Making rash decisions can lead to dire consequences. Let’s not forget that we are not making garment articles using basic technology that could be readily implemented in most corners of the world. We are in the business of developing and applying sophisticated technologies to produce drugs, and hence, technology transfers require time and resources, and obviously the ability to absorb and reproduce technology on the receiving end.
There is a plethora of elaborate score cards and detail-rich flow charts for selection of contract organizations. I will offer a different perspective, the one that is based on a strategic assessment of contract manufacturing organizations (CMOs) with a few metrics.
My guiding principles on selecting a contract organization are based on the “three Cs”: (1) capability, (2) capacity, and (3) cost.
The pharmaceutical industry is among the top 10 most regulated industries in the U.S. Thus, contract manufacturing organizations with a sound regulatory inspection history and experience with pre-approval inspections are obvious choices when selecting a manufacturer based on capabilities.
However, it is equally important to consider the technical talent and manpower, as well as analytical and manufacturing equipment, as they testify to the capabilities of the contract organization. Scarcely staffed and equipped process development and quality controls laboratories and/or utilizing outdated instruments can bring technology transfer to a halt. The contract development and manufacturing organization, CDMO, where “D” presents significant development capabilities could be the difference maker in the technology transfer and overall success of the program.
We often find ourselves guessing what production capacity we actually need. The contract organizations tend to make grandiose statements, such as “50% capacity available” or “more than 50 metric tons annual capacity available”. And while this could be true, such metrics are only meaningful if we have been manufacturing at the contract organization and understand process throughput: product yield, production cycle time and volumetric efficiency. Developing a “launch to peak” demand evolution model could take us a long way in assessing capacity requirements. Such model could be readily created based on anticipated patient population, daily dose and treatment duration. The peak demand is key to defining the commercial batch size, which in turn, along with the process throughput data, will provide clarity on how many batches can be produced in a given equipment train annually and whether that number meets the capacity requirements.
The cost of goods could be a significant factor for drugs that do not have a preferential clinical status, such as orphan designation, and are intended for global markets. Higher cost of goods may be tolerable in the U.S. market, as the U.S. has the highest pharmaceuticals spend per capita at around $1,200. However, that same manufacturing and distribution cost may prevent the sponsor from entering the European and Asian markets where the drug prices are considerably lower. For example, the pharmaceuticals spend per capita in both France and South Korea is around $650.
The assessment of cost of goods begins with determining the retail prices per packaged product unit in the intended markets and establishing what percentage of the drug price is acceptable for the cost of goods. This simple calculation provides the overall cost of goods target per packaged medicament unit. The next step is to develop a comprehensive cost model which will provide an insight into how each segment of the supply chain, from regulatory starting materials to bulk drug substance to formulated drug to packaged medicaments and related storage and shipments, contribute to the cost of goods and to identify key cost drivers, which will become the focus of price negotiation and/or technology optimization to reduce the cost. It is important to be armed with a concrete understanding of the cost of goods expectations and be aware of the key cost drivers before engaging in contract negotiations.
In conclusion, the objective throughout the drug development phase is not only to build a pharmaceutical supply chain that meets global regulatory requirements but is also cost-efficient in all markets.
In addition to the “three Cs,” cultural fit and contract organizations revenues could also be considered. The “cultural fit,” obviously does not mean that we follow similar fashion trends or share admiration for classical music. A progressive and growing biotechnology company would benefit from engaging a growing contract organization. And what better way to assess whether the contract organization is growing than to look into its annual revenues. So here are the metrics I promised to share with you: I particularly consider contract organizations that earn one to three million U.S. dollars per calendar day. Such contract organizations are in the Goldilocks zone for pharmaceutical companies: they already earn significant revenues, have capabilities and experience, and no doubt aspire to earn ten times what they earn now. Contract organizations in the Goldilocks zone tend to truly accommodate every project and every client by investing in capacity and resources. Conversely, the contract organizations whose annual revenues are well below the Goldilocks zone may not have the means to invest in infrastructure and growth, while the ones well above the Goldilocks zone may not have the mindset to expand capabilities and capacity on their own dime, as their sites have simply become cash cows.
The Washington Post, May 2, 2020.
The Washington Post, April 12, 2020.
Chemical & Engineering News, April 27, 2020, volume 98, issue 16.
New York Times, April 2, 2020.
New York Times, March 11, 2020.
USA Today, April 24, 2020.
Valdas Jurkauskas, Ph.D., Vice President, Akebia Therapeutics, specializes in developing Chemistry, Manufacturing and Controls (CMC) strategies and creating global manufacturing networks that transition pharmaceutical companies from development stage into commercialization. He earned his doctoral degree in Organic Chemistry at the Massachusetts Institute of Technology (MIT), USA and his Bachelor of Science degree in Chemistry at the University of Toronto, Canada. Dr. Jurkauskas is based in Cambridge, MA, USA.