Working with a Contract Manufacturer: Key Considerations

After a strategic evaluation of what activities to outsource, sponsor companies should follow key guidelines for selecting and auditing a provider, and preparing quality agreements.
Apr 02, 2008

Arecent market research report predicts that global contract manufacturing will grow to more than $26 billion by 2011. 1 There are many reasons for this. One is the increasing demand to reduce capital expenditures and the costs of manufacturing operations. Other contributing factors include patent expiry and the threat of generics (which lower revenues and lead to the need to reduce manufacturing expenses), the need to access specialized manufacturing methods, and companies' desire to outsource noncritical activities so that they can focus on, improve, and expand core competencies. Many companies also use outsourcing, in addition to in-house manufacturing, because having alternate manufacturers included in regulatory submissions provides protection in the event of supply interruptions, manufacturing problems at a given site, or unexpected increases in demand. An example of unexpected increase in demand would be the demand of influenza vaccines in the event of a pandemic.

Other factors also have contributed to the increase in outsourcing of pharmaceutical manufacturing in the last five years. One factor is the increased acceptance and prescribing of generics,2,3 which has increased the demand for many pharmaceutical products. This increased demand, in turn, opens up opportunities for pharmaceutical companies to contract out manufacturing of generics, because the timelines and costs associated with expansions to increase capacity within an existing site often are outweighed by finding a suitable CMO that can manufacture at a lower cost and get the product out to the market more quickly. Thus, outsourcing can allow companies to extend capacity to meet market demands by allowing manufacturing to take place concurrently at two sites for the same product.

The growth of mergers and acquisitions is another factor. When pharmaceutical companies merge or acquire other companies, they generally increase their manufacturing capacity. In some cases, the additional capacity can reduce the need to outsource. If some of the acquired facilities are outdated, however, it is best to outsource the manufacturing that had been done at those sites to a contract manufacturing organization (CMO).

Lastly, in a few high-profile cases in the past decade, regulatory consent decrees have forced pharmaceutical companies to outsource. Under a consent decree, a company can be prohibited from producing a product; thus, to continue selling the product, the company may need to contract out the work to a CMO that has a good record of compliance with good manufacturing practices (GMPs).

Deciding to Outsource

When considering outsourcing, one must evaluate what capacities would be required to perform the work in-house, including the capital investment to acquire new manufacturing technologies, or to build, modify, or expand facilities. Biopharmaceutical manufacturing in particular is complex, expensive, and labor-intensive, and the costs to build biomanufacturing facilities is high.4 As a result, it is often less expensive and quicker to outsource biopharmaceutical production than to build a new manufacturing line or facility for a new product.

Companies should evaluate key business processes and strategies when making outsourcing decisions. Companies should outsource activities and processes that are not strategic for the business, and keep strategic activities or brands in-house. This allows a company to focus on higher profit yielding, value-added activities.

Qualifying a Contract Manufacturer

Once your company has decided to outsource manufacturing, the qualification process begins. First, you must ensure the selected CMO has the technical capabilities, capacity, facilities, and systems to provide the services desired. Second, you should assess the CMO's willingness and capability to modify systems, utilities, processes, or procedures to meet your requirements. The sponsor puts the product's success in the hands of the CMO, and therefore, the sponsor must make sure the company is financially stable, has robust quality systems, and can manufacture a product that consistently meets specifications while meeting production schedules.

After the initial evaluations, if the CMO is still a viable option, then the two companies can start discussing the project, developing timelines, outlining responsibilities, and sharing knowledge about the product.5 Establishing good communication early is important, because as the project progresses to the technology-transfer stage, it will be critical that the two sides maintain active, two-way communication about any challenges or problems that arise.