Cutting Costs with Contract Manufacturing

Leading biopharmaceutical companies are finding that manufacturing and production offer tremendous opportunities to cut costs, reduce time and achieve overall excellence, and pharma companies eager to speed drug development cycles are increasingly turning to contract manufacturers to help streamline the process. But what challenges do they face in terms of choosing an outsourcing partner? And what issues need to be taken into consideration in order for the relationship to be a success? NGP speaks to a number of industry experts to find out.

Robert J. Broeze, PhD, Laureate Pharma’s President and CEO, has over 20 years of experience in the biopharmaceutical industry. His technical expertise spans research, development, characterization, validation and cGMP manufacture of biopharmaceutical products, from pilot to phase III clinical and commercial scale with a strong emphasis on monoclonal antibody products for parenteral use.

Scott Parker has served as the Director of Business Development for EaglePicher Pharmaceutical Services since 2001. Scott has over 20 years of experience working in the contract manufacturing segment of the pharmaceutical industry where he began as a chemist and later served as a production manager for two organizations before assuming his current role with EaglePicher.

Dr Graeme Macaloney is the CEO of QSV Biologics Ltd, a licensed cGMP biologics contract manufacturer based in Edmonton, Alberta, Canada. His 21 years of pharma, biotech and entrepreneurial experience span management and governance roles with genomic and proteomic organizations, CMOs, Pfizer and Eli Lilly, both in the European Union and North America.

NGP. Outsourcing pharmaceutical production is nothing new and the benefits to big pharma companies are well documented – but what do you see as the key drivers behind the recent popularity of the contract manufacturing model?

GM. The popularity boils down to investor value, which in turn is all about return on investment. This means deploying limited capital as effectively as possible in order to speed products through the clinic toward commercialization. Biotech and pharma executives face this same fundamental issue. Capital should be focused on clinical development and not building expensive ‘white elephant’ edifices to ones ego!

The landscape is littered with biotech companies that built single product cGMP pilot or production plants but their drug failed in the clinic. They can’t readily sell their ‘surplus capacity’ because most savvy potential clients will see that they are a high risk drug development company whose drug is destined (statistically speaking) to fail in the clinic – and if they should be successful then their in-house pipeline worth hundreds of millions of dollars will take precedence over a measly third-party manufacturing contract worth a few million. The end result is that these firms try to sell off these facilities at seriously discount rates but most often end up auctioning the equipment for its residual value.

Today, clinical trial manufacturing services can be provided by dedicated contractors. As a result, we are seeing an increased number of virtual biotech companies that appear to be positioned to exploit this. The only thing worth owning is the IP – not bricks and mortar. What has changed over the past 10 years is that investors have come to realize that the virtual model is much more efficient. The other recent development is that with regulatory agency support for multi-product facilities, there are more CMOs out there offering a wide variety of competencies, competitively and at a high quality. So one of the key drivers is the maturation of the biopharmaceutical industry toward a more efficient business model.

RB. The market for biopharmaceutical products has expanded dramatically in recent years. In 2005, biotechnology company revenues worldwide are forecast to reach more than US$45 billion or almost 10 percent of total global drug sales. The therapeutic antibody market represents over US$8 billion. More than 100 biotechnology drugs have been approved since 1997 and today at least seven of the top biotechnology drugs annually bring in more than US$1 billion each. It is estimated that 300 biologic products are in clinical trials, with another 600-700 in pre-clinical or early clinical development. Large pharmaceutical companies continue to outsource manufacturing and filling as they balance their capacities with the numerous projects they have ongoing. Biotechnology companies outsource pre-clinical through commercial activities as they balance the significant investment necessary to manufacture themselves versus the need to continue to outsource production. Contract manufacturing companies provide a significant service extending capacity for pharmaceutical and large biotechnology companies and providing a high quality and economical alternative to small and medium sized biotech and diagnostic companies

SP. Outsourcing has traditionally been an attractive option for pharmaceutical companies because of a number of key drivers. These drivers include cost reduction, improved efficiency, risk sharing, comprehensive support, and niche resources. As a contract manufacturer specializing in the development and manufacture of active pharmaceutical ingredients (APIs), we have seen that the primary drivers motivating a pharmaceutical company to seek out an outsourcing relationship depend entirely on the needs of the organization. Traditionally, the majority of our customers from the large pharmaceutical community have been looking for more of a straight outsourcing relationship while our smaller and virtual customers have been looking for more comprehensive support to assist in getting their drug product to market. Smaller and virtual organizations have traditionally looked for a contract manufacturer that could serve as a partner and provide services and expertise that would require too much time and large financial resources for the smaller organization to build internally. With most smaller organizations eventually licensing their drug to another company, the goal is to find a contract manufacturing partner who can complete their product’s value chain.

Recently, however, we have seen a shift in the industry and our view is that more larger pharmaceutical companies are focusing their financial and human resources internally in the areas in which they feel they can add the most value to their drug programs and are looking to outsource more of the support for their programs to organizations that can provide cost effective, high quality, and reliable service for their drug programs. We believe the fundamental driver for contract manufacturing has always been the reduction of costs, but that some larger companies have more recently come to the realization that a viable way to reduce costs is to outsource to organizations that have the experience and resources to efficiently support their programs.

