Genentech is emerging from an environment in which all clinical trials outside the US involved a development partner with an established international infrastructure. The company is moving to a blended model in which it will conduct some clinical trials without relying on partners to develop and market drugs. In addition, because most biologics are currently developed in US markets, US patient enrollment has become competitive. The new blended model and the challenge of American patient enrollment are driving the company to increase patient enrollment abroad to support its expanding product pipeline and improve speed-to-market. Hence, Genentech needed a strategy for an international clinical distribution network that would support patient enrollment outside the US.

Genentech's objective was to create an international clinical distribution network that would allow all clinical activities for molecules to be undertaken globally. A cross-functional project team was assembled at the company to devise short-term and long-term strategies for creating such a network.  

Globalization of the Clinical Trial Distribution Network

Until recently, Genentech did not have its own infrastructure or development capability outside the US; it relied on partners with established international distribution infrastructure to conduct clinical trials outside the US. This dependence allowed the company to focus on its core competency of research and development. This strategy was appropriate at the time, and it leveraged larger development partners' knowledge of when, how, and what Genentech drugs would go through clinical trials outside the US for ex-US filings. Today,  Genentech operates independently of partners executing many clinical trials. The result is the need for an accelerated, cost-efficient, flexible strategy. The most direct way to deliver the pipeline drugs faster is to accelerate patient recruitment through an international clinical trial distribution infrastructure. 

There are additional benefits to having an international distribution infrastructure. The emerging regions of New Europe, Latin America, and Asia provide a pool of new patient populations, the majority of which are eager to benefit from state-of-the-art medicines. This new patient pool decreases the burden on site and patient recruitment in the US, which is under significant competitive pressure. These factors contribute to reduced time-to-completion of clinical trials, decreased staffing costs, and lower costs per patient.  

Genentech and other biotechnology companies share common challenges in creating an international clinical distribution network to support their pipelines of products. These challenges include:  

the lack of expertise and experience in conducting development activities outside the US

a US-focused and conservative legal environment surrounding employment and vendor sourcing

development partners (often large pharmaceutical companies) with opt-in rights that complicate planning for recruitment outside the US 

the lack of an existing sales and commercial-distribution infrastructure outside the US from which to springboard clinical trial execution strategies.

These challenges were key considerations in designing Genentech's international clinical network strategy. 

Genentech evaluated the following distribution business models:  

: The company invests in building a full or partial global clinical trial platform that includes facilities, employees, data infrastructure, and regulatory knowledge.

: The company seeks a full or partial relationship directly with supply-chain partners (such as clinical distribution organizations, Big Pharma depots, third-party logistics providers, and clinical research organizations). These partners can provide services ranging from trial management, clinical data management, logistics, testing, and packaging, to regulatory expertise. 

: The company seeks new partners and then develops their clinical distribution capabilities. Under this model, the company might leverage a partner with strong logistics expertise and help it branch into a clinical supply-chain business.

: The company seeks to acquire clinical distribution infrastructure and services. This model could include purchases of several smaller regional distribution networks.

: The company seeks to ship material to the actual clinical trial site from the point of manufacture.

 Genentech evaluated strategies that combined these business models applied across various regions and time horizons (less than two years, and three-to-seven years). 

Developing the Strategy: Selection Criteria and Key Considerations

The distribution business models were evaluated based on five criteria: strategy, implementation, operation, regulatory and quality, and finance. For each criterion, key design considerations were examined. The evaluation questions for the criteria were as follows:  

: How does each business model fit the organization's overall strategy, capabilities building, and scalability? Can the model support the creation of networks and relationships with investigators and key opinion leaders? Can potential synergies be leveraged with the organization's commercial distribution network?

: What efforts and risks are associated with creating, managing, and decommissioning elements of the network for each model? What is the organization's expertise and resource availability in executing each model? 

: What is each model's predicted performance for network utilization, speed-of-supply and re-supply to regions, and network flexibility?

: What are each model's implications for quality, release times, potential challenges with registration, approvals, import or export, and legal requirements?

: What are each model's implementation costs, headcount costs, required up-front investments, and infrastructure costs?

A decision-criteria matrix (Figure 1) enabled Genentech to compare the business models. During the qualitative analysis, the company eliminated the co-develop and acquire models based on the first four criteria. Hence, it reduced the number of business models on which it needed to perform a financial assessment.  

Figure 1.  The decision criteria matrix used to select a clinical trials distribution strategy 

Genentech created a costing model based on forecast shipments of kits for each of three global sectors—Europe, Latin America, and Asia. The company did not attempt to create costing models that were combinations of the business models against the regions. The cost modeling effort was used to find the cost boundaries for each "pure" strategy. The determination of cost boundaries provided approximate cost flexibility in pursuing a single business model, or a hybrid of business models, across the following regions: Latin America, Europe (including Russia), Asia (including the Pacific Rim), and Africa. 

The build model considered the following for the four regions: start-up costs (recruiting, travel), operating costs (rent, equipment, information technology), variable costs (packaging materials, shipping), and product disposal. In addition, Genentech assumed that certain elements of its existing commercial operations in the Asia-Pacific region could be leveraged, resulting in no recruiting costs, no incremental rent or IT costs, and shared labor costs among clinical and commercial interests. 

The outsourcing model was based on having Genentech's internal cost-for-resources organization provide outsourcing oversight, and on variable shipment rates (including shipping, import, and packaging) to the countries of the five regions.  

