Weigh the Risks in Outsourcing Decisions

PharmaManufacturing.com

Size, Style and Synergies Dictate Best Approach

By Angelo De Palma, Ph.D., Contributing Editor

Much of the streamlining that's occurring in industry operations today is the result of uncovered synergies. Unit operations that fit well together, or sequentially, save time, space and money, and help turn out better product. With outsourcing, an established strategy for filling capacity shortages, pharmaceutical manufacturers are discovering new ways to make the most of contract manufacturers' varied and often complementary expertise.

How a sponsor organization specifies, acquires and manages the services of a contract manufacturing organization (CMO) depends on a sponsor's size, workload and in-house capabilities. It's sometimes useful to distinguish between large and small firms, biotechnology and small-molecule developers, and prescription versus over-the-counter drug makers.

"Larger pharmaceutical companies already have pilot plants, researchers, and manufacturing capacity," says David Sovello, Ph.D., regulatory vice president at Cardinal Health (Dublin, Ohio). Therefore, such firms typically look for specialized expertise or one-off manufacturing or packaging services to fill in for overworked in-house groups.

By contrast, smaller companies that are short on facility and expertise tend to outsource bigger chunks of projects. Start-ups and virtual companies face huge logistical hurdles unless they outsource to a one-stop shop.

Indeed, managing scale-up, manufacturing, filling, labeling and distribution is difficult enough when those activities are performed under one roof. Spreading them over several contractor sites, sometimes in different geographic regions, can result in chaos. The difficulty in moving material from one contractor to another is compounded by knowledge and information transfer at each handoff point.

Even transferring product from one contractor to another is far from trivial, says Michiel Ultee, Ph.D., senior director at Laureate Pharma (Princeton, N.J.). "Bulk product is at its highest value right after manufacturing. If something happens during transit to a fill/finish facility, all upstream work will be wasted. Keeping big projects under one roof reduces the risk inherent in handing off a project to a second contractor."

"There's always regulatory concern when bulk product is shipped," Ultee notes. "Sponsors can use FedEx, but that usually means shipments must stop over in Nashville. Specialized courier services can deliver product in refrigerated vehicles, but that there's transit risk in this as well. Both situations introduce chain-of-custody paperwork."

Handoffs Mean Delays

Not surprisingly, working with multiple manufacturing partners multiplies management overhead compared with a single-contractor relationship. Handoff points add delay and potential discomfort regarding intellectual property. "The fewer partners you have the better, but sometimes you have to make a choice based on specific technology that only one available contractor can offer," says Leendert Staal, Ph.D., president of DSM Pharmaceuticals Inc. (Greenville, N.C.).

Biotech is more risky than chemical synthesis because of longer change-over times, uncertainty inherent in the growing and harvesting products from microorganisms, and the complexity of multi-component biopharmaceuticals such as vaccines. With price tags of several hundred million dollars for biotech facilities, it's no wonder so much outsourcing occurs within this sector. "A biotech company with several development-stage products is forced to bet on which one will succeed," notes Edward Tomlinson, managing director for life sciences at BearingPoint (MacLean, Va.). "Biomanufacturers try to decrease cycle time, but it may be more important from the standpoint of planning to reduce variability in cycle time," Tomlinson says. "If the cycle time varies between 30 and 90 days and you are trying to plan capacity needs on a monthly basis, your variability is twice your planning horizon."

Large pharmaceutical companies are responsible for the vast majority of commercial product outsourcing, according to Cardinal Health's Sovello. The reason: an uneven and not always harmonious match between need and capacity. Large sponsors also own the vast majority of commercial products, and hence have a greater need to outsource older drugs to make room for pipeline drugs.

Line Extensions the Norm

With drug approvals over the past few years, product-starved large pharmaceutical firms also are looking for ways to extend the patent life of successful products while they await arrival of the next blockbuster. These include combination products or new dosage forms such as fast-dissolve and controlled-release. Sovello says he sees these so-called "line extensions" earlier and earlier. For example, Cardinal has a contract to create an extended-release form of Eli Lilly's Zyprexa antipsychotic product, whose sales are still growing. "Line extensions test manufacturers' ability to juggle outsourced competencies and are by no means limited to mature products," Sovello notes.

Like their customers, CMOs are getting bigger through mergers and acquisitions. Even though room still exists for small, specialty contractors and packagers, the full-service CMOs carry a lot of weight and credibility, even with customers who only need them for one specific service.

Many of the largest pharmaceutical companies now offer outsourced manufacturing services themselves. For example, Pfizer CentreSource (PCS; Kalamazoo, Mich.) customers range from top-ten international pharmaceutical companies to start-ups that lack a manufacturing base. As the CMO division of a pharmaceutical giant, PCS can afford to be choosy. Aside from usual issues of timing, capacity and technology, PCS will not accept projects that clash with its parent company's products or intellectual property, a practice that is fairly standard among other sponsor/CMOs such as Abbott, Schering, Aventis and Glaxo SmithKline.