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European Biopharmaceutical Review
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Many Big Pharma companies are outsourcing part of the drug manufacturing
process to contract manufacturing organisations. But with emerging
markets threatening to rival the US and Europe, what lies in store?
The weak economic situation, and continuing problems for Big Pharma, are
leading companies to rethink their organisational strategies, with
outsourcing now a commonly considered option compared to a decade ago.
Getting drugs to market is more costly, while at the same time many
blockbuster drugs – a major source of revenue for Big Pharma – are going
off-patent, reducing access to critical investment capital. In
addition, tighter regulations for drug approval have led to fewer new
drug proposals, and prices are facing downward pressure from generic
competition.
Outsourcing Options
As pharma companies look for options to consolidate their operations in
order to focus on the core functions of new drug discovery and
development, one of the strategies is to divest manufacturing assets
with excess capacity and outsource a part of drug manufacturing to
contract manufacturing organisations (CMOs). Indeed, the global CMO
market is growing rapidly and is forecast to reach $60 billion by 2018,
driven primarily by demand from developed markets (1). However, the
attraction of lower costs is also driving the outsourcing of
manufacturing to CMOs that are based in emerging markets. Most of the
big business is captured by large CMOs in the US and western Europe, as
pharma companies place more emphasis on quality, reliability and
continuity in supply, and believe they are more likely to find this in a
larger organisation. A major share of the CMO market is dominated by a
few large global players, while a lot of small players in emerging
markets are targets for mergers and acquisitions driving consolidation.
Although cost advantages and capacity constraints are considered by many
as the primary drivers for outsourcing decisions, the ability of the
partner to get the drug to market swiftly, along with the resulting
profits, far outweigh cost savings from an outsourcing partnership,
especially for innovator drugs. Similarly, any inconsistencies in
quality of production or continuity of supply can wipe out all other
advantages derived by outsourcing the manufacturing to an external
partner. Hence, both the outsourcing decision and the selection of a CMO
partner are complicated for a pharma company, and making the right
partner choice is vital.
CMO Selection
For pharmaceutical manufacturing
outsourcing, a CMO’s technical expertise, cost advantages and quality
are mandatory requirements, while consistency and reliability in
ensuring supply are critical. As it is costly to change the contractor
mid-stream in the event of production mishaps, consistency and
continuity must be demonstrated in a company’s track record and are
critical when selecting a CMO as a partner. Additionally, their
reputation for confidentiality is just as important because each CMO
often deals with multiple pharma companies, handling highly sensitive
information and proprietary technologies.
As regulatory scrutiny is increasing, more rigorous and frequent audits
and quality assurance parameters are employed by Big Pharma, making
partnerships more expensive. More marketed drugs in the US and Europe
are coming from CMOs, compelling the Food and Drug Administration (FDA)
and European Medicines Agency (EMA) to increase their scrutiny of the
contract manufacturing of drugs. Hence, the regulatory compliance of the
contract manufacturing partner and approved facilities are also
critical to avoid penalties and minimise potential future losses. The
FDA directions during prior cases emphasise the need for quality audits
and agreements to be owned and driven by the pharma company, as opposed
to a consultant or the contract manufacturer.
Agility in the supply chain remains a priority, particularly in light of
a recent spate of recalls. These have forced biopharma companies to
ensure that all the partners in their supply chain remain flexible, and
able to take prompt action in compliance with agreed protocols in the
case of recalls. The FDA proposes stricter regulatory scrutiny and
action on supply chain oversights, and holds the pharma company liable
for these.
CMOs in Emerging Markets
Emerging market partnerships need cross-culture, long distance
collaboration. As a result, there is a need for experienced CMO partners
with exposure to working in a multicultural environment, and with an
understanding of partnership expectations. As the market is dominated by
large, mature CMOs which have comparable profi ciency in terms of their
technical expertise and quality, other soft attributes such as
relationship management and collaboration abilities are being considered
as differentiating factors. These attributes are also critical for CMOs
operating in emerging markets to counteract the cross-cultural issues
and to offer a competitive advantage over US or European CMOs.
