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Pharmaceutical Manufacturing and Packing Sourcer

Trend Setter

According to a newly published report, the global pharmaceutical contract manufacturing market is expected to reach $40.7 billion by 2015 (1). Key factors fuelling this growth include the continued drive to cut costs, the outsourcing by pharma companies of what is considered non-core activities as well as the rise in the large number of speciality pharma and biotech companies that possess no internal manufacturing capabilities.

For pharma companies big or small, outsourcing can be a valuable option in reducing risk. Outsourcing can provide an opportunity to lower scaleup and manufacturing costs, increase flexibility in terms of manufacturing capacity and eliminate capital costs associated with the launch of, and continued market demand for product. Looking at the current industry situation, we can identify five key trends that will shape the contract manufacturing market over the next five years.

1. A move towards longer and more established strategic relationships between contract manufacturing organisations (CMOs) and pharma companies

Pharmaceutical contract manufacturing is continuing to emerge as a strategic option for pharmaceutical companies of all sizes, from very large corporations to smaller speciality pharma companies. But what are the current trends within this growing market? In the past, outsourcing has been undertaken on a project by project basis to manage gaps in pharma companies’ capacity.Usually price per unit has been the benchmark for winning a project.To date, contracts and relationships have been predominately tactical.However, as manufacturing processes become more complex and regulatory requirements more onerous, pharma companies are finding that developing longer term strategic arrangements are indeed more beneficial.What this means is that as pharma companies engage with fewer partners, these providers need to be able to deliver a full service offering to compete for business.This in turn is likely to result in consolidation in what is now a highly fragmented business (even the largest CMOs are still small in the context of the total pharma manufacturing capacity demand), with those that can offer a wide range of specialist capabilities likely to grow and begin to dominate the market.

“Global economic uncertainty, currency fluctuations and other market forces will encourage increasing levels of mergers and acquisitions on a global basis.This consolidation of outsourcing providers will drive higher value services and continue to put pressure on other players to be more strategic in their offerings”, said IAOP Chairman Michael Corbett in 2010 (2).The model whereby local pharma entities source CMOs to manage their capacity peaks is not sustainable and has, according to a number of commentators, caused many of the GMP compliance issues that have a direct impact on the pharma sponsor’s business (3).

Large pharma is becoming increasingly open to outsourcing more of its drug development and manufacturing work to CMOs in order to improve efficiencies, cut costs and scale to production demands. For a pharma company to achieve the greatest benefits, it must reinvent this relationship through persistent discussions with its preferred partners on planning, common objectives and the responsibility of operating more effectively against key metrics.These large companies, like their biotech counterparts, are looking first and foremost for quality and on-time delivery of product from their CMO partners. Once a pharmaceutical company can view its CMO(s) as an extension of its own organisation, it can include them in strategic decisionmaking processes and facilitate data transparency as partners.

2. An increasing number of CMOs offering biomanufacturing capabilities

As the number of biopharmaceuticalbased products continue to grow, so too will the demand for outsourced solutions. In 2008 up to a third of products in development were biopharmaceuticals (4).At this stage, only a handful of contracting biomanufacturing companies could manage large scale commercial supply, the most established players being Lonza and Boehringer Ingelheim.While the complexity of biomanufacturing presents high barriers to entry for CMOs, there are a growing number of companies entering the market that have been lured by higher margins. In a recent survey conducted by Contract Pharma, nearly two thirds (63 per cent) of responding biopharmaceutical developers reported that they expected to outsource at least some of their mammalian cell culture (up from 54 per cent last year), and a majority (52.7 per cent) of their microbial fermentation by 2014 (5).This includes 15 per cent more biopharma companies planning to outsource all (100 per cent) of their mammalian cell culture-based manufacture over the next five years. Growth opportunities for the biosimilars market alone are immense, with as much as $25 billion in biologics facing patent expiration by 2016.According to a recent report, the global biosimilars market is expected to be worth $19.4 billion by 2014 (6).

In order to take advantage of this new market, pharmaceutical companies are increasingly outsourcing the production of biosimilars to specialised CMOs and contract research organisations (CROs). To manage these contracts successfully however, these organisations need to employ well-trained professionals and use state-of-the-art technology to develop and validate analytical methods, preclinical and clinical development and biomanufacturing processes,providing pharmaceutical companies with a feasible way of remaining competitive and financially viable. It is likely that the number of competing companies offering part or full service biopharmaceutical manufacturing will expand significantly over the coming years.

