Outsourcing of pharma and biopharma contract services has grown exponentially during the past 15 years, influenced by numerous industry events and circumstances such as increased regulatory challenges, unique manufacturing needs, pharma/biopharma mega mergers, as well as the erosion of the blockbuster era. Contract Pharma looks at changes in the industry and outsourcing, what it looked like then, how it has evolved, and where it is today. Additionally, a diverse range of contract service providers offers their thoughts on how business operations have evolved to accommodate changing industry needs.

Looking Back
Several key drugs have influenced and transformed the industry over the years, including Merck’s infamous painkiller Vioxx, which redefined drug safety oversight and post approval studies, and Pfizer’s original blockbuster Lipitor, that in 2006 peaked at $13.7 billion in sales. Additionally, biologic breakthroughs such as Abbott’s Humira (now Abbvie), Roche/Genentech’s Rituxan, and Amgen’s Enbrel, helped pave the way for burgeoning biopharma development and countless drug approvals. Also, many of the products developed in the past 15 years, along with advances in science and technology, and healthcare legislation, have directly impacted the growth and development of generics and biosimilar products.  

Globalization
Major investments by pharma companies in Latin America, Eastern Europe, and the Asia-Pacific region, created a surge in drug development in emerging markets over the past 10 years, with service providers quickly following suit. Some markets proved more successful than others over the years, with ups and downs along the way. Outsourcing to emerging markets of India and China, for example, have led to increased regulatory scrutiny, particularly after the Heparin tragedy that in early 2008 caused 81 deaths and at least 785 adverse reactions due to contaminated raw materials manufactured in China. Since then, API supplies sourced from China and India have been subject to increased testing and regulatory inspections. Today, concerns about drug quality persist, prompting the FDA to create a new oversight unit in 2014.

Mega-Mergers
Remembering many of the long-standing pharma giants of the past such as Wyeth (acquired by Pfizer 2009), Schering Plough (acquired by Merck in 2009), and Aventis (merged with Sanofi-Synthélabo in 2004), reminds us that the industry is indeed a business first, and one in constant R&D flux. Pipelines are precarious, fraught with a 95% drug failure rate costing upwards of $5 billion per attempt at getting a drug to market.

Big biopharma mergers were also significant, such as Serono (acquired by Merck KGaA in 2006), MedImmune (acquired by AstraZeneca in 2007), Millennium (acquired by Takeda Pharmaceuticals in 2008), Genentech (acquired by Roche in 2009), and Genzyme (acquired by Sanofi in 2011). The biopharma industry has seen tremendous growth in the past 15 years, successfully demonstrating its enormous potential in treating disease, and until now, has been shielded from the huge losses as experienced by their pharma counterparts due to patent expiries. 

Once clearly distinguishable by the small and large molecule products they produce, today the lines continue to blur between pharma and biopharma companies as R&D dollars are increasingly allocated to biopharmaceutical candidates. 

Amidst these and other industry developments, pharma and biopharma companies have increasingly relied on contract service providers, who in turn have matured and evolved over the years in response to changing industry needs. Increased regulatory, quality and safety requirements, and a diverse and complex range of drug products demands flexibility from suppliers.  

The Changing Pharma Landscape and its Impact on Outsourcing
“One key change we feel has made the biggest impact on outsourcing relates to the structure of who develops pharmaceutical drugs. While 15 years ago, the majority of the drugs were being developed in-house by large pharmaceutical companies, today we are seeing many more small biotech firms (with a single/few molecules) developing drugs from preclinical through commercial. This has impacted the market because contract manufacturing organizations (CMOs) today need to offer a broader set of services to accommodate the needs of both large pharma and smaller biotech firms.”

—Mayur Valanju, head of sales and marketing,
Baxter BioPharma Solutions

“The rise of generic business and the growth of the biotech sector in the last 15 years are two phenomena that have been quite significant in our industry. This has made outsourcing become strategic rather than opportunistic. At one point, businesses outsourced for competitive pricing reasons or for other assets; however, recent changes have transformed outsourcing into a more strategic and value-added proposition by bringing new technologies, faster cycle time and enhanced performance.”