NGP. Does the handover from in-house facility to contract manufacturer present any issues with regards to technology transfer? What areas need to be addressed? And how can this transfer be managed effectively?

RB. Technology transfer from our clients into our facility is the first step in any of our projects for biopharmaceutical production. It is critical to success in cGMP manufacturing. What works best for us is to have our scientists interact directly with the client’s scientists to insure an accurate transfer of the technology. We work from reports, questionnaires, phone conversations and in-person meetings to make the communication as complete as possible. Often there is some process development that is part of this transfer, especially for early-phase products. Laureate Pharma transfers in the process as they have it, develops it as needed to make it suitable for manufacturing, and then scales it up to our cGMP facility.

GM. Yes, but probably no more than internal technology transfer from development to manufacturing within a single company. Frankly, having worked one both sides of the fence, I do not see a unique issue here that makes it more difficult to work with a CMO versus internal tech transfer. Pisano in his Harvard Business School case study of process development and manufacture (The Development Factory, 1997) concluded that silo’s within big, experienced organizations more often than not lead to months of delays costing $hundreds of millions. What he did not speak to are the inefficiencies, delays and failures of smaller organizations that lack the corporate experience of having done it before. Thus, employing a CMO can avoid delays not only for small biotech firms but also for large-cap organizations too. And by the way, these larger firms can also benefit from avoiding the silos and conflicting priorities of manufacturing versus research divisions).

Effective handover to a CMO is all about communication and accountability. QSV employ’s a project management (PM) model that is somewhat unique in the industry. Our process development group report to our PMs; the PM is empowered to make important decisions with the client without layers of bureaucratic indecisiveness layered on top; and the PM is the client advocate within our company. If the PM needs additional line-manager support he has the CEO’s backing and authority, or if the client is unhappy with the PM they can come directly to me, the CEO. With this structure, the PM partners with the client for the life history of the project and is empowered by his/her own technical resource who will be there for technology transfer, process development, scale-up, and also as a technical resource during cGMP manufacture.

SP. Anyone that has been in the contract business has stories of extremely successful transfers, as well as nightmare projects. The key for a successful transfer sounds easy in theory; the transfer of all technical information to a new set of people or group of people. In practice, however, many technical packages provided to the contract manufacture do not have enough details, such as number of times the procedures have been performed, the largest batch size produced, analytical methods or the level to which the analytical methods have been developed. Other technical packages may have too many details with no key documents to summarize all the information. Some packages just contain stacks of notebook pages detailing experiment after experiment without the reason or purpose of each of the experiments.

The quality of the information provided in the technical package is also important. Does the technical package contain detailed information on experiments that where not successful, as well as, the one that were successful? Has the purity information been collected by a single validated HPLC method or has the purity information been collected with several different methods where the HPLC method does not determine some of the major impurity peaks? The quality of the information will change depending on where the drug is in the development process. High quality information from a pre-clinical study may not be viewed as high quality information for a product nearing commercialization. As the drug development process gets closer to the new drug application (NDA) methods and procedures should be validated; where earlier stage activities may not require validation.

One of the most important areas that need to be addressed in the transfer is clearly defined milestones and the deliverables of each of the milestones. Both the contract manufacture and the pharmaceutical company should require clear deliverables this will keep the project focused and allow for much easier manageability. Another issue results from the fact that many procedures, know-how or techniques are taken for granted with each site and not communicated. This issue can be managed by having the transfer of personnel from either the contract manufacture visiting the pharmaceutical companies or vice versa.

The real test of the technology transfer will be how well both teams interact during a technical issue that arises during the execution of the project or program. Immediate communication by the contract manufacture when technical issues occur is a must. Relationships built during regular communication of program progress will allow for quick development of action plans to resolve the technical issues. The contract manufacture must be viewed and act like an extension of the pharmaceutical company.

NGP. Compliance is another critical consideration – yet a recent IBM Consulting report has suggested that current quality and compliance systems are stretched to their limits. Others suggest quality practices in the pharmaceuticals industry today are what they were in other industries 15-20 years ago. What challenges do manufacturing operations face in order to meet quality and regulatory requirements?

SP. Our entire business depends on the strength of our quality systems, and we face three main challenges. First, it is important not only to understand the current FDA and international regulations, but also to anticipate and plan for the continuous raising of the compliance bar by regulatory organizations. We must not only look at how regulations affect our global quality systems, but how the regulations may individually impact our customers’ products. The key to overcoming this obstacle is to take an aggressive and forward-looking approach to the ever-changing regulatory environment we work in.

The second challenge is managing our customers’ quality expectations. Typically, each customer has a slightly different approach to quality requirements for their products. It is crucial as a contract manufacturer that you address the needs of your customer and at the same time you maintain complete control over your quality systems. This challenge can often be best addressed through the execution of a quality agreement between the parties outlining responsibilities and expectations.

