Biotechnology Trends & Outsourcing
How has biopharma impacted the outsourcing market?
Pfizer Global Manufacturing
Change is very much alive and well in the pharmaceutical industry — from ongoing consolidation and cost and pricing pressures, to loss of patent protection, and now the uncertainties of healthcare reform. Pressured to develop and deliver new drugs that are accessible, affordable, and revenue enhancing, biotechnology companies are now trending away from solutions that involve “stainless steel” (capital investment in manufacturing capabilities and capacity) and toward those more rooted in “science” (biotechnology process development, to be precise) — with important outsourcing implications for CMOs and biotech drug sponsors alike.
Large Molecules Looming Larger
Growing by approximately 15% to 18% every year, biotechnology (encompassing biopharmaceuticals and vaccines) is the fastest growing sector in the industry. The growth is being driven by multiple factors including opportunities for expansion into China, India and other emerging markets. Global biopharma revenues for 2010 are estimated at more than $100 billion, approximately 14% of total industry revenues. More than 30 biotech products have now reached blockbuster status (annual revenues of $1 billion or greater). On the R&D front, some 12,000 large molecules are in preclinical discovery or clinical trials, offering promise for patients in nearly 150 disease areas.1 It is estimated that biotechnology will make up as much as one-third of future new drug approvals. In addition, some industry projections show that, by 2014, seven of the top 10 drugs globally will be biotech drugs.
Factors Affecting Bio Outsourcing
A closer look at the important trends, issues and challenges impacting the industry now can provide clues to the future state of biotechnology outsourcing. Industry factors worth noting include:
•The draw of globalization and related challenges brought on by emerging markets,
•Imperatives to deliver more affordable, accessible products and therapies,
•Advances in technology and innovation in bioprocessing, as well as new delivery systems and therapeutic modalities2,
•Anticipated increase in biotechnology approvals, including growth in biosimilars, and
•Complexity and critical specialization of biopharmaceutical manufacturing.
While most companies currently rely on outsourcing to some degree, outsourcing biotech manufacturing should be a strategic decision, one that aligns with a company’s overall business strategy. The strategic outsourcing approach used will depend largely on which aspects of the business are to be optimized and what challenges need to be addressed. Historical drivers for outsourcing in the pharma industry hold true for biotech as well: product cost, capital avoidance, demand variability, and internal versus external core competencies.
Inherent in the nature of large molecule development and manufacturing are a fairly standard set of reasons for outsourcing in the first place. These also affect the basis upon which drug sponsors are willing to transfer manufacturing to an outside firm, and include:
•Capital Expenditures: One of the more obvious points is that using external capacity allows companies to reduce and/or delay internal capital spending — sometimes substantially.
•Unique Technologies: The ability to utilize unique technologies not found in one’s own internal network is often the principal driver on the path to outsourcing: for example, a proprietary technology platform.
•Flexible Capacity: Capacity is also an issue; many companies simply prefer to maintain flexibility and surge capacity to complement their internal network capacity for handling demand variability.
•Commercial Strategy: Use of CMOs may be tied strongly to market/commercial needs; some companies outsource post-POC clinical for selected products until they are proven commercially or the business benefit drives products to their internal network.
•Biosimilars Growth: For biosimilars, where reduced cost is an important requirement, CMOs can offer sponsors a means to an end while they focus internal efforts on innovative products coming from internal R&D platforms.
•Core Focus: Ability by CMOs to focus on specialized core competencies could also be a primary driver; a focus on devices like auto-injectors and protein carriers may be best done by companies able to concentrate their capital and expertise in these areas, something a drug sponsor may decide not to do for strategic reasons.
Key Requirements for Outsourcing Development and Manufacturing
Because of the specialized nature of biotechnology development and manufacturing, outsourcing these complex activities is no easy decision. A deeper understanding of key considerations by client companies/drug sponsors will enable a more strategic and effective approach to outsourcing. Any CMO looking for success in the biotechnology field must address these important elements:
•Quality and Continuous Improvement: The number one “ticket to entry” for any CMO or supply partner is a strong record of quality and compliance — a particularly challenging area given that operating a biologically-based process can be more complex than small molecule operations, primarily because there are more variables to consider and control.3 Furthermore, CMOs must be willing to ensure that their company cultures enthusiastically embrace continuous improvement with respect to quality — to meet the rising bar of regulatory standards being imposed by regulatory agencies.
•GMP Management and Remediation: Many drug sponsors today are willing to invest in CMOs and partners in emerging markets that offer significant opportunity for improving affordability and access for these important products. For CMOs that may not presently meet all company quality policies and GMP requirements, having a client participate in the CMO’s remediation efforts offers important benefits to both and must be encouraged by the CMO — in fact, it should be written into supply/quality agreements along with robust governance and oversight.
•Supply Assurance: Assurance of product supply is another fundamental consideration for success in biotechnology. CMOs must demonstrate excellence in execution during commercial manufacturing — coupled with a workforce skilled in engineering, technology, quality, and operations. This will assure a robust tech transfer process with mutually agreed endpoints (secured in development/tech transfer agreements leading to a supply agreement).