—Franco Negron, senior vice president North America
Commercial Operations, Patheon

“Changes have been numerous and significant. For one, increased regulatory standards have created rapid growth opportunities for companies investing in compliance programs.

The globalization of customers and supplies has encouraged contract service providers to pursue global standards for regulatory compliance and develop business models to work with clients and vendors in multiple countries.

The emergence of virtual pharma companies have made third-party service providers a strategic alternative to purchasing their own facilities and capital equipment.

A substantial increase in both time and costs associated with getting products to market has put added pressure on contract service providers to work efficiently and cost effectively. 

Also, there are blurred demarcation lines between branded, generic and contract development manufacturing organizations. Many companies participate in all aspects of a product’s life cycle, including selling available capacity in an outsourcing relationship. This has added to the fragmentation of the CDMO space.  

Lastly, there have been fewer “blockbuster” drugs, which requires CDMOs to have the versatility and flexibility to handle multiple smaller products instead of just a few high-volume ones.”

—John Ross, executive vice president of Metrics Contract Services

“The closure of many generic companies that used to partner with us to regularly test samples, combined with mergers and consolidation within the pharma industry as a whole, has created a challenging environment. Other factors that have impacted our business include the outsourcing shift to emerging markets such as India and China.

As an outsourcing partner, where we have experienced significant growth is in the increasingly regulatory climate, with specialized services requiring dedicated equipment and personnel, such as residual solvent testing, verification and heavy metal testing, which are now predominantly outsourced by pharma companies.

The shift from small molecule drugs to large molecule has also had a positive impact on our business as there are very few specialized labs that can undertake biologics testing.”

—Mike Lindsay, business manager,
SGS Life Science Services (Canada)

The Evolution of Service Offerings and Business Operations
“Our industry has been transformed into offering a full supply chain service—DPx Holdings’ services now include API, product development and commercial manufacturing. We went from being a supplier and filling orders at sites, to becoming a strategic partner focused customer service and problem solving. It’s not just about filling orders anymore, it’s about helping to find the most strategic pathway to get our customers what they need on time and right the first time.”

—Franco Negron, Patheon

“We have continually evolved our service offering over the years, both in response to and anticipation of changing market demands. Examples include increased capacity for cytotoxic manufacturing—our third cytotoxic services expansion in Halle over the last 8 years will be completed in the next 12 months.

Also, we have built additional aseptic vial and syringe lines and increased lyophilization capabilities at out Bloomington, IN site. In addition, as pipelines have evolved from small molecule to biologics, there has been an increasing need for aseptic processing across all platforms.

We also have continued to grow our lyophilization development expertise, as we believe that the market will see increasingly complex API requiring stabilization by freeze-drying.”

—Mayur Valanju, Baxter BioPharma Solutions

“Within the past 15 years, operations and services at Metrics have changed in substantial ways. We now make greater use of electronic systems to manage data and information. Consistent with current industry expectations, we have a much deeper understanding of cross-contamination issues and put greater emphasis on the validation of processes and methods. When developing new drug products for clients, we give earlier consideration to all possible commercial implications so that we are well positioned for technology transfer and scale-up.

Our view has evolved into a worldwide one. Metrics Contract Services is engaged in targeted international marketing efforts, which wasn’t the case 15 years ago. In late 2012, we were acquired by Australia-based Mayne Pharma, which makes us part of a global pharmaceutical organization. We are undergoing extensive Qualified Person audits on behalf of European Union-based clients and clinical trials. And we routinely work with sponsors who employ global project teams.” 

—John Ross, Metrics Contract Services

“Our service offerings have changed fundamentally over the years. Earlier in our existence, the bulk of our work was basic wet chemistry and instrumentation for the testing of routine chemistry samples. As a result of shifts within the pharma industry and increased regulatory requirements, market demand has led us to broaden our scope of services to embrace areas such as method development, validation, transfer, verification and stability testing.

Also, our range of tests has expanded greatly from chemistry samples to biotech samples and container testing. New testing protocols we are undertaking for heavy metals testing involve inductively coupled plasma (ICP) techniques, notably ICP atomic and optical emission spectroscopy, and ICP mass spectrometry.”