The direct-ship model was based on the variable cost of shipment rates including shipping, import, and packaging to the countries of the five regions. In addition, it included labor costs and expenses of the central distribution center where material would originate for direct ship. 

Demand-Assumptions Model and Demand-Sensitivity Analysis

The net present cost (NPC) of each business model was calculated using shipment forecasts by region, as input to the costing models described earlier. The short-term (less than three years) demand-assumptions model was created based on the number of clinical trials per phase from a database owned by Genentech's clinical operations group. The database is a repository of active, approved, and planned clinical trials and studies. The data were distributed across the regions, based on estimated percentages of planned clinical trials for each region. These numbers were not risk-adjusted for trial failure.  

The long-term (three-to-seven years) demand-assumptions model was based on information obtained from the company's product portfolio management group, which is responsible for providing decisions, guidance, and direction for strategic issues, and resource allocation for the entire product portfolio. The product portfolio management group provided data on a risk-adjusted number of projects of molecules by phase. These were converted, by the product operations strategic planning organization, to shipment forecasts, based on clinical trial duration and shipment assumptions. The project team built a business process to capture clinical trial shipment demand annually, as part of Genentech's manufacturing network long-range planning activities (Figure 2). 

Figure 2.  Business process model for estimating clinical demand 

In addition to generating short- and long-term forecasts by region, Genentech conducted a demand-sensitivity analysis to determine the cost of each business model if the clinical trial volumes were incrementally decreased to half the forecast volume, or incrementally increased to three times the forecast volume. The sensitivity analysis provided insight into the clinical trial volume threshold that would make the total cost of ownership of one business model preferable to another if clinical trial volumes increased or decreased from forecasts. 

Based on the qualitative analysis performed with the decision-criteria matrix and the cost models, the short-term strategy is to use a pure outsourcing model for Europe, Latin America, and the Middle East. A hybrid of the outsourcing and direct-ship models is to be used for Asia, whereas the direct-ship model will be applied to Australia and New Zealand. 

The main driver for the outsource recommendation is the long implementation time required for a build or acquire strategy. Additionally, because of Genentech's limited international experience, it would have been challenging, in the short term, to quickly acquire local clinical-distribution and logistics expertise, particularly about the distribution strategy that woudl yield the proper ratio of regional depots to country-specific depots. From a total-cost-of-ownership (TCO) perspective, clinical trial volumes for the next two years made the outsourcing cost model the most desirable among the business models analyzed.  

To implement the new short-term strategy, the company plans to diversify contract clinical distribution organizations (CDOs) to evaluate performance, with a long-term goal of dual sourcing so that strategic relationships are cemented and volume discounts are achieved. CDO performance evaluation is critical because CDO quality is not consistent across all regions.  

Outsourcing and Building in the Asia-Pacific Region 

From a TCO standpoint, the outsourcing model is an attractive strategy for the long term given Genentech's forecast ex-US clinical trial (shipment) volumes. Qualitatively, long-term outsourcing has benefits similar to those for short-term outsourcing. Based on the decision-criteria matrix, the outsourcing model does not enable the company to build international distribution know-how as specified in the strategy criterion, nor does it deliver the control described in the regulatory and quality criterion. The build model, however, is an ideal way to satisfy these two criteria. Genentech will consider the option to build and direct ship where possible in Asia, because this model's TCO for Asia is comparable to the TCO of outsourcing in Asia. The hybrid approach satisfies all the criteria that Genentech feels are important in developing an international clinical trial distribution strategy. 

To implement the build aspect of the long-term strategy in Asia, the company will consider building a regional depot in Singapore because this would be co-located with its commercial distribution center, allowing Genetech to leverage resources (thus reducing costs) with regional logistics and distribution knowledge. The company will continue to outsource the country-depot function until sufficient clinical trial volumes financially justify building Genentech's own country depots. Figure 3 depicts a long-term hybrid combining the outsource, build, and direct ship models. 

Figure 3.  A long-term hybrid model for regional and local distribution, combining the outsource, build, and direct ship models.  

Articles

A decision-criteria matrix and cost models helped pinpoint the best distribution approach for the short- and long-term.

Devising an International Clinical Trial Distribution Strategy: Genentech's Approach

Current regulations require that pharmaceutical companies ensure that all manufacturing—including the manufacture of starting materials—conducted on-site and off-site is compliant with the principles of current good manufacturing practices (cGMPs), as set out by the European Union Guidance

  and the US Code of Federal Regulations.

  Therefore, the expectation from the regulatory authorities for work performed off-site is that these processes must be formally evaluated as part of a quality management system to ensure compliance with the regulations. This is usually accomplished by a gap analysis. This compares the operations and systems of an outsourcing provider to predefined criteria, and evaluates the level of compliance to provide justification for either approving or rejecting the service offered. Dependent on the quality management system and the perceived criticality of the service provided, the audit may consist of only a written questionnaire or may also include a physical inspection and assessment of the facilities and proffered services. For example, the supplier of consumables and reagents would only require a written audit, whereas a supplier of contract test services or manufacturing would require an on-site inspection.

In conducting an audit, the choice of service will inevitably determine the questions that have to be answered. A contract manufacturer will require a different focus than a contracted analytical service, and thus it is useful to have questionnaires available to cover different service providers. The Pharmaceutical Inspection Cooperation Scheme

  publishes some helpful checklists on its publications web site which are available for free and are often used as starting points. It is important to remember, however, that such questionnaires are only memory aids. There is no substitute for the power of observation. One should not slavishly follow lists of questions and lose sight of the inspection process itself.  

