Pricing – General Pricing Principles in CDMO

CDMO pricing criteria for biologics CDMO manufacturing services is designed and proposed based on questionnaires and series of discussions for additional services (often required or offered).

Regardless of the complexity, there is a common pricing criteria for many global CDMO companies primarily based on the following factors:

1) project plan, 2) changes in services, 3) materials and additional costs, 4) batch fees and invoicing, 5) price adjustment.

Overall drug manufacturing costs (or CDMO service prices) based on the criteria have been outlined in my previous article (here).

I will explain each of the common CDMO pricing criteria briefly with real life examples.

1. CDMO Pricing Criteria

1) Project Plan

  • Pricing is based on the assumptions and information set out in the applicable Project Plan. This includes detailed cost estimations for the specific services requested by the customer based on the questionnaire and project discussions.
  • Many biotech companies may lack experiences in development of process, manufacturing, analysis and documentation. Therefore, it is very important to request to CDMO for a comprehensive questionnaire at the first place. Quite often, it needs to inquire multiple CDMOs and compare questionnaires how well it is structured. Small differences in the questionnaire may cause large amount of adjustment costs as the project is progressing. Remember, right first time!

2) Changes in Services

  • If there are changes to the services requested by the customer, such as additional work or adjustments in scope, the customer is responsible for any additional costs incurred. Conversely, if the scope of work is reduced, the quoted price will (or can) be revised accordingly.

3) Raw Materials and Additional Costs

  • This topic has been covered details of the material costs in my previous article (here). Customers are required to pay for raw materials, resins, and any additional costs such as taxes, import duties, and fees imposed by public authorities. These costs are typically invoiced separately and are added to the overall price of the services.

4) Batch Fees and Invoicing

  • Prices for batches, products, or services are usually divided into i) initiation and ii) completion payments.
  • Initiation payments are invoiced upon commencement of the services, and completion payments are invoiced upon release of the batches or completion of the services. Additional costs such as consumables, wearables, and services provided by external laboratories are also invoiced separately.

5) Price Adjustments

  • Prices may be adjusted based on changes in variable costs (e.g., energy, raw materials) or process adjustments. These adjustments are made with prior written notice to the customer, providing reasonable detail to support the changes.

2. CDMO Cost Elements

Each CDMO has specific structure for cost recognition and allocations. Based on the main criteria above, standard cost elements of biomanufacturing services are categorised mainly in followings cost elements:

  • Process development (and optimisation) costs: developing, validating and optimising manufacturing processes
  • Direct production costs: labour, equipment usage, and production facility costs
  • Raw material costs: raw materials, costs for procurement, storage and handling
  • Additional services: analytical services (method development, release/stability testings), in-process controls and regulatory compliance/documentation
  • Overhead: general operational expenses including utilities, maintenance, and administrative costs
  • Project management fees: costs associated with managing project, timelines, coordinations and deliverables

3. CDMO Comparison: Key Differences in Pricing Structures and Mechanisms by Manufacturer/Service Provider

CDMO A

  • Stage-based Pricing: Its pricing is structured by distinct stages of the manufacturing process, each with specific costs associated. For instance, the cost is divided into stages like process development, manufacturing, and testing.
  • Payment Terms: Payment is typically split, with a certain percentage due upon the commencement of each stage and the remainder upon completion. This staged approach ensures a clear cash flow plan aligned with project milestones.
  • Annual Adjustments: Prices are subject to annual adjustments based on the Producer Price Index (PPI) – often a cap on annual price increases to prevent excessive fluctuations. This allows for minor adjustments reflecting changes in economic conditions.
  • Invoicing: They provide a detailed breakdown of costs, including specific charges for external laboratory testing and any additional services required during the project.
  • Adjustment for Changes: If there are scope changes requested by the customer, the manufacturer revises the quoted price to reflect these changes, ensuring transparency and mutual agreement on cost alterations. Also can be triggered significant changes in process conditions or regulations are considered in the adjustment.

CDMO B

  • Batch-based Pricing: They use a batch-based pricing model where the cost is determined per batch of product manufactured. This includes both engineering and GMP batches.
  • Additional Costs: Beyond batch fees, additional costs will be charged for raw materials, resins, and other consumables. These are typically itemized and separated from the batch manufacturing fees.
  • Invoicing: Invoices are issued with a clear separation of batch fees and additional costs.
  • Adjustment: If there are changes in the project scope requested by the customer, the manufacturer adjusts the costs accordingly. This is formalized through written amendments to the contract. So, both parties agree on the new terms.

CDMO C

  • Stage and Batch Pricing: They combine stage-based and batch-based pricing models, with specific costs assigned to different stages of the project and individual batches produced.
  • Payment Terms: Payments for each stage are structured to be made upon the commencement and completion of each stage, providing a clear financial plan aligned with project progress.
  • Invoicing: They offer a detailed cost breakdown, including all stages and batches, with clear delineation of additional costs for raw materials and external testing.
  • Adjustment: The company also emphasises economic indicators and cost changes with a clear notification process. If project scope changes, the company revises the pricing structure accordingly. Also ensuring that customers are fully aware of the financial implications of any changes.

CDMO D

  • Stage-based Pricing: Pricing structure of this company encompasses costs for various stages of manufacturing, from development to final product testing. This includes separate charges for raw materials and other consumables.
  • Payment Terms: This company’s payment terms are structured flexibly, often involving upfront payments at the commencement of each stage and the remainder upon completion.
  • Invoicing: The company provides detailed invoices that itemize costs for each stage and additional services. This helps customers understand with transparency at each stage of the project.
  • Adjustment: Any adjustments due to changes in project scope are handled through formal amendments to the contract. The company monitors economic indicators closely and ensures that both parties agree on the new pricing before additional work is undertaken.

Across different stages of the project, typical ratios of pricing structure is as below based on the common CDMO pricing principles:

4. Typical Ratios in Pricing Structures of Biologics CDMO

  • Development (20-30%): Initial stages, including research, development, and process optimisation.
  • Manufacturing (40-50%): Core manufacturing processes, including batch production.
  • Testing and Quality Control (10-20%): Costs associated with testing, quality assurance, and regulatory compliance.
  • Additional Services and Materials (10-20%): Costs for raw materials, external testing, and any extra services requested by the client.

Please also check overall drug manufacturing costs (or CDMO service prices) by stage in my previous article (here).

If you would like to know more about CDMO offerings, pricing, costs and building implementations in biopharmaceutical CDMO, feel free to contact me.

About the author

Juha Kim is a CDMO business consultant and business operations strategist. Equipped with latest studies and business practices, he is building frameworks in the world’s renowned CDMO companies based on his experiences leading various projects in Lonza as a Director, Operations Finance and Business Development Korea roles during the time.

He is also a founder of Korea-Switzerland BioPharma Network (KSBPN) and Korea Pharma Biotech Directory (KPBD) to help establishing business opportunity leads in both directions.

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