—Mike Lindsay, SGS

“Looking at the past 15 years, we have seen many new technological advancements inside and outside of our industry. During this time, Quintiles has been designing a series of technology offerings for the drug development process. In 2011, the company launched the Quintiles Infosario platform, a technology that enables customers to leverage data for improved collaboration and decision-making throughout the drug development process.” 

—Paula Brown Stafford, Quintiles

Impact of Globalization
“Patheon began in Burlington as a Canadian-based company in 1974. The company started providing services to North America in 1990 and expanded to Europe in 1998. Over the past 15 years, through growth and expansion and development of manufacturing facilities, we have transitioned from being a primarily North American and Canadian operation to a global provider with more than 20 sites across the world.

—Franco Negron, Patheon

“We continue to have our facilities set up to serve every major market in the world. Pharmaceutical companies generally do not want to validate multiple facilities to serve their products worldwide; they would prefer to have one facility provide the product globally. Additionally, for some time there was discussion in the market about the trend toward low-cost manufacturing in emerging markets taking market-share away from facilities in developed markets. We have not seen this come to fruition, and we believe it is due to the fact that APIs have been getting more and more expensive. This has resulted in the fill/finish cost being a smaller and smaller cost vs. the API production cost, with the net impact being that quality and timing are now outweighing the importance of fill/finish cost.

In addition, quality and regulatory standards are continually evolving to more and more stringent requirements. Given this trend, pharmaceutical companies can be hesitant to send their branded, expensive API product to less experienced/reputable CMOs located in emerging markets.” 

—Mayur Valanju, Baxter BioPharma Solutions

“As the pharma industry has expanded globally, so have our operations. We now have 21 labs worldwide offering contract analytical and bioanalytical services including those in the Asia Pacific region. Our aim is to be able to offer the same standard of services and expertise to our customers as a ‘local’ resource, wherever they are located geographically.”

—Mike Lindsay, SGS Life Science Services

“To meet the needs of a global and growing biopharmaceutical industry, Quintiles is continually expanding its capabilities and global footprint. We’ve had a presence in the Asia-Pacific region since 1993 and we’ve continued to expand our presence around the world throughout Europe, Africa and Latin America among others. Looking specifically at Asia for example, we’ve been helping our customers navigate that region’s complex and changing healthcare environment for more than two decades.”

—Paula Brown Stafford, Quintiles

Impact from Changing Regulatory Requirements
“In the contract manufacturing business, the contractor is responsible at the order of the regulatory agencies for the quality of the product and for successfully maintaining the safety of the product in the market. Both organizations, the service provider and the sponsor, own the compliance aspect of the product. I think that is a quiet transition in the last 15 years that has really impacted how we approach our business.

Another critical change that has impacted the industry is that, to be competitive in the contract business, assets have to be utilized; therefore, companies have to be compliant to the global expectations and regulations. The regulatory agencies are looking for ways the manufacturing processes can be tighter and have better controls with expectations that it can provide assurance that the products will behave on both short-term and long-term as they were validated, transferred and launched. So there is an intrinsic ethic-binding aspect for agencies that drives the need for us to continue to strive for improvement regardless of how new or old the product is.”

—Franco Negron, Patheon

“With respect to regulatory changes that pertain to sterile injectable manufacturing, one trend that we have seen, and will continue to see, is the desire to create barriers between the operator and the filling lines. As such we have made the investment to put RABS (restricted access barriers) in place around any lines that did not have barriers in place. The most recent requirement that is resulting in significant investment is the track and trace requirements (serialization) that are being implemented. 

We are proactively investing in technology and infrastructure to meet the needs; however, one of the challenges is that governments worldwide are not 100% synchronized on how the implementation of serialization will manifest on a tactical basis.
Additionally, each government is adding to their individual serialization regulations on a monthly basis. As such, we are implementing serialization in a way that we can be flexible and adapt to potential needs. However, the more CMOs and pharmaceutical companies can work together and shape how these regulations evolve, the better the ability for manufacturers to meet these regulations in a cost-effective manner.”

