The pharmaceutical industry faces legislative pressures, funding cuts, and cascading supply chain disruptions. This evolving landscape is tightening its grip on an industry already struggling to keep pace with patient demand, and small molecule drug developers are feeling the pinch most acutely.
The 2022 Inflation Reduction Act (IRA) has introduced significant challenges for the industry, altering the economics of small molecule drug development. This type of legislation is sure to discourage investment in and reduce new drug approvals for small molecule drugs, even as patient demand for oral treatments continues to rise.
The repercussions for small molecule pipelines are clear: fewer "blue-sky" research projects, reduced corporate basic research, and fewer second indications for orphan drugs. According to GlobalData, the shift is already materializing with a 48 percent increase in venture financing for biologics over small molecules in 2023. This trend was further demonstrated in a recent survey by BioCentury, where over half of the surveyed firms are reviewing or planning a shift toward large molecules.
This may further compound the US drug shortage problem, which is heavily weighted towards small molecules. According to the USP Annual Drug Shortages Report, unfavorable pricing dynamics have driven product discontinuations. The industry saw a 40 percent increase in discontinuations in 2023 and almost half were solid oral medicines. The lack of financial incentive to produce these less profitable drugs constrains supply and exacerbates drug shortages.
Given the key role CDMOs play in the development, manufacturing, and commercialization of small molecule drugs, the IRA has certainly had a downstream negative impact on business. But with every challenge there is opportunity. CDMOs must continuously evolve and build capabilities that meet the current needs of the industry. Given CDMOs’ inherent ability to respond in an agile, adaptable, and collaborative manner to market dynamics, I believe small molecule-focused CDMOs are uniquely positioned to help their pharmaceutical partners navigate this changing landscape.
By focusing on capabilities that enhance speed, foster innovation, and improve manufacturing efficiency and cost, CDMOs can maintain their crucial role in drug development, address the challenges introduced by the IRA, and help ensure essential medications are available to all who need them.
The CDMO role
Current drug development is costly, driven by low research productivity and high late-stage attrition. CDMOs should focus on building out capabilities that enable faster timelines and improved data collection, so that their pharma partners can make early, informed decisions about drug candidates. For example, by offering expertise in preclinical formulation development, study design, and data analysis, CDMOs can help reduce late-stage attrition by advancing termination decisions earlier in the development process. I have seen examples where formulation technology designed to drive exposure during preclinical testing resulted in hundreds of millions of development dollars. By driving exposures, the client was able to identify toxicology risks in the earliest phase and “quick-kill” the drug candidate prior to expensive clinical investments.
Front-loading formulation screening helps pharma companies identify their best formulation strategy early, avoiding costly reformulation work that delays timelines. Additionally, the ability to conduct formulation screening alongside phase-appropriate dosing strategies during first-in-human trials can result in significant time savings, potentially shaving years off development. However, to do this effectively, CDMOs must have specialized pharmacokinetic, formulation and analytical expertise, as well as the right manufacturing and testing equipment to assess and process data to guide formulation and dose design decisions. This requires thoughtful hiring, training, and investment in new technologies and capabilities.
CDMOs can use advanced in vitro and in silico modeling and characterization tools, such as physiologically based pharmacokinetics modeling, predictive dissolution, and gastric morphology and motility simulation, to differentiate formulation strategies even before entering preclinical studies. Since poor medication adherence often leads to real-world outcomes differing from clinical trial results, improving drug delivery can directly and positively impact patient outcomes and product sales. CDMOs that focus on improving patient compliance through enhanced formulations, such as reducing pill burden or enabling IV-to-oral delivery, can also play a role in helping partners overcome adherence challenges.
CDMOs should also not overlook talent. With innovative and disruptive technologies constantly emerging, the half life of specialized tech skill sets is now less than 2.5 years. To remain competitive, small molecule CDMOs must continue investing in the right technologies and people to drive innovation and improve overall functionality and efficiency. This will take a new generation of scientists, engineers, and analysts that are comfortable with new modeling tools, AI, and machine learning. Implementing digital technologies will enable further efficiencies in drug manufacturing. Tools like electronic batch records and digital twins can optimize manufacturing processes in real time, improving predictive maintenance, reduce downtime, and enhance supply chain resilience, ultimately lowering manufacturing costs.
The IRA’s impact may be challenging, but it could serve as a catalyst for industry-wide transformation. In this era of therapeutics, CDMOs must rise to the challenge and help redefine the future of small molecule drug development by adopting strategic foresight and adaptability. The challenges we face today present an opportunity for the industry to emerge stronger, more resilient, and even more essential.
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