Over the past decade, we’ve seen more outsourcing of biopharmaceutical manufacturing activities, and a broadening of the overall outsourcing market. An increasing number of biopharma companies are now outsource a greater variety of complex activities to contract manufacturing organizations (CMOs). As the market expands, competition is growing, and it’s become obvious that it’s not just the best technical solutions that are winning the business.

The growth in outsourcing is demonstrated in our latest bio-industry study, 12th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production. Among many examples of the trend for greater outsourcing, this year, just 35% of organizations are keeping all their mammalian cell culture production fully in-house, down from 58% back in 2006. Likewise, just 39% of microbial fermentation is going to take place fully in-house, down from 64% in 2010.

And we can expect this trend to accelerate. In the next 5 years, even fewer biomanufacturers say they expect to keep all their mammalian cell culture (25%) and microbial fermentation (15%) production fully in-house!

For CMOs, will a rising tide lift all boats? With increased opportunity comes increased competition, and CMOs will need to display specific attributes to be considered by clients. Our study has identified key decision qualities, and has ranked the importance according to client responses. This year the rankings have shifted again, with the results showing that clients aren’t taking the basics lightly.

Top Factors When Outsourcing
We identified 19 issues considered by clients when outsourcing biopharmaceutical manufacturing to a CMO, asking respondents to cite them as “very important” or “important.” We found that four of the top five attributes identified as very important or important for clients were not actually technical in nature. Rather, they involve project planning, and managerial soft skills like establishing relationships:  Establish a good working relationship (88.1%); stick to a schedule (85.1%); comply with the company’s quality standards (83.6%); protect intellectual property (80.6%); and effectively handle cross-contamination issues (80.4%).

These results demonstrate that clients broadly want the basics first: A strong relationship in which scheduling, communication, quality standards and IP protection are handled appropriately.

Those latter issues may seem to be pre-requisites for any successful relationship and for any CMO to stay in business, but it appears that clients are not taking them for granted. CMOs would be wise to keep these factors top-of-mind in their marketing and initial meetings with prospective clients. 

Focus on Quality when Off-shoring
Clients expect their CMOs to comply with their quality standards, of course. And meeting quality standards is a critical factor for any CMO. But absent high-profile CMO quality problems, the fact that quality issues now top clients’ list of most critical factors suggests clients may be considering CMOs that have less of a demonstrated track record. As outsourcing continues to expand, clients are also evaluating emerging market service providers.

This is demonstrated by the increased interest in offshoring, with this year’s responses reflecting a trend toward more international CMOs. Some of these service providers may be perceived as having different, and possibly less stringent, quality standards. But as companies increasingly look overseas to cut costs, the need to evaluate new providers’ quality standards will continue. 

This year, for example, 14.3% of respondents reported having outsourced manufacturing to non-domestic service providers to reduce costs, and this may be the beginning of the trend: That figure more than doubled since 2011, indicating clients are increasingly concerned about potential quality implications as they continue to look overseas for cost savings.

Biomanufacturers are acutely aware of the toll that quality issues can have on their productivity, and in our study, they were more than twice as likely as CMOs (12% vs 5%, respectively) to identify quality control and process monitoring issues as likely to create future capacity constraints at their facilities. Additionally, the attention paid to CMOs’ quality standards may simply be a reflection of clients’ increasing attention to their own quality standards, with more companies implementing a range of initiatives, such as risk management/analysis and quality-by-design (QbD). Quality factors are creating systemic problems this year to the point that companies are even reporting difficulties in hiring for quality assurance and quality control positions.

Technical Attributes on the Decline
For many of the measured technical decision factors, the level of importance declined this year. For example, only about half (49%) of respondents said that it was very important that CMOs effectively handle cross-contamination issues, down from 60% last year. This may reflect clients’ recognition of the broad adoption of quality management that reduces such problems, and the use of single-use devices by CMOs, which largely eliminate cross-contamination considerations. Geography, however, remains another area of reduced interest as a decision factor for selecting a CMO. This year just 1.5% of clients said that the CMO being local to them is a very important attribute, the lowest point over the past 12 years. This further emphasizes the internationalization of outsourcing today.

