In this article, we define innovation as the ability to strategically leverage capacity, experiment with new technologies to extend a product's lifecycle, leverage drug manufacturing processes, compliment in-house technical staff and, for some, shorten the drug development cycle time. Cost reduction is still a real possibility, but these new service enhancements will likely be key differentiators for contract manufacturers in the future.
What Do Firms Want from CMOs?
Traditionally, contract manufacturing is seen as a pure cost play, where manufacturing requirements are clearly defined at the onset, and purchase orders are executed on a purely transactional, contractual basis. Until fairly recently, this has been a 'pull' model and the contract manufacturing organizations (CMOs) have to this point differentiated themselves based solely on the opportunistic needs of their pharma partners. This is historical, as the evolution of CMOs derived primarily from the sale of big pharma plants to a new and growing number of independent companies. The latest evolution includes examples of some global CMOs that have been created by 'rolling up' factories from pharma companies and negotiating long-term supply agreements. However, now that many of these supply agreements have expired, it is necessary for CMOs to differentiate themselves with new services and innovation.
Coincidentally, it is also increasingly clear that pharma and biotech partner companies can extract greater value out of the CMO partnership by focusing on additional value-add services that CMOs can provide. New services might include such capabilities as formulation improvements, alternate dose forms, improved yield and cycle time through lean six sigma, PAT, packaging enhancements, secondary sourcing, design of experiments (DOE), realtime order tracking and logistics support.
A CMO that can handle the basics, as well as deftly provide other value-add services, can potentially increase the commercial success of a pharma or biotech company's drug, while still delivering the financial incentives usually taken for granted. However, it is also important to note that a CMO's client base is segmented, and each segment requires a different range of services. For the sake of this article, we split the client base into three segments: large pharma (which generally includes generic companies), specialty pharma, and biotech companies. The range of options offered are, again for the sake of this article, split into three types: basic commercial manufacturing, development services, and go-to-market support. Each client segment will typically require a different 'portfolio' of services, as shown in Figure 1.
Figure 1:Consumers of contract manufacturing and
typical contracted services
However, even the most basic, transactional commercial relationship with a CMO can deliver innovation. CMOs can provide their considerable expertise to innovate in several areas, such as reduction in a product's cycle time or lyophilization cycle, increase in product yield, rationalization of SKUs, leverage of excipient and component costs through global procurement, reduced variability, and increased reliability. As CMOs mature, they are improving their ability to add real value to even the oldest of products.
Generic manufacturers also play a large role in the manufacturing market and represent a potentially large impact to the future of contract manufacturing. Generic companies typically in-source all of their operations, but as they dig deeper into their pipelines, they are finding a need to go beyond the traditional "white powder - white pill," and are finding that they need CMOs that have these more niche, unique technologies. They may need a new dose form, higher potency, scheduled narcotics, specialized handling, cytotoxic and,of course, biologic fill/finish. We may also observe a trendof generic manufacturers making the commitment to buildor buy plants to manufacture generic biologic products,or 'biosimilars.'
Specialty pharmaceutical companies are defined as those that market products in specialty therapeutic areas. By definition, these products typically start out small, serving niche markets, but ultimately can grow to blockbuster status. Generally speaking, these specialty companies do not consider manufacturing as a core part of their business. Some of these companies are virtual with no plants of their own, and some have a few facilities reserved only for their most important drugs. For the most part, however, these companies do not typically intend to build or own R&D facilities or manufacturing plants of their own. The capital and human Resources required to build and maintain expensive facilities is difficult to justify, even for the most financially robust companies. CMOs that can enhance their portfolio of services to include early-, mid- and late-stage product development services are well placed for these clients.
Drugs in their early stages of development, even before the proof of concept phase, can be transferred to a CMO where they can be further developed and launched. Formulations can be optimized through QbD, design of experiments (DOE), and analytical methods can be studied and improved. The CMO that wants to take full advantage of this market segment is well placed if it offers a range of like-equipment from small to medium to large in the same facility, making scale-up a seamless process. Once the drug is approved for commercial manufacture, the drug typically stays with the CMO for launch and beyond. Client companies that invest in a relationship with the CMO from the very early stage will benefit from continuity of scale-up and an intimacy that they would expect if kept in house. CMOs which offer this range of services are rare, but Catalent, Patheon, Vetter and a few others have made this investment.
The smaller start-ups and biotechs usually require all of the services a CMO can offer, including 'go-to-market' support. Client companies in this category outsource most of the development activities, including: API development, drug characterization, DMPK, Phase I (first time in man) study material, clinical operations, medical support, drug safety monitoring, Phase II clinical material, dose form optimization, stability studies, Phase III clinical material, clinical packaging and logistics, packaging studies and even NDA / CTD documentation. CMOs can play a role in many of these areas in order to allow a client to 'shop' with one outsourcing company. Of course, if a biotech company elects to 'shop' for all of its development services at the same CMO, it is also likely to register the same CMO as the ultimate commercial source, hence adding further value to the relationship.
The Path to Innovation
As we consider the opportunities for CMOs to become more innovative and to add increased value, it becomes clear that it is a journey built upon foundational capabilities. As depicted below, the foundation or "core capabilities" comprise Quality, Technical Transfer, and Development.
This foundation supports the development of Leading Practices that partners can offer to differentiate themselves, which ultimately leads to the ability to look beyond pure cost to a collaborative and joint value vision.