Selecting an Outsourcing Provider and Determining its Quality Status

Before proceeding to the audit stage, a company should seek to identify an outsourcing provider that can provide high quality services. The selection process is dependent on the service required, and the initial stages may involve a proposed provider recommended by other users. The selection process should be described in a standard operating procedure that includes considerations of how many potential providers should be assessed and against what selection criteria. These criteria may include accreditation to a quality standard, reputation in the industry, past experience, and even location. 

When selecting a provider, the first stage often confirms the existence of the provider's quality system. Outsourcing providers may also cite accreditation by a  third party inspection body, such as the UK Accreditation Service (UKAS) or the International Standards Organization (ISO). However, it is necessary to consider the relevance of such accreditation with the required standard. Obviously, any company that will provide manufacturing services must follow cGMP requirements. In Europe, contract manufacturers also must be in possession of the relevant licenses and, if applicable, a letter of inspection from the Medicines and Healthcare products Regulatory Agency (MHRA) that says the provider can be named on licenses. This will contribute to the decision as to whether a postal or physical inspection is required.  

Another critical consideration is whether or not a provider will allow an audit inspection to take place. If the provider does not welcome an audit inspection, the provider should be excluded from the approval process.  

Before an audit can be conducted, a confidentiality agreement must be in place. A confidentiality agreement will enable free discussion of any concerns that arise during the course of an audit. If a provider requests a confidentiality agreement be agreed to in advance of the audit, it is a sign that the firm is accustomed to working in a regulatory environment. It is acceptable, however, to wait to sign the actual agreement until the date of the inspection. 

Before the audit is conducted, there should be an introductory meeting to identify the parties involved to establish the scope of the audit. Audit inspections may cover total compliance of the entire facility to cGMP requirements, or be limited to a specific area, such as a single outsourced analytical test. The audit could therefore be narrow in scope or more general, depending on the service provided.  

The inspection itself is a formal process that should follow a written procedure that is part of your quality management system. The basic objective of the audit is to confirm the presence of the quality systems that are claimed to be in place, and to assess the capabilities of the firm's facilities. It is then necessary to measure these systems and facilities against the required standards and establish the extent of compliance with regulatory requirements.  

The audit should be seen as a risk assessment. The questionnaires or memory aids mentioned above are useful in planning the audit and to help ensure that all the relevant areas are covered and assessed. Questionnaires may also lend themselves to the risk assessment process, because each question may be assigned a numerical score on a sliding scale of risk. By such means, it may be possible to score assessment outcomes, and this can be useful in justifying the approval of provider. 

An audit agenda is an essential tool to allow the most efficient planning and conduct of the audit. Even in a comprehensive cGMP audit, it may not be possible or practical to look at every aspect of a facility or process, so it becomes necessary to establish the critical points which have the greatest risk of failure or impact on the safety of the product and ensure that these are inspected and assessed.  

It is often helpful to divide the inspection into two parts: 1) an evaluation of the existing quality system, including process-specific documents, and 2) the on-site inspection of the facility to confirm the level of operational compliance with the systems and processes described in the documents. During the first part, the documents evaluated should include the quality manual, standard operating procedures, training records, facility equipment records (including qualification, validation, maintenance, and calibration histories), manufacturing specifications, and any record identified as relevant (e.g., out-of-specification results and subsequent investigations). It is often during the review of quality documents that the selection of what is to be inspected can be made, and a basic understanding of the processes can lead to a much more focussed audit.  

The on-site inspection will then be carried out in the presence of representatives of the provider. It is important to ensure that all necessary safety precautions are observed. There may be a safety policy document, which should be acknowledged. As the inspection progresses, any observations should be made known as they are encountered. This will allow feedback from the provider's representatives and ensure that no misunderstandings or errors are made by either the auditor or the audited firm. 

Communication is a vital element of the audit process, and the attitude and approach of both parties during the inspection can have a significant impact on the success of the audit and the ultimate outsourcing relationship. The audit process should be seen as the start of a working relationship, so part of the auditor's role is to facilitate good communication and, subject to the success of the audit, begin the establishment of a working partnership. Clear lines of communication will be essential in such a relationship to ensure the smooth and problem-free provision of services.  

At the end of the audit day or days, depending on the scale of the outsourcing requirement, there should be a close-out meeting between the auditor and facility management during which any observations can be reported and discussed. This is an opportunity to summarize the audit inspection process. There should be no surprises at this point because all the concerns will have been raised throughout the audit and clarified between the auditor and the audited. At this stage, the auditor should state the outcome of the audit. The management of the outsourcing firm should be given an opportunity to respond, but this should be limited to clarification and agreement on any observations that may require corrective action. 

Following the completion of the audit, a written report should be produced summarizing the process, listing any observations, and stating the outcome of the inspection (i.e., approved, not approved, or approved subject to a satisfactory response to any observations made). The report should accurately reflect the audit carried out, and it is common to issue a draft report to the provider to identify  any potential inaccuracies. The report should be issued within a defined time scale to the designated outsourcing contact and the to auditors' facility management. A target date should be set for any responses required and a tracking system should be used to follow up on any consequent action plan. Once each item has been completed, the audit will be formally closed.  

