A contract manufacturing organisation (CMO) manufactures pre-formulated pharmaceuticals for other pharmaceutical companies based on their unique specifications. However, unlike contract development and manufacturing organisations (CMDOs), they don’t research and develop new drug formulations.
In this article, we’ll explain what a contract manufacturing organisation does, the benefits of using a CMO, and the costs involved.
And don’t forget to read our complete guide to contract manufacturing for more detailed information.
In this post:
What does a contract manufacturing organisation (CMO) do?
CMOs mainly manufacture pre-formulated pharmaceutical products, although they may also provide other services such as stability studies for medicines, pre-clinical trials, and registration batches. In contrast to CDMOs, CMOs rely on the formulations provided by their client companies.
Contract manufacturing organisations typically provide services to small and mid-sized biotech and pharmaceutical companies. The contract may relate to a particular batch of products or it might cover a fixed time period. Smaller companies and startups in the pharmaceutical industry account for the majority of a CMO’s clients. The remainder of their business usually comes from larger, well-established companies with renowned brands. The latter may only outsource a portion of their operations.
As most smaller companies (particularly startups) don’t have the resources and large machinery required to run full manufacturing operations, they rely on CMOs to mass-produce their products. Contract manufacturing organisations can therefore help small and midsize companies to overcome common hurdles like market entry and scalability.
On the other hand, large and well-established pharmaceutical companies may use a CMO to help them fulfil a specific product line, expand their business operations, or meet excess demand for their products. 
Benefits of a CMO
From improving product quality to faster production, contract manufacturing services can benefit both small and large pharmaceutical companies alike.
1. High-quality products
CMOs usually have a wealth of expertise and experience that they’ve developed over many years. As a result, their clients can be confident that any products they outsource to them will be of high quality. CMOs also use state-of-the-art technologies that ensure high-quality manufacturing standards are maintained throughout the production process.
Many contract manufacturing organisations choose to focus on specific types of products and will have already mastered the manufacturing process for optimal results – for example, at ReAgent we provide chemical contract manufacturing services. As well as having the right experience and equipment, CMOs will be compliant with both international and national statutory requirements and standards. 
For an inexperienced or small company, using a CMO to fulfil their manufacturing requirements means they can benefit from high-quality results without having to start from scratch.
2. Scalability
As a company grows, it will inevitably need to increase production and expand its operations. However, investing in new manufacturing machines and facilities can be very costly and risky – especially for new companies. For those businesses that want to scale up, the best alternative is to outsource some or all aspects of the manufacturing process to an experienced CMO. As well as boosting growth, it allows them to benefit from faster production and delivery times. 
3. Reduces the need for significant capital
Access to capital is one of the main entry barriers for small businesses wanting to expand and reach out to a larger portion of the market. Buying land, constructing buildings, hiring extra workers and installing new machinery all require a large amount of capital.
However, ambitious companies can avoid large overheads and the need for extensive investment by simply outsourcing their manufacturing operations to CMOs. This is especially useful if the business plans to expand into new markets and can’t be certain of customer demand.
Why use a CMO?
As we’ve already explained, there are lots of benefits to using a CMO or CDMO. Many businesses choose to hire a CMO because it’s very cost-effective; not only does it reduce overheads but it improves production efficiency too.
Outsourcing also means they won’t have to purchase new machines or maintain idle equipment. Plus, it removes the need to order and store raw materials, which can be costly. Instead, client pharmaceutical companies can focus their efforts on research and development, marketing, or both. 
How expensive is it to hire a contract manufacturing organisation?
The cost of hiring a contract manufacturing organisation varies depending on several factors, including:
- Labour costs
- Price of raw materials
- Type of product being manufactured
- Quantity required
- Turnaround time
Outsourcing to a contract manufacturing organisation is generally less expensive than building a factory, purchasing your own equipment, and hiring workers. If, however, you were to manufacture in-house using your existing factory and machinery, the cost (per unit) might be the same as hiring a CMO.
In some cases, you might only need to outsource production if there’s a seasonal increase in the market demand for your products. This is still a more cost-effective option as you won’t need to hire new employees or construct new factories.
Summary
CMOs provide manufacturing services for other companies in the pharmaceutical industry. Using a CMO means pharmaceutical companies (especially the smaller ones) can reduce their overhead costs and scale up – and all while maintaining high quality. It also frees up time and resources so they can focus on other aspects of the business, such as research and development and marketing.
ReAgent can contract manufacture a wide range of products for the pharmaceutical industry. Please contact our team today to discuss how we can help your business.