Core Capabilities: The Basic Requirements
CMOs will need to stay focused and retain the very basic skills and capabilities before they can truly take advantage of the strategic outsourcing wave to come. These basic skills and capabilities include:
-First, any world-class CMO needs to develop and invest in a rock solid Quality System. The CMOs that take advantage of their broad vision into their client's internal systems can also take advantage and develop a very robust system of their own. In this environment of increasing compliance and enforcement, the CMO that invests in Quality and compliance will be well positioned for future growth.
-Second, an efficient technical transfer methodology will enhance the CMO's ability to minimize the costs and risks associated with moving products from a client to an outsourced site. This is a critical skill set, especially as CMOs more strategically align themselves with their clients.
-Third, the CMOs that develop a robust development arm, with QbD, DOE, PAT and lean six sigma techniques, will have a competitive advantage over the others. By having specialists in drug development who can troubleshoot and optimize, CMOs can improve drugs for their clients. They must invest in people specialized in formulation, analytical chemistry, drug characterization and molecules to find better, faster, cheaper ways to get through development and manufacturing steps.
Pharma and biotech companies are increasingly approaching contract manufacturers and allowing them to add significant value through a collaborative, strategic partnership. As identified in the table below, there are several leading practices that contract manufacturing partners can offer that increase the attractiveness and opportunity to grow the partnership in new areas.
Fostering Innovation from Both Ends
In order to foster innovation, both parties can do things differently and build a truly value-creating partnership. Pharma and biotech companies certainly can look beyond the cost play, and have clear objectives and execution of a contracting strategy.
The large pharma companies that have stood out as leaders in strategic outsourcing seem to follow a few very important - but basic - steps:
1.Establish a clear sourcing strategy for both development and manufacturing of drugs
2.Establish a working unit to manage the outsourcing network as if it were one of their own.
3.Establish a governance structure, supported by senior managers, that openly shares information, including KPIs, for the betterment of the partnership
4.Share ideas and benefits that come from lean six sigma or operational excellence initiatives
5.Regularly set goals and objectives for improving thepartnership and therefore strengthens the relationships.
There are still many pharma companies that choose to select CMOs on the basis of a simple transaction. This is the traditional approach and also works fine, but as the number of products in the CMO portfolio grows, so does the complexity and the risk. These companies are also beginning to see the benefits of partnerships and closer relationships as a way to improve operational performance.
It is clear that contract manufacturers have the opportunity to strengthen the relationship by focusing on developing new and innovative capabilities, but they must also continue to focus on the "table stakes" in two main aspects:
-Focus on quality and compliance. These topics are now "top of mind" across the industry. The FDA and EMA are collaborating on many fronts, sharing data and leading practices. This will expand to Japan, India, China and other emerging pharmaceutical manufacturing hubs in the future. The bar is getting set higher for every company with a plant. Client companies need to be comfortable that they can transfer their drugs to a CMO, knowing that they have a strong capability to manage today's culture of enforcement and ever-changing regulations.
-Focus on Technical Transfer. Perfect the handoff from the pharma or biotech company to the CMO, as early as possible in a drug's life. CMOs that add development services to their portfolio will be able to transfer drugs in at 'proof of concept' or earlier.
Bold Plays: Global Expansion, Brand Integrity and Security
As we look at some of the potential bold plays that are being made in the industry, one clear and common challenge being addressed is entry into global emerging markets, which applies to both pharma and its CMO partners. The industry is focused on finding ways to supply those markets at a very low price, and if CMOs can offer this capability, emerging market entry may become easier. The proposition is not a simple one due to the significant infrastructure investment and the effort required for CMOs to enter and expand in markets such as Brazil, Russia, India and China.
With respect to traceability, serialization and ePedigree, CMOs can provide value-added services as well. However, because of the way that regulations are firming up, most of the adoption and innovation will be guided by large pharma companies. Because the actual finishing and packaging is likely done locally from bulk shipped product manufactured centrally, CMOs will need to develop standard and flexible ways to handle these increased packaging requirements, which might include RFID, 2D and overt/covert security on packaging. Industry players looking to rapidly adopt these capabilities would need to look no further than CMOs to manage these changing requirements, so they can focus on developing new products and formulations.
Overall, the off-balance sheet cost play to engage CMOs to transform the traditional "white powder, white pill" and act as a service provider has been the standard trend and value driver across the industry. However, there is significant incremental value that
can be wrung out of the partnership, and CMOs are willing to engage pharma and biotech companies in a greater span across the clinical and commercial value stream. Pharma and biotech companies can take advantage of these offerings, but concerns that will need to be abated and addressed are particularly centered on the CMOs global and regulatory capabilities, comfort with handing off early and late stage drugs, and having a partner that will drive them to success.
Wes Wheeler is a 32-year operations veteran, with the past 20 years in pharmaceuticals. He was most recently president and chief executive officer of Patheon. Previously, he was president of Valeant Pharmaceuticals (2003-2007) and chief executive officer of DSM Pharmaceuticals (2002-2003). Prior to DSM, he had a 13-year career at GlaxoSmithKline, where he held senior positions in logistics, manufacturing, marketing, marketing services and engineering. He left GSK as a senior vice president, Global Logistics & Strategy. Mr. Wheeler is currently consulting with his own company, WPWheelerLLC, and can be reached at firstname.lastname@example.org.
Bonni Kirkwood is Deloitte's Life Sciences Supply Chain Integrity Lead, bringing over 15 years of consulting experience helping clients address regulatory-driven, technology-supported challenges in brand protection, contract manufacturing and sourcing, supply chain management, strategic planning and risk assessment.She can be reached at email@example.com.