The final approval of an outsourcing provider should be dependent on both the written approval of the sponsor company's facility management and its quality assurance (QA) department. It is not sufficient for management to approve a provider without the approval of QA, and QA cannot solely approve a provider. It is usual to manage this process under the remit of a department concerned with the management and approval of providers. The provider should then be formally listed on a register of approved providers. 

   Following the Audit: The Technical and Quality Agreement   

Before commencement of any service provision, a technical or quality agreement should be in place covering the services provided.

 In the US, this agreement is not required but is expected; in Europe, the agreement is mandatory. This technical or quality agreement must detail the service provided, quality requirements, and the responsibilities attributed to the contract giver and the contract acceptor. The agreement should be reviewed at a defined interval. This may be done following routine re-assessment of the provider. 

All approved service providers are required to be reviewed and re-approved at regular intervals.

  It is advantageous for sponsor companies to develop a formal program of re-approval that includes all providers, from the minor to the critical. As a part of this routine process, all approved outsourcing providers can be re-assessed at a predefined interval to ensure continued compliance with regulatory requirements and the agreements that are in place. Annual auditing is the usual practice, although a longer interval may be acceptable if justified. Re-assessments will usually entail a re-audit following the standard process outlined above and a re-approval to confirm the approval status or, if necessary, to remove the providers from the approved list.  

An important consideration here is the change control process mandated by cGMP regulations. If a re-assessment audit shows a provider's performance to be unsatisfactory, then a formal risk assessment must be conducted to assess the impact on any product manufactured since the last audit and, ultimately, to assess the safety of the product and patient. 

In between the established dates for re-approval, it is important for sponsor companies to continuously monitor the performance of providers. If the provider's performance begins to falter, the provider's approved status may need to be re-assessed ahead of the established schedule. Examples could be failure to supply a starting material that meets pre-defined specifications or to meet established deadlines. A well-maintained history of performance will allow trend analysis and the potential to stop problems before they become critical.  

Regulatory requirements demand that outsourcing providers be part of a system that approves them as fit for purpose. The process of provider selection and approval must be part of the formal quality management system.   

 is a quality assurance manager for Tepnel Research Products and Services' pharmaceutical outsourcing division, Livingston, UK, +44 (0)1506 424270, 

 1. Rules and Guidance for Pharmaceutical Manufacturers and Distributors 2007, MHRA, Pharmaceutical Press, London: 2007. 

 2. US Food and Drug Administration. Guidance for industry. CGMP in manufacturing, processing, packing, or holding of drugs; cGMP for finished pharmaceuticals. Rockville, MD; 2006. 

 3. PIC/S Secretariat. Pharmaceutical Inspection Cooperation Scheme. (See publications/recommendations.) http://

 4. Medicines & Healthcare Products Regulatory Agency. Guidance on good manufacturing practices, Part 1: Basic requirements for medicinal products. In: Rules and Guidance for Pharmaceutical Manufacturers and Distributors. London: Pharmaceutical Press; 2007. p 80–81. 

There are several considerations to keep in mind when auditing an outsourcing provider.

How to Conduct an Audit of an Outsourcing Provider

Outsourcing can provide a laboratory with an expanded range of options and tools to conduct its work. Those options can reduce operating costs, allow a laboratory to take advantage of techniques that might not otherwise be available, cross-check results, handle an unusual surge in samples, and develop automation systems. This is particularly true for laboratories that provide analytical or physical property testing support for process development or quality control. 

	To use outside services effectively, the laboratory must understand the way it functions and how it will manage the outsourced services and the results of its work. Whether the outsourced company provides testing, method development support, or hardware and software systems design and implementation, it should be considered as an extension of a laboratory. 

	In a regulated environment, the laboratory is responsible for the quality and conduct of its suppliers. The contract service organization is in effect a virtual laboratory, subject to all of the requirements that your laboratory has to meet, including validation and regulatory requirements. This article discusses some of the considerations in outsourcing laboratory testing, method development, and the design of automation systems.

	In many respects, testing operations are similar to manufacturing operations. Samples are processed according to well-defined procedures, and information (e.g., test results, the end product of a testing laboratory's work) are recorded and sent to the customer (R&D, process development, process control, etc.). Thinking about a laboratory in that sense allows us to model outsourcing operations in much the same way a manufacturing plant outsources parts of its operations, with the same considerations for quality management and regulatory issues.

	When selecting an outside laboratory to conduct analytical tests, the following need to be considered:

	1. Does the contract laboratory have experience with the types of materials and test methods it will be using?

	2. How will you ensure confidentially of test methods and the results of the work?

	3. How will the laboratory's employees be trained to handle your project?

	4. What procedures will be put in place to check the quality of work? How will discrepancies be addressed?

	5. What validation protocol will be used to support the outsourcing program?

	6. What equipment will be used to conduct the testing?

	7. How will the results of the work be reported? What formats will be used?

The first five questions mentioned above should be outlined in the contract between your laboratory and the provider. The final two items are not as easily defined because they rely on automated systems for data acquisition and analysis. For example, let's assume that the test procedure is an assay using liquid chromatography (Figure 1). The instrument is connected to a data station that acquires, processes, and stores the data in a laboratory information management system (LIMS). Your laboratory's systems are from XYZ company, and the format of the data in the data station is unique to XYZ as are the methods used to analyze the data. If you and the contract service organization use incompatible equipment, your test results data also will be incompatible. It may not be possible to reevaluate results from the acquired data and you may have to repeat the analysis, unless manual calculations from reported peak parameters are acceptable. Having an agreement with the contractor to maintain the data on its systems and provide you with a copy can mitigate this situation. Keep in mind, however, that the data lifecycle may be decades, and you can't be sure that the contractor will be in business that long or that its archiving systems are adequate.