Finally, we must harmonize the regulatory framework, individual customer requirements and our quality systems so that we ensure not only compliance but also consistency in our standard operating procedures (SOPs). The key to overcoming this obstacle is having a foundation of SOPs providing a solid and consistent framework from which your employees can address any and all compliance issues.

GM. The pharma/biopharma industry has had an excellent safety track record – especially considering our products are typically injected into patients and designed to kill infections or cancer without harming the patient – or address life-threatening heart and inflammatory diseases with minimal side effects. However, we cannot be complacent. CMOs in particular must, and do, work to the highest standards possible because we are multi-product manufacturing organizations. Therefore, we place a tremendous emphasis on cleaning validation, for example. Disposable technologies have helped considerably in this regard too. QSV also welcomes regulatory agency and client audits to ensure that we are under the highest level of scrutiny. We also encourage client staff to be on-site during their campaigns.

RB. Many of the challenges that we face relate to the early-phase nature of the products and the rapid timelines that most of our clients are under. We address these challenges by close communication with our clients and between the manufacturing and quality groups at Laureate Pharma. The quality groups have initiated monthly GMP training sessions with the manufacturing personnel in order to keep them up to date with the latest compliance initiatives and to provide constant reminders of our focus on quality in the company. Additionally, the quality unit meets with the manufacturing groups individually on a monthly basis to discuss issues, potential issues and proactive preventive actions.

NGP. And how are concepts such as Lean and Six Sigma influencing approaches to quality in the pharmaceuticals manufacturing industry?

GM. The reality is that Lean and Six Sigma provide a structure, discipline and logical progression for organizations to achieve breakthroughs and improvements in quality. Experienced manufacturing organizations routinely implement these, or related approaches, because this is the way we have learnt to do it. For younger organizations the tools can be a valuable way to overcome the lack of corporate learning in this regard, or may ensure that this learning is captured. Basically, quality comes from the top and these tools are a useful way to encourage its implementation.

SP. The principles of Lean and Six Sigma can be extremely helpful in addressing process efficiencies in systems throughout an organization, including quality programs. It is crucial in the pharmaceutical manufacturing industry in general, and more specifically as a contract manufacturer, to apply these tools in a manner that preserves the integrity of your quality systems and the drug programs they support.

RB. Although we have not formally adopted the practices of Lean or Six Sigma, we are aware of the necessity of doing things right the first time and building quality into the process. At Laureate we strive for complete customer satisfaction and demand quality in everything we do. Should an issue surface we are diligent in investigating the root cause, quickly addressing the issue, and putting preventive measures in place immediately.

“In a perfect world, contract manufacturing is a win-win proposition; in an imperfect world, however, the win goes to those who know how to do it better.” What should drug companies and CMOs be looking for from a contract manufacturing relationship, and how can both parties ensure that the partnership is successful?

SP. As a contract manufacturer, the first step in evaluating a potential partnership with a drug company is the assessment of what value we can bring to the partnership. This evaluation requires a thorough understanding of our potential customer’s needs. A drug company could be looking simply for a reliable partner with strong quality systems who can provide cost effective manufacturing. Alternatively, a drug company can be looking for an outsourcing partner who has specialized and experienced resources in technology or support areas that are not present in their own organization. It might seem obvious, but the key as contract manufacturer is to truly understand what the ‘win’ is for your potential customer.

By taking the time to understand the methods to best support your potential customer’s value chain, a contract manufacturer can create the ‘win’ for the drug company, whatever that ‘win’ may be. In return, the contract manufacturer can become a trusted, reliable and valued partner to the drug company, which is our ultimate ‘win’.

RB. Trust is a critical factor in any relationship. There needs to be a high level of confidence that both the drug company and the CMO will work together to provide the optimal results. Open and frequent communication is also a key factor. The drug company should expect from their CMO, a proven level of experience, superior customer orientation, the right equipment and facility to complete the project, a quality infrastructure and procedures to meet regulatory requirements and produce a high quality product, excellent project management skills, and finally the communication framework and commitment to keep all parties apprised of progress and avoid surprises.

GM. From an insider perspective, the key attributes to look for in a CMO relationship are all to do with quality and relationships. Obviously, ours is a quality driven industry but you should ask if your vendor has a licensed facility thereby demonstrating a proven level of regulatory compliance. You can pay less to contract manufacture with university, governmental or other ‘budget’ operations but will more often than not come to regret it. If you lose time with failed or contaminated batches or fail to develop a robust manufacturing process, it will be a disaster. After all, shareholder value is all about speed to market and achieving key milestones.

Seeing is believing. Go and visit your CMO. See how their facility presents, how their quality systems are structured, and how they function. Remember, this is a body contact sport! Comprehensive manufacturing contracts are important – but more important is the relationship. How attentive, flexible, responsive and trustworthy are the people at the CMO? When you visit, critically evaluate how you are treated by the CMO. Are the ultimate decision-makers on site and involved? Are they hungry for your business? This is a long-term, complex relationship and you will face more than one bump in the road – so choose a CMO that is genuinely committed to a relationship and not just a contract. Listen to your gut feelings.