—Mayur Valanju, Baxter BioPharma Solutions

“We routinely conduct more robust process, method and cleaning validation efforts today than we did 15 years ago. Fortunately, regulatory agencies throughout the world have begun recognizing the need for common standards, and we’re starting to see the results of joint cooperation, for example, Health Canada and the European Union adopting a common auditing standard for GMPs. Overall, regulatory agencies have set a higher compliance bar than what existed 15 years ago.”

—John Ross, Metrics Contract Services

“More stringent regulations, to help ensure safety of products or quality of analytical results, has increased our work: increased restrictions on levels of residual solvents and heavy metals and increased demand for more validation of methods and processes to ensure validity of reported results.”

—Mike Lindsay, SGS Life Science Services

Anticipated Changes for the Future of the Industry and Outsourcing
“With more than 200 players, the CDMO industry remains highly fragmented, but DPx Holdings has been seeking to change that through acquisitions and mergers in recent years. Since there is a growing customer demand for one-stop-shopping, pharma companies desire more simplified supply chains. These developments will definitely lead to further industry consolidation in the near future, which will result in fewer, but larger companies, similar to that of CRO consolidation over the past decade.”

—Franco Negron, Patheon

“I believe that there will be a continued trend for outsourcing. There are a couple key drivers behind this. One, biotech firms will continue to play a strong role in the drug development process and will focus their resources on R&D while outsourcing their manufacturing.

Also, because many new NDAs are smaller in volume with respect to annual units, pharma companies will likely not be able to justify capital expenditures for that type of product. Therefore, they will have increased propensity to outsource molecules for which they do not currently have capacity I believe, too, that the regulatory and quality environment will continue to get tougher as regulatory bodies and governments continually increase the standards. The result of this is that companies with the scale and resources to keep up with these changes will be the ones able to continue to grow in that environment.”

—Mayur Valanju, Baxter BioPharma Solutions

“We likely will experience more consolidation among CDMOs, which remains a highly fragmented part of the industry. Worldwide regulatory agencies will continue moving toward common standards, and as the pharma industry continues to embrace and implement Quality by Design (QbD) and Process Analytical Technology (PAT), we will transition toward real-time, in-process checks in place of final quality control testing.”   

—John Ross, Metrics Contract Services

“With regard to residual solvents and metals, one can foresee regulations only becoming more stringent, especially as monitoring techniques become more accurate and sensitive. Authorities have drafted guidelines for genotoxic impurities as well which have yet to be consulted on or introduced as legislation but will impact the use of certain chemicals throughout synthesis. Additionally, the industry is still awaiting the conclusion of the FDA’s biosimilar guidelines, which is currently stalling the industry in the U.S. as development continues to push through in Europe.”

—Mike Lindsay, SGS Life Science Services

“There are several areas we believe will have a significant impact on the future of this industry and outsourcing in particular:

• Managing complexity. Improved standards of care and the emergence of new types of therapies such as biologics, genetically targeted therapies, gene and stem cell therapies, and other treatments have led to more complex development and regulatory pathways. Companion diagnostics, genomics and biomarker expertise will become a more critical part of the development process requiring more customized clinical trials to develop treatments that are increasingly tailored to individual profiles.
• Providing enhanced value. As healthcare costs rise globally, governments and third-party payers have looked for ways to control expenditures and increase the quality, safety and effectiveness of drug therapies. We believe these regulations and legislation will increase the demand for innovative and cost-effective strategies and outcome research and data analytics services.
• Increasing number of clinical trials. Based on the current and expected global drug development pipeline, we believe that spending on Phase II-IV clinical trials will continue to rise. This increased spending and the demand for global patient recruitment will favor service proivders that have both the capabilities to administer large, complex global clinical trials and relationships with investigators and trial sites around the world.”

—Paula Brown Stafford, Quintiles CP

Advisory Board Member Weighs In Richard Korsmeyer, head of business development, Pharmaceutical Sciences, Pfizer Worldwide R&D  Industry consolidation has resulted in an increase of experienced, talented people available for employment at smaller organizations and service providers, in addition to an increase in outsourced work by large pharma companies. We have increased our outsourcing and built up our capability to manage outsourced work, with more dedicated people in our sourcing groups, not only for managing contracts, but also for quality auditing and other associated activities. One of the dramatic changes has been the rapidly increasing importance of emerging markets such as Brazil, China, and Turkey. Regulatory and public expectations for scientific underpinnings of filings have risen, both in the U.S. and internationally.  Discussions of such topics as continuous manufacturing and Quality By Design are quite active. Big Pharma will need outsourcing partners that can deliver processes and data to support modern filings. If the industry trend toward consolidation continues and smaller companies continue to grow, this can create a dynamic environment for the CRO/CDMO/CMO business. While there are many CROs and CMOs that offer capacity, not all of the organizations have the depth of expertise to replace the internal capabilities of Big Pharma labs. The ability to solve problems in drug development will be a key differentiator for service providers.