Understanding how a laboratory's workflow takes place, where data comes from, how information is processed and stored, and how data is entered into the LIMS, will give you a basis for deciding how the results of testing from an outsourced testing services can be integrated into your laboratory's systems. Figure 2 shows the workflow in a testing laboratory along with the entry points for test results and new analytical protocols. The ovals represent databases and the arrows are processes used to carry out a stage in the test protocol. Starting at the top, a document management system contains test method protocols and supporting documents (hazardous materials, etc.). Test methods are implemented in the measurements and experiments process and would include sample preparation and chromatographic work in Figure 1. All of the steps in Figure 1's chromatographic data station are shown in the grey box in Figure 2 as the detector signal is measured and stored in the instrument data set. The data stations analysis software processes the chromatographic data and the result is entered into the LIMS. Data and results from external sources (ES) can enter the system in three places, allowing outsourced laboratory work and method development to be integrated into the laboratory's operations.

	A comparison of Figure 1 and Figure 2 shows:

	1. Analysis protocols would be contained in the knowledge database.

	2. The sample preparation, chromatographic separation, and data acquisition steps are part of the measurements and experiments process.

	3. The acquired data are stored in the data station's database structure, which would also contain any processed data (peak retention time, size, etc.).

	4. The results of the assay are entered into the LIMS.

	Other analytical protocols would have their own measurement and experiments processes. Each instrument type would have its own database structure, so that the laboratory's overall instrument data system would comprise several databases, one for each type of instrument.

	This chart represents only a basic model workflow. Because the specific steps and flow at each laboratory may vary, it is important for the two laboratories to resolve ahead of time any differences that could pose a problem.

	The considerations for outsourcing method development work are similar to what we've just discussed. All of the validation and regulatory issues apply to the outsourced company just as they would if the work were done in your own facility. In addition, the following need to be kept in mind:

 Don't assume that simply because you paid for the work you have complete control over the rights to work. Ownership should be defined in the contract.

Incorporating the method into your workflow will require training.

 If those developing the method use equipment that is similar to what you have in the laboratory, but from a different vendor, determine if any systematic differences can affect the results. Does a particular instrument have a difference in sensitivity or control that is critical to the successful implementation of the procedure?

Consider how to integrate the testing protocol.

 Are there any problems integrating the new protocol into your laboratory's workflow, including updates to the LIMS, for keeping track of tests?

 If the new method required the development or modifications of hardware or software, are the rights transferable to you? Is the actual equipment yours or do you have to purchase a duplicate set and re-implement the modifications? Does the company that developed the modifications have plans to convert them into a product? What considerations does your company get for its investment?

	When outsourcing systems development, it is essential to know whether the outsourced project is a completely new development or a modification to an existing software. A successful automation project should include the following:

: Define the purpose of the project, what the expected end result will be, statements of ownership, acceptance criteria, installation process, warrantee, support agreements, the projected project schedule and cost, and a list of what will be delivered to you (such as hardware, software, source code, documentation, and detailed design documents). There should also be a clear understanding of the impact of the work on any warranties of underlying components. For example, if you are adding software functions to a LIMS or instrument control system, will that void the manufacturer's license, warranty, or support agreements. In addition, there should be an understanding of what will happen if the underlying software is upgraded, if the added functionality breaks or is incompatible with features of the upgraded software, or if changes are required to the installation.

Describe all functions of the software components, commands, screens, etc. This should be complete so that you can get a feel for how the system will work. You may want to have the users review it to see if there are any process issues.

 A breakdown of the system (hardware/software), how it will function, equipment required, software required for changes (e.g., operating system, compliers, editors), and design revision history. Be sure that the new system is easy enough for engineers to understand and even modify.

	Also, the outsourced company should provide a fully documented source code listing and a user manual that describes how to use the software. This is a lot of documentation and will increase the price of the outsourced project, but its purpose is to make sure that everyone understands the new system and to protect your laboratory in case the current developers are no longer available to you.

	Ensure upfront that all documents and machine readable code, for example, CD-ROM or DVD, are put in an escrow account to be released to you if the outsourcing provider company stops supporting the product, goes out of business, or does not meet its support obligations. This will also protect you if the software firm is acquired by another company.

	Outsourcing projects-from testing, to method and systems development-can be an effective way of extending your laboratory's capabilities. Care should be taken to ensure that the results of these projects can be integrated with the rest of your laboratory's work and, in the case of development programs, be supported and meet regulatory requirements.

	Project management will be a mix of managerial and technical issues that can be made simpler by establishing a firm foundation of policies and practices that cover both in-house work as well as contracted programs.

 is the vice president of technology development at Delphinus, Inc., Groton, MA, 978.448.2836, 

The outsourced service provider should be considered an extension of your own laboratory.

Outsourcing Laboratory Work—Establishing the Necessary Policies and Practices

Arecent market research report predicts that global contract manufacturing will grow to more than $26 billion by 2011.

  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,

  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).  

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.

  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.  

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.

