Working with a Contract Manufacturer: Key Considerations

Published on: 
BioPharm International, BioPharm International-04-02-2008, Volume 2008 Supplement, Issue 4
Pages: 40–45

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.

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 If some of the acquired facilities are outdated, however, it is best to outsource the manufacturing that had been done at those sites to a contract manufacturing organization (CMO).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.

Contractual Agreements

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.6

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 product manual 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.7

Regulatory Expectations

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.6

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.8

Responsibility for Lot Release

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." 9

The Road Ahead

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.10 Similarly, a 2007 outsourcing survey shows that most pharmaceutical companies (61%) plan to spend at least 6% more than last year on outsourcing.11

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.12

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.

Giovanni Escobar is a compliance excellence manager in global manufacturing and supply at GlaxoSmithKline, Parsippany, NJ, 973.8892237,


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