Advisory Board Member Weighs In Dr. Jack Aurora, chief scientific officer, Generic Drugs, Hisun Pharma (Hang Zhou) Co. Ltd. Over the last 15 years pharma companies large and small have experienced tremendous cost pressure. In order to survive, companies have had to change the way they operate their business. In doing so, outsourcing has increased significantly. At the same time, the transition to a global market has increased profitability and market competitiveness. The regulatory landscape has also evolved, providing many challenges. Market recalls and complaints have made regulatory agencies around the globe more focused, vigilant, and cautious when reviewing submissions. Implementation of QbD-based submissions, especially generics, has escalated the expectations for scientific-based development and rationale justification for any change or modification made during a program. In addition, cost pressures have led some raw material suppliers from different parts of world to cut corners, providing materials with lower, but still acceptable quality materials resulting in a lower quality of finished products brought to market. Above all this, the pressure to deliver under tight timelines is putting scientists under immense pressure to deliver. Moving forward, while challenges remain, stronger and healthier business partnerships between CROs and sponsors are evolving. A focus on quality will be essential and should always be the first priority.

Advisory Board Member Weighs In Balaji V. Kadri, director of Formulation Development & CTM Manufacturing, QS Pharma Major pharmaceutical companies are outsourcing major chunks of their R&D activities, including formulation development, which ranges from early formulation development for animal studies to supply of clinical material and manufacture of batches through commercialization. In addition, the challenge has been to deal with poor water-soluble APIs by employing processes such as solid dispersion, lipid solubility, and/or hot-melt extrusion. All these aspects have resulted in outsourcing companies searching for vendors capable of performing as many functions as possible under one umbrella. Of all the guideline changes, the most notable are Quality-by-Design (QBD) and GDUFA regulations. The QBD trend has moved the scientific thought process forward. Obviously, this has resulted in additional work with early thought towards timeline commitment. There is still deliberation from virtual companies as the intent is to quickly see promise in the clinical data. The GDUFA regulations have resulted in the execution of additional batches. So the companies that were not prepared for this additional work have outsourced a considerable amount of their workload. While this has increased business, the stringent timeline to file is still enormous. In addition, the regulation requiring two different lots of API to execute the three batches, adds to the challenge of on-time execution and supply from API vendor. Both of these regulatory changes are expected to increase the standard of work execution, therefore it’s expected that more work will be outsourced to contract organizations.

Advisory Board Member Weighs In Shaukat Ali, Ph.D., technical support manager, BASF Corporation Pharma Ingredients & Services The pharma industry has faced challenges stemming from the poor solubility of APIs, the lack of innovative excipient technology, lengthy drug development timelines from discovery to market, and above all, the patent cliff of innovator brands losing rights to generic competition. These all have affected the industry tremendously. Additionally, the industry has been focused on cost savings, therefore outsourcing many products to third parties in order to expedite development and bring drugs to market faster. The pharma industry is highly regulated compared to many other industries and as regulations for approving drugs becomes more stringent, so too are the regulatory requirements for manufacturing APIs and excipients. Excipient and drug manufacturers will continue to follow industry regulations whether developing an excipient, a drug substance, or a drug product. With a continued need to design safer medicines for patient compliance, the industry will endeavor to save time and costs, and as a result improve the drug development process. In addition, with more than 80% of drugs prescribed as generics, major pharma manufacturers will continue to work with generic manufacturers to enhance life cycle management, and at the same time help compensate for lost revenues from patent expirations. With more new chemical entities (NCEs) in the pipeline and challenges with the solubility for desired bioavailability, finding solutions to revitalize the industry is critically important.