  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.  

Once a contract manufacturer has been selected, formal agreements must be put in place. In an outsourcing relationship, the sponsor company normally owns the product, including the rights to market and sell it. The contract manufacturer, in turn, agrees to provide the service and have the quality systems in place to deliver the product to the agreed specifications. From a regulatory point of view, however, the sponsor company is ultimately responsible for the quality of the final product.  

Therefore, from a business and quality standpoint, one of the most critical elements of outsourcing is the technical and quality (T&Q) agreement. The T&Q agreement is a contractual agreement that delineates the responsibilities of both the contract manufacturer and the sponsor company.  

The T&Q agreement can be built into a contract agreement or be an annex to it.  Either way, it is important that the T&Q agreement be detailed and comprehensive to avoid any conflicts or misunderstandings. At a minimum, the T&Q agreement should describe in detail the responsibilities related to annual product reviews and reports, sample retention and documentation, deviation and failure investigation handling, complaints and adverse event handling, stability, recalls,  field alerts, change control, label copy approval, regulatory contacts, audits and site visits, finished product testing, disposition of materials, validation, use of subcontractors, and specific requirements if handling restricted compounds.

In terms of its structure, the T&Q agreement can be written like a legal document, with clauses detailing the responsibilities of each organization, or it can be written in a table format. The table format is preferable because it clearly outlines the responsibilities of the each company (CMO and sponsor). This format is easier to reference and reduces confusion, and it is easier for an independent auditor to audit against it. 

Some T&Q agreements have two parts: one that specifies the GMP expectations and detailed working methods, and another that contains product-specific details such as manufacturing instructions, specifications (e.g., for materials, components, finished product, stability),  acceptable quality levels, test methods, and packaging configurations. The second part can be referred to as the 

 because it contains all the product-specific details required to manufacture that product. Including this product-specific information in a separate section is useful because if the agreement is expanded to include new products, only the product manual section will need to updated; the main body of the agreement will not have to be modified or renegotiated. 

A detailed T&Q agreement will prevent future conflicts over roles or responsibilities and endless negotiations, saving both time and money, and result in a productive, well-defined partnership.

Not only is a T&Q agreement between companies a good business practice, it is a regulatory expectation, and in some regions, a regulatory requirement. The US Food and Drug Administration does not require that a quality agreement exist between companies, but does expect it. In Europe, it is a regulatory requirement to have such an agreement and it is regulated by Directives 2003/94/EC and 91/412/EEC, and the European Union GMP Guide.

Ensuring the CMO is Prepared for a Preapproval Inspection 

Once the CMO is ready to manufacture the validation batches, the sponsor company should schedule an audit. Although the sponsor company should have already conducted other audits to assess the CMO's systems, this audit will be specifically targeted at the product being manufactured. The audit should review  the process from receipt of materials to release testing of the product. Some specific areas that should be included are: material and product specifications; utilities; equipment and process validation; method transfers and validation; training; the batch record review process; the handling of deviations and out-of-specification results; product and material flows; and any potential area of contamination or mix-ups. In a nutshell, the sponsor should ensure the CMO has the quality systems in place to adhere to the T&Q agreement. 

Following the audit, the contractor must respond to each deficiency noted in the audit report and provide a corrective actions and preventive actions (CAPA) plan. Only after these corrective actions have been carried out should the contract be approved by the sponsor. 

Then, before the sponsor company submits any regulatory filings, it should ensure that the CMO is ready for a preapproval inspection (PAI) by the regulatory authorities. This is important because any negative observations in the regulatory inspection may delay product approval. 

Preparing for the PAI inspection can be a challenge, especially when the sponsor is using multiple contractors in the product's supply chain. All contractors will need to be ready for the PAI with robust processes, procedures, training, and agreed contracts. The companies will need to develop and manage a plan or strategy for effective preparation. This plan can be broken down in four phases: development of a preapproval inspection plan or policy, implementation of the plan with the contractors, site preparation, and inspection logistics.

In the industry, there are differences of opinion about responsibility for lot release practices when dealing with CMOs. Some companies give complete review and lot release responsibility to the CMO if the certificate of analysis confirms the product meets all its specifications. Although this approach can decrease release times, because it means product samples and complete or partial batch records do not have to be sent to the sponsor company's release group, this is not an acceptable practice.  

This issue was raised in the FDA Commissioner's 1979 preamble to the GMPs, and is addressed in the Responsibilities of the Quality Control Unit section, where the commissioner states: 

" ... the quality control unit of a contracting firm must approve or reject drug products produced by contractors. The Commissioner believes this is proper because, in the circumstances described, the contractor does not own the goods, but merely performs a service for the contracting firm. The responsibility to approve release of a drug product for distribution must rest with the owner of the drug product." 

According to a recent survey, CMOs continue to increase their biopharmaceutical manufacturing capacity, and more biotech companies plan to outsource 10–50% of their capacity in the coming years.

  Similarly, a 2007 outsourcing survey shows that most pharmaceutical companies (61%) plan to spend at least 6% more than last year on outsourcing.

As contract manufacturing grows, innovations and the incorporation of technologies will help CMOs and sponsors build trust and confidence. One example is Cook Pharmica, which was the first CMO to provide live webcam coverage of the manufacturing process to the sponsor and FDA, with the sponsor's permission.

