Long-standing CMO contracts are among pharma’s most consequential – and least competitively tested – spend categories. Structural barriers keep them closed, but companies that open them systematically find substantial value.
This Article discusses:
- Why long-standing CMO contracts often remain unchallenged — and where the hidden value potential sits
- How to introduce real competition despite regulatory and technology-transfer constraints
- Which commercial and contractual levers drive sustainable savings and stronger supplier performance
How strategic sourcing builds supply resilience and redefines procurement’s role at the executive level.
Why pharma leadership teams should revisit their most entrenched manufacturing partnerships
Long-standing Contract Manufacturing Organization (CMO) relationships are a structural feature of pharmaceutical operations. They are also one of the most consequential – and least competitively tested – spend categories on the balance sheet. Where companies have systematically reopened them, individual contracts have delivered savings of well over 50%, alongside meaningful improvements in supply resilience.
With capital efficiency and supply security back under executive scrutiny, the question is no longer whether value exists in these contracts. It is whether the procurement organization is designed to capture it.
Why these contracts stay closed
Across the industry, contract manufacturing organizations (CMOs) handle some of pharma’s most economically significant production – spanning sterile injectables and biologics, high-potency and controlled-substance compounds, lyophilized and specialty formulations, and complex primary packaging for sensitive products. The rationale is sound: specialized capabilities are capital-intensive, regulatory burdens are heavy, and the operational risk of disrupting supply for a launched product is real.
But the same logic that justifies long-term partnerships also insulates them from periodic review. A contract inherited through an acquisition, negotiated under launch-phase pressure, or extended through quiet renewal cycles can persist for a decade or more without ever being benchmarked against the current market.
Its commercial terms reflect the conditions of the moment it was signed, not the conditions the company operates in today.
This is precisely where strategic procurement, applied with the right design and executive sponsorship, can shift the economics of an entire product line. The difficulty is that most procurement organizations are not structured to do this work in highly regulated categories. And most executive teams have not asked them to.
The dynamics that entrench the status quo
Several structural features make CMO portfolios uniquely resistant to competitive testing. Unless they are addressed deliberately, the case for continuity always wins.
| Structural barrier | Impact on sourcing outcomes |
|---|---|
| Technology-transfer complexity | Transfer timelines of typically 18–48 months create a strong bias toward incumbents and limit willingness to introduce competition |
| Regulatory constraints | Site approvals tied to product and process make switching resource-intensive and slow, reducing sourcing flexibility |
| Limited supplier landscape | A small pool of qualified CMOs, especially for specialized manufacturing, limits perceived competitive pressure |
| Cross-functional dependencies | Misalignment between procurement, regulatory, quality, and technical teams delays or blocks commercially attractive decisions |
The cumulative effect is that incumbent relationships become difficult to challenge, not because the case for review is weak, but because the case for action demands a level of cross-functional alignment few organizations construct deliberately. Over time, “operational continuity” becomes the default justification, and the underlying economics are revisited only when a crisis forces the question.
Designing competition into the process
The assumption that switching is infeasible is rarely tested. In our experience, it is more often a function of how sourcing is designed than of what the market actually allows. Several shifts distinguish procurement organizations that consistently create value in these categories:
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Qualify the supplier landscape before launching competition
Run a targeted pre-qualification (e.g. an RFI) to identify CMOs genuinely capable of supporting the relevant technology, so subsequent tenders generate actionable offers rather than theoretical interest.
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Integrate regulatory and technical expertise from the outset
Map feasible transfer pathways and approval timelines early, converting regulatory complexity from a late-stage blocker into a structured workstream – and signaling internally that procurement is approaching the category with operational seriousness.
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Build a credible alternative to strengthen the negotiating position
Develop a parallel technology-transfer roadmap with a qualified challenger, even without executing a switch. A genuine, executable alternative shifts leverage back toward the buyer.
Where the commercial value sits: levers
Identifying credible alternatives sets the stage; the bulk of recurring value is captured in how the contract itself is structured. In highly regulated categories where switching is costly, commercial and contractual levers often deliver the most durable savings. They can be applied even where the incumbent ultimately retains the business.
Secure open-book visibility into cost drivers (materials, conversion, yield, overhead, margin) to challenge pricing on a factual basis rather than against opaque historical rates.
Tie input-cost movements to transparent indices so prices adjust in both directions, removing embedded buffers and one-directional inflation pass-through.
Structure volume commitments and tiered pricing so growth and consolidation translate directly into improved unit economics.
Link remuneration to service levels, quality, and reliability (e.g. OTIF, batch yield, right-first-time), aligning incentives with operational outcomes.
Embed multi-year price commitments and caps to convert volatility into predictability.
Codify dual-sourcing rights, capacity reservations, and exit/transfer provisions that protect supply while preserving future competitive leverage.
Applied together, these levers move a CMO contract from a renewal negotiation to a structured, benchmarked commercial agreement – frequently generating value even when the incumbent is retained.
What a structured approach delivers in practice
A dual-track approach consistently changes the economics of these categories. Structured negotiations with the incumbent are conducted in parallel with a competitive process among pre-qualified alternatives, supported by a credible technology-transfer roadmap.Close alignment across procurement, regulatory affairs, quality, and technical operations keeps every decision grounded in realistic execution pathways.
In one recent engagement, a pharmaceutical company applied this approach to a long-standing Contract Manufacturing Organization (CMO) relationship supporting a high-volume sterile product. Despite significant regulatory and technology-transfer requirements, the company successfully introduced competitive tension into a category that had not been systematically benchmarked for years.
- Substantial cost savings — individual contracts have delivered well over 50% through improved commercial terms and genuine competitive tension
- A viable second source, materially strengthening supply resilience
- Full transparency on global CMO pricing and capabilities
- Stronger cross-functional collaboration across procurement, regulatory, and technical teams
- A repeatable sourcing model that can be redeployed across the portfolio
In the example above, the sourcing program unlocked approximately 65% savings potential while establishing a qualified alternative supplier and creating full transparency on market pricing and capabilities.
The financial outcome is substantial. The strategic outcome matters more: companies move from single-supplier dependence on critical products to dual-source resilience — with a capability that compounds across the portfolio.
Procurement as a strategic capability
In highly regulated industries, competition rarely emerges on its own. It has to be deliberately created. A doing so requires procurement organizations designed to operate across regulatory, technical, and commercial dimensions at once, with executive sponsorship that empowers them to challenge entrenched assumptions.
For pharmaceutical executives, the opportunity extends beyond any individual sourcing event. Organizations that systematically introduce competition into their manufacturing portfolio gain greater flexibility, stronger supply resilience, and materially improved economics. Over time, these advantages compound – creating enterprise value that far exceeds the impact of a single contract negotiation.
Our Pharma Experts
Nicolas Willmann
Managing Director
Marcel Weber
Principal
Jakob Bollendorf
Project Manager
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