know, negative perception because of those financial numbers, but it's very costly to make it and keep it being made at the cost it is because if it's not done right in the team, something happens with those supply base, it can be very costly, not just in financial, but human health issues too.

So glad to talk about this. I really appreciate the opportunity to talk with you and Tenzing about, you know, the pharmaceutical marketplace, which is extremely big and there's a lot of angles on purchasing and supply chain management that different parts of these companies have to excel at and work together to have the products that you and I need when we talk with our own physician about our health. So thanks, Greg. Yeah, no, you're welcome.

And appreciate you joining us, as I mentioned before. It's always great to talk to you and thanks. Maybe we'll come back one more time in the future, but, you know, congratulations on being the first repeat guest on the Executive Edge podcast. All right.

Thank you. All right, Dave, until next time, you take care. Thank you. Thanks, Greg.

Take care, bye.