Contract development and manufacturing · Pharmaceutical and life sciences
Programme-level margin for CDMOs, measured while the work is still running
A contract development and manufacturing business sells scientists' time, plant capacity and the right to scale up. Its contracts usually pay by milestone. We cost each programme as it runs, so a project drifting over budget is visible before the final invoice, not after it.
In one paragraph
CDMOs and contract research-and-manufacturing businesses, usually at ₹30–600 crore turnover, serve innovator and generic pharmaceutical companies in India and abroad. They earn against contracts, not products. Each programme has its own scope, milestones, materials and timeline, and the same laboratory or plant serves many clients at once. Founders, CFOs and business heads need margin by programme, and the ledger is rarely built to give it.
CFO or chief executive, often with the head of business development
The economics
How the money moves in this trade
A CDMO earns in two modes. Development work — route scouting, process development, analytical methods, scale-up — is billed on milestones or full-time-equivalent rates. Its cost is mostly scientist time and laboratory consumables. Manufacturing for clinical and commercial supply is billed per batch or per kilogram, and its cost is plant time, materials and quality release. Many programmes move from the first mode to the second, and the pricing logic changes with them.
Contracts are usually in foreign currency, and milestones slip as the science dictates. Clients often supply some materials or pay for capacity to be reserved. Revenue recognition, unbilled work, advance receipts and change orders therefore matter as much as cost. A programme that looks profitable on invoices raised can be losing money on hours spent.
The problem
Where the numbers usually break down
Scientist time is not booked to programmes
Development teams work across several projects a week, but their time is charged as departmental salary. Programme cost is estimated after the fact, if at all.
Milestones and effort are not reconciled
Revenue follows the milestone schedule while cost follows the work. Without a link between them, a programme that has consumed most of its budget can still show little revenue, or the reverse.
Change orders are agreed but not billed
Scope changes are accepted at bench level in the course of the science and never formally priced, so the extra work is absorbed into the original fee.
Reserved capacity is not charged against utilisation
Where a client reserves a block or a suite, the cost of idle time during the reservation is not compared with the reservation fee.
Client-supplied material is tracked outside the books
Starting materials, reference standards and intermediates supplied by clients are held in stores without a reconciliation the client can rely on.
What we do
The work, and the result each part produces
Programme costing
Scientist and analyst hours, laboratory consumables, plant time and outsourced testing booked against each programme and compared with its budget.
Every programme shows its margin while there is still time to act on it.
Milestone and revenue tracking
Milestones, effort-based billing, unbilled work and advances tracked by contract, with revenue recognised on a stated basis.
Reported revenue reflects the work actually done for each client.
Change-order control
Scope changes logged when agreed, costed, and either billed or explicitly absorbed with approval.
Extra work stops leaking out of the contract unpriced.
Capacity and suite utilisation
Utilisation of laboratories, kilo labs and plant suites reported by client, including reserved but idle time.
Reservation fees can be tested against what the capacity costs to hold.
Client material reconciliation
Client-supplied material received, consumed, returned and held reconciled by programme and confirmed with the client.
Client stock agrees with the books and with the client's own records.
Currency and contract cash view
Foreign-currency receivables, advances and milestone timing projected by contract alongside the cost of running each programme.
Cash and currency exposure are visible by client, not only in total.
Where we start
The first steps of an engagement
Contracts, trackers and lab logs
We ask for the active contracts with their milestone schedules and change orders, the billing and advance ledger, and whatever already records scientist time, such as electronic lab notebooks or project trackers.
Effort against milestones, by programme
For the largest programmes we set hours and materials consumed against milestones billed and revenue recognised. This shows which contracts have used more budget than they have earned.
Change-order log in place
Every scope change agreed with a client is logged when it is agreed, costed, and either billed or absorbed with written approval.
Programme margin report
The first report shows budget against actual cost by programme and phase, unbilled work and advances by contract, and the change orders still unpriced.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Programme budget against actual cost, by phase
- Revenue recognised against milestones billed
- Scientist utilisation by programme and client
- Change orders raised, priced and billed
- Suite and plant utilisation, including reserved time
- Unbilled work and advances by contract
Who it suits
Written for, and not the right fit for
- You need a transfer-pricing study or the accountant's report on a group arrangement signed — that is signed by an independently engaged CA.
- You need help with sponsor audits of quality systems or regulatory filings; those sit with your quality and regulatory teams.
- CDMOs and contract research-and-manufacturing businesses serving overseas and domestic sponsors.
- Businesses moving from development-only work into clinical or commercial supply.
- Founder-led CDMOs preparing for investor diligence or a capacity expansion.
Cities where this trade concentrates
Services
Services this work draws on
Costing and profitability
What each product, line and customer really contributes.
Explore service ↗MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Fractional CFO services
Senior financial leadership on the days you need it, not a full-time hire.
Explore service ↗Transaction advisory and due diligence
Quality of earnings, working capital and net debt, under one owner.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
Our scientists will not keep timesheets. Is there another way to track programme time?
Usually. Many teams already log work in electronic lab notebooks or project trackers. We can often derive programme time from those with a light weekly confirmation, rather than introducing a full timesheet.
How should we recognise revenue on milestone contracts?
That depends on what each contract actually promises the client. We map the obligations in each contract and set out a consistent basis, which your statutory auditor then reviews independently.
What does investor due diligence on a CDMO look at first?
Programme-level margin, contract revenue and client concentration, usually before anything else. We prepare that analysis and the data room behind it.
5th Quadrant performs costing, contract revenue tracking, reconciliation and reporting work. Regulatory, quality and sponsor-audit matters sit with your own functions. Statutory audit, transfer-pricing certification and other prescribed certification are performed by independently engaged licensed professionals. Full detail is on our Professional Scope page.
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