Outsourcing is sometimes the only way a company can get a product to market quickly enough and then keep up with market demands. Partnerships across companies with different disciplines and expertise also help accelerate innovation and introduction of new products. As pharmaceutical and biopharmaceutical companies continue to strive for low-cost sourcing, speed to market, and low initial investments, outsourcing will continue to grow.   

 is a compliance excellence manager in global manufacturing and supply at GlaxoSmithKline, Parsippany, NJ

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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.

Working with a Contract Manufacturer: Key Considerations

The market for biopharmaceutical contract manufacturing services continued to expand in 2007. For the year 2007, HighTech Business Decisions estimates year-to-year market growth of 14%–15%.

Fueling the growth in the biopharmaceutical contract manufacturing market is the growth in biologics throughout the product pipeline, and the increased use of contract manufacturers by the pharmacuetical and biotechnology companies. As these pharmaceutical and biotechnology companies pursue their outsourcing strategies,  the choice of a contractor becomes a critical and strategic decision.

In the latest report by HighTech Business Decisions, Biopharmaceutical Contract Manufacturing: Quality, Capacities and Emerging Technologies, 41 biomanufacturing directors at pharmaceutical and biotechnology companies worldwide were surveyed regarding contractor selection. All respondents in the study said outsourcing is part of their production strategy. The directors discussed their criteria and the essential characteristics they look for when choosing a contractor.   

In the study, the directors ranked the four most important characteristics that they seek in a contractor. Overall, the key criteria used to choose a contractor are a) the contract manufacturer's experience and reputation, b) price, c) customer service, and d) quality. These characteristics are a composite of all criteria mentioned, weighted by the directors' ranking of each criterion. While the macro view of the criteria for choosing a contractor provides a good overall view of the requirements needed by a contactor to win business, a deeper understanding of the specific needs of the market can be gained when the criteria are segmented by organization size. Therefore, for this analysis, the criteria for choosing a contractor are grouped by the size of the firm. We define a small firm as a biotechnology company with no manufacturing sites and a large firm as a biotechnology or pharmaceutical company with multiple manufacturing sites, that usually operates multiple international sites. 

For smaller firms, the most important characteristic sought in a contractor is its experience and reputation (Figure 1). Experience includes both technical and process experience, as well as experience with similar products and projects. The contractor's experience and reputation is  most important because it proves to the directors that the contractor has the quality, technical, and production capabilities in place to execute the project. Not only is the experience of the contractor company as a whole an important criterion, but also the experience of the contractor's staff is equally important. The staff's experience is critical to be able to provide the assistance and depth of knowledge needed to keep the project running smoothly. Some of the manufacturing directors surveyed pointed out the importance of experienced staff in dealing with the regulatory paperwork in particular. 

Figure 1.  In this study, the selection criteria were ranked as high, medium, or low based on their importance. For example, experience and reputation of a contractor are the most important characteristics sought by smaller firms. 

Finding a contractor who has the requisite experience is especially important for small firms, because most of these companies are working with new products. With so many unknowns at the beginning of a project, from process development to scale-up and regulatory requirements, it is important to have a contractor who has experience with similar projects. A few of the manufacturing directors mentioned that they have encountered contractors who claim to have certain capabilities, only to discover later that the contractor lacked the capabilities or misunderstood the complete requirements needed for the project. One director cited a project delay caused by inexperienced staff dealing with regulatory paperwork issues.  

Below are a few comments made by the manufacturing directors of pharmaceutial/biotechnology companies whom we interviewed. 

"In my experience, if you ask a contractor if they can do something they say 'yes' a lot even if they have never done it before or don't have the equipment. There are often gaps in a contractor's capabilities. We look to see if they have done a product similar to ours. We are not interested in being a beta test site for a contractor. We want to talk with former customers and see if they were happy with the contractor's work. Cost is generally a non-issue for us. All of the contractors tend to be similar in cost, or at least within a two-fold range. Just as no two people are the same, no two contractors are the same. I have never done an evaluation and said that 'two contractors are exactly the same, let's flip a coin.' If they were similar in our four top criteria then we would look at availability and cost." 

"Experience is the most important because if it is a new or inexperienced contractor, they're going to go through the growing pains with you and we don't want that." 

"The experience of having delivered multiple products, having a good track record, is what we look for. We know from our own experience that this helps, particularly in early phase development. If all criteria fit, it would probably be a gut-level feeling. When you meet people you form a gut-level feeling of how comfortable you are with them, and it is worth listening to this. Price would be next on the list. It isn't at the top because, based on our own experience, it is more important to have the project done well and delivered in a reasonable timeline." 

The reputation of the contractor goes hand-in-hand with its level of experience. The manufacturing directors evaluate the reputation of the contractor for producing a quality product and to solve unforeseen problems as they arise. Contractors having experienced staff, who can provide the requisite technical knowledge to solve a problem, are preferred. Reputation also includes the experiences that other biotechnology companies have had in dealing with the contractor on a quality and commercial level. Reputation is especially important because the directors usually find potential contractors through networking, word-of-mouth, and personal history. As mentioned by one director from a pharmaceutial/biotech company:  

"Networking is by far more important than anything else. We really rely on references about who did a good job." 

The other two top-ranked characteristics mentioned to a lesser extent are quality   and regulatory history. It is interesting to note that none of the directors at the small firms mentioned price as a top criterion when choosing a contract manufacturer for their project. However, price does become an important criterion for choosing a contractor after other essential characteristics are satisfactory. 