Ensuring Compliance
With increasing regulatory oversight by the FDA and EMA, compliance with
current good manufacturing practice (cGMP) standards is essential
across the pharma supply chain. CMOs in emerging markets have struggled
with regulatory compliance, although India has a high number of
FDA-approved facilities. Recently, the FDA imposed a ban on the import
of Ranbaxy’s products from two of its facilities, citing violation of
guidelines (2). The regulatory framework is inconsistent across India,
with each individual state having independent state regulatory
authorities. In China, most of the manufacturers are compliant with
national cGMP standards but need additional investment and effort to
reach international cGMP standards. A CMO in emerging markets has to
demonstrate a reliable track record of regulatory compliance to be
considered for a partnership.
Protecting Intellectual Property Rights
One of the key concerns in emerging markets is intellectual property
(IP) protection and regulatory frameworks. Both China and India – the
leading CMO players in emerging markets – have had considerable issues
and a history of lapses in IP protection. One recent example is the
compulsory licence issued to an Indian pharmaceutical company for
Bayer's cancer drug, Nexavar (3). A partner with a strong track record
of reliability, backed up by clearly outlined legally binding
partnership agreements, is mandatory to operate in emerging markets.
Often, legal battles are drawn out in the case of IP violations, and
regional laws and regulators might be favourable to local players rather
than overseas innovator companies. An understanding of local
regulations and regulatory challenges in business continuity are
imperative to partner with any players outside of the home country.
Transparency
As the CMO partnership is carried out at a distance, with minimal direct
control by the pharma company, it is critical for the CMO to
demonstrate a good reputation and track record for transparency, right
from the outset, in order to be considered for a partnership. The pharma
company needs to ensure that the CMO clearly understands and is willing
to follow the protocol for sharing information and treats it as a
priority, especially in the event of production delays, recalls or any
other unforeseen mishaps. While laying out rules for these agreements,
both partners must also take into account the cultural differences in
interpreting various contexts for immediate action and attention, or
most of the agreement could become meaningless.
Demonstrating Quality
As the initial vendor assessment is carried out based on the information
supplied by the CMO, the pharma company must ensure that all the
quality systems are in place during quality audits to guarantee they are
being complied with in the fi eld. The vendor must be able to provide
the client with standard quality information such as regulatory
inspection records, standard operating procedures, any external audit
reports or any other process documents, and must demonstrate actual
implementation in the manufacturing facility that is being proposed for
the joint venture.
Introducing Innovation
While CMOs from emerging markets compete with US and European CMOs based
on the lower cost of labour and infrastructure, to remain competitive
they must be able to score highly on their ability to innovate in
improving manufacturing efficiencies. Pharma companies look for CMOs
which can demonstrate the optimal utilisation of capacity with shorter
product timelines, while ensuring adherence to quality and the process
guidelines of the client. While the lower cost of labour and production
in Asian markets might be attractive, operational efficiencies could
also deliver similar cost savings using other CMOs from Eastern Europe,
which would also ensure the reliability in supply due to location
advantages.
Diverse Service O fferings
Pharma companies now look for partners which can cater to all of their
manufacturing needs in order to optimise the size of their supply chain.
Traditionally, Big Pharma companies manage a portfolio of fi ve to six
direct partners in the supply chain, along with numerous others
downstream. However, rising costs and the complexity of managing
outsourcing partners, plus the need to ensure consistency and
reliability, are forcing companies to reduce the number of players in
the supply chain. As a result, the CMOs which can provide them with a
‘one-stop shop’ for managing all downstream activities would have an
advantage.
Conclusion
While large CMOs from the US and Europe dominate the business, emerging
market CMOs are gaining on their competitors, with improved capabilities
adding to the lure of the existing low cost advantages. CMO growth in
emerging markets has until recently been primarily driven by demand from
small to mid-sized biopharma companies. Those CMOs that can demonstrate
consistency and reliability in their supply could compete with their US
and European competitors in winning outsourcing contracts from Big
Pharma.
References
1. GBI Research, Contract Manufacturing Organizations to 2018, Ref GBIHC206MR, 2012
2. Food and Drug Administration, FDA takes new regulatory action against
Ranbaxy's Paonta Sahib Plant in India, FDA News Release, 2009
3. Rajagopal D, Bayer petition against Natco over manufacture of Nexavar dismissed, Economic Times, 2012
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