Contract Consulting & Pharmaceutical Services - Part 3
Q: In the future, how do you think geography will affect biopharmaceutical outsourcing? Will it be an important factor?
Douglas: No. Companies will continue to make CMO selections based on who will best fulfill their needs rather than location. We seldom, if ever, find that location is a major consideration for our customers.
Glass: Quality of service and cost are always the primary drivers of outsourcing business. Geography, given current technology available, is a secondary factor. Our industry saw a huge rush to India in recent years for cost reasons, much the same way IT outsourced many of their functions to India 10 years ago. What our customers are now telling us is that the quality of those services is potentially much better elsewhere, which will drive the geography selection for long-term investments such as where to put facilities and people.
Gustines: Less so for commercial programs but it will continue to be important for programs in earlier clinical development as that is still a time of strong, almost on-demand interactions for the technical and quality teams. Early clinical programs tend to be more regional. Exceptions will emerge among providers that are able to provide compelling reasons for customers to cross oceans, such as a great technical match or the ability to provide multiple complementary and sequentially required services or provide needed regulatory expertise.
Kauffman: Improvements in cold chain management should offset need for proximity.
Lias: In our experience, geography is not a primary factor when selecting a CMO, but in an ideal world every client would like their CMO to be close by. The trends towards offshore production (e.g., India, China) for large-scale and commercial processes will clearly continue, but I am personally skeptical about the magnitude of some of the cost benefits being touted, based on the time required, the need to recruit and train appropriate workforce, supply chain issues, and so on.
McCarty: In general, there will still be a divide, where companies tend to keep outsourcing activities within the same regulatory jurisdiction that they plan to market to, i.e., European companies will tend to outsource in the EU, whereas companies in North America will tend to stay within the US and Canada.
Ultee: For clinical production, sponsors want a CMO in an easily accessible location. Tech transfer and ongoing development are very important at this stage, and sponsors want easy communications and persons-in-the-plant to ensure success. For commercial production there is generally less interaction needed, but still concerns about use of distant locations to produce either bulk drug substance or final products.
Q: Over the next 5 to 10 years, do you expect biopharma companies to increase or decrease the percentage of the work that they outsource? By how much? Will it be different for different types of outsourced work?
Glass: I expect that the business model will shift for biopharma and that it may be driven by their owners as much as by their internal leadership. Almost all biopharmaceutical companies begin with venture or private equity funding. Historically, the business approach has been to grant the company money to build their business from scratch around whatever novel molecule they have. If you're the funding firm, the unique value of their portfolio companies is solely in that molecule. Why would you fund your companies to all go build redundant infrastructures for drug development, manufacturing, or even G&A functions? That doesn't make sense, especially in the early stages of company. I believe the passive approach to funding and investing in the industry will change drastically and we'll see new business models emerge with significantly more partnering and outsourcing.
Gustines: I expect it will increase as providers become increasingly adept at their work, efficient in execution, and savvy regarding the regulatory environment. The economic case for risk mitigation in infrastructure builds and labor expansion is already well established. Contract organizations offering cost effectiveness, technical and regulatory know how, and speed will create situations that are too attractive not to take advantage of.
Lias: In our marketplace (process development and clinical-scale production) I suspect that any changes will not be hugely significant for the smaller entrepreneurial companies; many are already outsourcing a significant amount on a "per product" basis. Indications appear to be, however, that we will see increased biopharmaceutical outsourcing from the major corporations.
Ultee: We expect increasing outsourcing, as the pressure to build product pipelines and develop new products continues to require multi-pronged approaches to get materials into the clinic for medical assessment.
McCarty: Most early-stage companies will continue to outsource simply due to the high cost to bring manufacturing activities in house. Also, larger companies, in an effort to control cost and find particular technological expertise, will outsource at least the early development activities. [I think this will increase by] roughly 20 to 30%. The increase will most likely be confined to early development activities. Late stage work will most likely see a smaller increase.
Douglas: We expect to see an increase in outsourcing during the next 5 years and beyond. The biopharma business model increasingly relies on outsourcing because it is a highly cost effective, and low risk, alternative to in-house manufacture of complex biologic APIs. Why go and invest all that valuable, and currently scarce, capital in manufacturing assets when somebody else is prepared to do it for you? Then there's the fixed cost associated with keeping the assets switched on and compliant even when they aren't being used for production.
Kauffman: I expect biopharma companies to increase the percentage of work they outsource by 15–20% in order to support an increasing number of candidates in their pipeline. I think this will be true of all types of outsourced work.