Yet, a number of attributes have increased in importance. These include: Having production platforms relevant to the client’s product (42%, up from 31% in 2014); demonstrating a track record with similar products (39%, up from 34%); demonstrating cost-effectiveness of services (34%, up from 22%); and providing superior technology transfer services (33%, up from 24%).
It’s worth taking a closer look at a couple of these trends:

1. Demonstrating cost-effectiveness of services. With slightly more than one-third (34%) of respondents considering this a very important issue, this attribute is up significantly from last year. It’s interesting to view this year’s uptick in light of the concurrent increase observed in outsourcing to cut costs. More respondents this year say that they had outsourced manufacturing to domestic service providers (14.9%, up from 9%) and to non-domestic service providers (14.3%, up from 13.1%) during the past year to cut costs. Cost considerations are increasing in importance as a CMO selection criteria, with this perhaps reflecting greater competition among CMOs.
2. Providing superior technology transfer services. With a third (33%) of respondents considering this a very important issue, technology transfer services reached a new peak, up from just 21% considering this a critical issue in 2012. This is an area in which CMOs’ adoption of single-use devices can again prove influential, as single-use systems can enable easier technology transfer and “cloning” or copying of bioprocessing between the client and contractor. It’s also an issue that may continue to rise in importance if process development activities continue to be outsourced. Indeed, the rise in importance of this issue as an outsourcing consideration comes alongside growth in outsourcing of process development activities. Over the past six years (from 2010-2015), the percentage of respondents reporting outsourcing at least some upstream process development has soared from 17% to 43%. Likewise, the percentage outsourcing some degree of downstream process development has almost doubled, from 22% to 41%.

Communication Issues Still Important—For Both Sides
While there was a decrease this year in the percentage of respondents indicating that establishing a good working relationship is a ‘very important’ factor when selecting a CMO (down from 70.9% to 62.7%), this clearly remains an important, unresolved issue, perennially be in our top five. Likewise, sticking to a schedule is an ever-present consideration, partly because in this industry, a day’s delay can be worth millions in lost sales.

The high importance attributed to these “soft” relationship issues points to the need for strong managerial capabilities on the CMO’s end. Clients want to be re-assured by the CMOs management experience as it navigates relationship ‘whitewater’ in the past. Effective CMOs have learned to balance their hard-skills such as the use of leading edge new technologies, with their soft skills, their ability to compromise, establish trust, and deliver on time. These latter can be just as important—if not more so—than technological sophistication.

Although most would agree that the CMO should manage the relationship, clients need to remember that communication is not a one-way street. In surveys we conducted from 2010 through 2013, CMOs consistently complained of systemic communication problems with their clients. For example, in 2013, every single CMO surveyed said that it was a “very” or “somewhat” common problem that clients did not communicate with them effectively. More than 9 in 10 (91.7%) also reported that clients were not building in sufficient time for the project (unrealistic timeframes). The most successful, long-term relationships will be based on communication, and trust as well as performance.

Communication and deadline-related problems can be eased by greater trust between parties. Clearly, with the tight timeframes, and the large sums of money involved, there are bound to be points of friction, and communication issues are simply part of any contractual relationship. Yet steps can be taken on both sides—before any contract is signed and work performed—to establish the processes that enhance relationships and mutual trust.

Additionally, it’s worth remembering that with the increase in outsourcing comes new clients who may not be as experienced. These presumably smaller companies may indeed have unreasonable demands or hold misconceptions about the work asked of CMOs. Dealing with early-stage companies will put even greater strain on CMOs ability to maintain solid client relations.

Further, as more complex operations are being outsourced the ability to communicate effectively will be strained further. Although today, the most commonly outsourced activities are relatively lower-value ones such as analytical testing of bioassays (86% outsourcing to some degree), and fill-finish operations (73%), more high value, complex operations are now being outsourced. For example, process development service outsourcing is growing, along with other core activities, including design of experiments (40%, up from 21% in 2010) and QbD services (38%, up from 19% in 2010). Further, more respondents expect to outsource activities such as downstream and upstream process development, and production operations over the next couple of years.

As a result, it will be incumbent on CMOs to improve their managerial professionalism to deal with newer clients, and more complex services. But at the same time, new clients will need to take the time to understand the CMO business model and craft meaningful relationships with their new partners.

Conclusion
Clients continue to evaluate CMOs on their abilities to establish sound working relationships, deliver on schedule, and communicate effectively. These continue to be top-rated attributes. Additionally, as our data demonstrates, clients aren’t taking for granted that CMOs comply with their quality standards and protect their intellectual property, so steps should be taken to re-assure clients from the outset.

CMOs’ continued expansion of single-use device applications is a logical result of clients’ need to control capital expenditures, and to eliminate cross-contamination. Single-use systems can also simplify technology transfer, with this having the dual benefit for CMOs of demonstrating superior tech transfer services, and of cutting down on tech transfer time.

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Eric S. Langer
BioPlan Associates

Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports.  elanger@bioplanassociates.com  301-921-5979.  www.bioplanassociates.com