•Proven Technology Platforms: CMOs must be able to reference and leverage a proven track record in manufacturing products from their technology platforms. The truth is, companies talk to each other about CMO performance (at least in general), and a CMO’s reputation and credentials in this area are important — especially in emerging markets where track records often are not well established.
•IP Development Strategy: The best CMOs working in this market are highly skilled at putting walls around client company intellectual property and must be open to the notion of sharing equally in IP developed between the CMO and the drug’s sponsor.
•Partnership Mentality: There is an even greater trend towards “partnership” relationships rather than strictly “buy-sell” relationships. Many biotech companies are now looking for CMOs to be an integral part of their supply chain, an equation involving value-based variables beyond simply the cost of outsourcing services.
Assuming a strategic imperative for outsourcing does exist for the drug sponsor, two nagging questions emerge when considering assigning manufacturing to outside parties: Does the use of a CMO present more risk? And how can a company balance that risk with regard to quality, speed to market, cost, and real — or perceived — loss of control during tech transfer and manufacturing?
In a word, the answer is “collaboration.”
Most companies take a risk-based approach to how they manage their CMO relationships, and how “hands-on” they choose to be. The complexity of biotechnology requires a level of partnering and collaboration that runs deep between CMO and sponsor. A high degree of client participation is often needed through to commercial manufacturing, including working on the manufacturing floor during tech transfers.
CMOs that not only allow but encourage this kind of active collaboration will maintain a competitive advantage in biotechnology while reducing risk in several ways:
•Tech transfer milestones are achieved by having technical experts and project managers engaged
•Cost is managed by knowing how and when project expenses are incurred
•Quality practices and procedures are observed first-hand and can be adjusted to meet client expectations
•Client and CMO Operational Excellence experts can collaborate on continuous and cost improvement projects — leading to more robust manufacturing processes and reduced costs for both client and CMO
•Governance assures that client and CMO senior management in operations, tech services, and quality are in alignment and have the ability to quickly close gaps
Moving Ahead in a Competitive Environment
Currently, two factors in particular are combining to impact the cost of producing biotech products. The first — overcapacity for proteins and antibodies among CMOs (and concurrent underutilized internal capacities within client companies) — will have a particularly strong effect on the types of facilities the industry builds and uses in the coming years, a fact that will affect facility strategies at both drug sponsors and their CMOs.
Certainly companies are looking to consolidate and rationalize their internal investments to achieve cost savings, a fact that often drives biotechnology production to CMOs. On the other hand, the industry’s capacity situation can cause existing commercial products and those in development to be pulled into the internal network, reducing cost for drug sponsors by spreading overhead across multiple product groups.
The end result will influence the facility of the future in biotechnology — both inside client companies and among CMOs. The push-pull of capacity/overcapacity stimulates the need for multi-product, multi-platform facilities, sites that can do both clinical and commercial manufacturing, to maximize the existing asset base across the industry and maintain competitiveness. To lower costs, CMOs must study this approach as well, while addressing the regulatory challenges involved.
The second major consideration in lowering costs is the utilization of CMOs and partners located in emerging, lower cost markets. Much of the discussion in the industry revolves around the theme of risk management, with many companies just starting to feel the potential risk that commercial product supply presents when marketing these products in the U.S. and in Europe.
Small molecule products have posed significant challenges for many CMOs even when they are rooted firmly in a strategic partnership. One must then consider the implications of the greater complexity of biotech products. Getting the product tech transferred, licensed, and launched might be easy compared with maintaining continuous and sustained supply of quality product that meets global regulatory requirements.
But success is possible, and in biotechnology it will be realized in ventures that are both open and collaborative, with a high level of engagement with the CMO in the labs and on the manufacturing floor — and with a culture of relentless continuous improvement and quality improvement to stay one step ahead of global regulatory trends.
Moving ahead, companies must look to lessons learned from industries that are more mature in their outsourcing models, such as microprocessor or automotive manufacture. Consolidation, manufacturing consortia, and strategic partnerships in these industries have driven a lower manufacturing cost base and a more competitive supply network. IP and regulatory concerns might be perceived as limitations for biotech companies that want to engage in truly effective relationships with CMOs, but the really innovative companies will find a way to do just that.
1Seventh Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, BioPlan Associates, Inc., April 2010.
2“Trends in Outsourcing,” Macdara Lynch (Pfizer); The 9th Annual Contract Pharma Contracting and Outsourcing Conference, September 2010.
3“Manufacturing Considerations for Sourcing GMP Fermentation Services,” Sheryl Henderson, Steven McWethy, and Keith Dixon (Pfizer); Pharmaceutical Technology, September 2008.
Louis S. Schmukler is senior vice president of the Specialty / Biotechnology Operating Unit at Pfizer Global Manufacturing.John Korte is managing director, Global External Supply-Biotech at Pfizer Global Manufacturing.