The essential characteristics sought from a contractor by the directors at large firms are slightly different than those mentioned by those at small firms. An overview of the essential characteristics sought by large firms from a contractor is shown in Figure 2. While the contractor's experience and reputation is an important consideration, the contactor's quality and quality systems are equally important for the directors at large firms. Regulatory history, however, is not a top criterion for evaluating a potential contractor. 

Figure 2.  In this study, the selection criteria were ranked as high, medium, or low based on their importance. For example, quality, along with experience and reputation, are the most important characteristics sought by directors of larger firms. 

As noted earlier, there are slight differences between large and small firms in the criteria used to choose a contactor. For small firms, experience and reputation are the most important, whereas large firms are equally concerned about quality and quality systems. Second, price is slightly more important to a large firm. For both market segments, price sensitivity becomes more important once the top-ranked criteria are met. In addition, price becomes more important once the product reaches commercial production with larger volumes and defined processes. Further analysis shows that price is a higher priority for pharmaceutical and biotechnology companies with multiple biomanufacturing sites. These firms have more in-house skills available to them, and therefore, they place a lower value on the capabilities offered by the contactor. In the final analysis, the importance of price may be a matter of simple economics. Pharmaceutical and biotechnology companies with multiple sites have greater bargaining power against the contractors because they have the option to keep the production in-house.  

Other essential characteristics sought by the directors include offering turnkey services, production schedule availability, capacity, intellectual property protection, and proximity. While a vast majority of the directors consider it an advantage to be near their contract manufacturers, it is not a major concern for them when choosing a contractor. In general, if all other characteristics are equal between two contractor, then the proximity of the contractor may be a deciding factor. In our study, the directors discussed the possibility of outsourcing their biologics production to other world areas, including outsourcing to Asia.  

The industry's attitude toward outsourcing biologics production to contractors located in other world areas, including Asia, is changing. In 2005, when the directors were asked if they would consider outsourcing to contractors located in other world areas, out of 49 responses, over half the respondents stated that they would consider it as an option. In our latest study, 80% of the directors stated that they would consider using a contract manufacturer located in Asia. In analyzing these responses, taking into account sampling error, the results show with 95% confidence that a change in attitude toward outsourcing to other world areas has occurred over the last two years. This change is significant, but subtle; the manufacturing directors will not dismiss a contractor from consideration simply because it is located in a different world area (Figure 3). 

Figure 3.  As compared to 53% in 2005, 80% of the directors surveyed in 2007 stated that they would consider using a contract manufacturer located in Asia. The results show with 95% confidence that a change in attitude toward outsourcing to other world areas has occurred over the last two years.  

One of the primary reasons driving this change in attitude is the expected cost savings from using a contractor located in a low-cost geographic area. Seventy-one percent of the directors who see an advantage in outsourcing to a contractor in Asia cite cost savings as the primary benefit. Cost savings, however, is not the only benefit that the directors see in working with a contract manufacturer in Asia. Other benefits mentioned are shorter timelines, availability of capacity, and access to local markets. An overview of these results is shown in Figure 4. 

Figure 4.  Potential benefits cited in the survey that motivate the directors to use an Asian contractor. 

Following are comments provided by the directors we interviewed on the advantages of working with a contract manufacturer in Asia:  

"We would consider working with an Asian contractor. The circumstances would be that there is a significant cost savings of 50% or greater with regulatory and execution risks of less than 10–20%. An Asian contractor with a proven track record and regulatory experience would be highly attractive." 

"During the development phase of the projects, we prefer to work with a US or European company and have close interactions with them. For routine manufacturing, we would consider a contractor in Asia . . . When pricing is most important, we would consider going to an Asian contractor." 

"The main reason we would consider working with a contractor in Asia is if they could do something faster or cheaper. They would need to demonstrate they can meet the EU and FDA regulations." 

"Today, we have not established a relationship with any contractors in China or India. There would need to be something that attracted us to work in Asia, such as lower cost. We of course would need to check the quality of their work and it would have to meet GMP standards." 

"We would like to work with Asian contractors. Contract manufacturing is booming in Korea, China, and Taiwan. Using Asian contractors provides a big opportunity for price reduction." 

"In order for us to go to an Asia contractor there would have to be a big cost incentive. For large volume production, we may consider partnering with a contractor in Asia." 

This shift in attitude is expected to continue as European and North American pharmaceutical and biotechnology companies gain more experience using biopharmaceutical contract manufacturers in other locations. Recently, the US Food and Drug Administration approved Celltrion, Inc., a South Korean contract manufacturer, for the production of Orencia, Bristol-Myers Squibb's fusion protein for treatment of rheumatoid arthritis. This is the first FDA approval of a large-scale Asian biopharmaceutical contract manufacturer for the manufacture of recombinant proteins for therapeutic use. This further highlights that the industry's attitude toward outsourcing biologics production to contractors located in other world areas is changing.   

When a biopharmaceutical company pursues an outsourcing strategy, the choice of a contractor is a critical and strategic decision.

BioPharm International-04-02-2008

Devising an International Clinical Trial Distribution Strategy: Genentech's Approach

How to Conduct an Audit of an Outsourcing Provider

Outsourcing Laboratory Work—Establishing the Necessary Policies and Practices

Working with a Contract Manufacturer: Key Considerations

Biopharmaceutical Contract Manufacturing: Contractor Selection by Market Segment