3. Driven by cost efficiencies, a shift in contract manufacturing from west to east for the more straightforward manufacturing jobs, with the more complex projects staying west

Over the past decade, pricing pressures have driven manufacturing contractors to establish operations in emerging markets. Offshoring has resulted in companies setting up facilities in India, China, Singapore, South Korea and more recently Malaysia.Considerable investment has continued to flow into Asia with many western CMOs expanding operations there, particularly in China. As the industry becomes more pricecompetitive, the option to outsource certain projects to lower-cost Asian regions, in particular for production of large volume products, will become a valuable alternative.This trend will have a significant impact on the global CMO business.While there are many companies willing to consider outsourcing in Asia, many remain closer to the more established territories of North America and Europe.Western-based facilities will remain competitive with an edge on quality, reliability, proximity and familiarity with proximal markets.

4. Expansion of services into product optimisation and technical transfers

“Companies will need to develop innovative technologies to deliver sustainable products and also look more broadly at the impact of their outsourcing actions on a global basis,” says Julia Santos, COP,Director of Worldwide Strategic Outsourcing at the Johnson & Johnson Group of Consumer Companies, and Chair of IAOP’s Global Human Capital Chapter (7). With everincreasing sophisticated products entering the market, some CMOs are offering a wider range of value-added services. In a quest for new sources of traction, some players are considering a move outside their traditional areas of expertise – such as API producers moving into dosage form generics or setting up bases in Asia.The benefits for their customers will depend on the companies’ ability to work effectively with others while avoiding movement into untested waters.

For some companies, these CMOs offer full formulation and analytical expertise covering a range of molecule types. In the lower cost contract manufacturing business,having a range of development and scale-up expertise, particularly for those small/specialty pharma companies with limited in-house capabilities, is critical to the bottom line.Companies that can offer a range and depth of services with expert scientific staff will be more likely to win the more complex and longer-term strategic deals. Successful expansion of services requires robust information exchange by parties, careful front-end planning and project management.With the large variety of pharmaceutical products in early stages of clinical and process development, the most valuable skill a CMO can have is flexibility.

Pharmaceuticals seeking a competitive edge in niche markets require an evergrowing level of customisation in contract services.All but a few CMOs are in a position to offer a broadened portfolio of services as the range and diversity of skills required to move up the value chain takes considerable time and effort to develop. In five years time it will be interesting to see which companies have been successful with this approach and indeed, if companies without such skills have managed to thrive.

5. Operational excellence and the ability to measure your service providers’worth

For contract manufacturers, the ability to demonstrate operational excellence (OE) can be a key differentiator when pitching for business. In general, pharmaceutical companies and contract manufacturers included have been slow to adopt the well established OE tools such as 5S and Lean manufacture.Many Lean implementations have failed for various reasons and/or have not been sustainable.Common problems across all industries, not just pharma, include a lack of leadership commitment, excessive cost reduction focus, improper project selection and suboptimal execution (8).However,OE and lean initiatives are arguably the foundation on which practically all other improvement tools and waste elimination initiatives rest.The adoption of an OE culture throughout the organisation and the implementation of industryrecognised measurement metrics such as on time in full (OTIF) and right first time (RFT) could have a profoundly positive impact on contracts won and also maintained by service providers. It is surprising how many contract pharma providers have not yet implemented OE in their plants. For westernbased service providers, where labour costs are, as a rule, higher than Asian-based operations, implementing such initiatives are imperative in order to compete on the finished cost and excel in areas such as quality, lead times and security of supply.

Conclusion

Financial pressures, cost advantages, the availability of talent and the ability to provide services beyond pure end-stage manufacturing will drive the contract manufacturing market over the next five to ten years.The ability to offer a wide range of services including formulation expertise will increasingly be required to fulfil pharma’s increasing appetite for development and manufacturing services.

References
  1. Global Industry Analysts Inc, Pharmaceutical Contract Manufacturing Report, January 2011
  2. International Association of Outsourcing Professionals Predicts Top 10 Outsourcing Trends to Watch for in 2010, www.pharmamanufacturing.com/ industrynews/2010/015.html
  3. The Future of Contract Manufacturing, Hans Engels and Michael Brookman, Contract Pharma, September 2010
  4. The CMO Market Outlook, Emerging markets, key players and future trends, Business Insights, 2009
  5. Biopharma Outsourcing Trends, Contract Pharma, April 2010, www.contractpharma.com/articles/201 0/04/biopharma-outsourcing-trends
  6. www.marketsandmarkets.com/ Market-Reports/biosimilars-40.html
  7. International Association of Outsourcing Professionals Predicts Top 10 Outsourcing Trends to Watch for in 2010, www.pharmamanufacturing.com/ industrynews/2010/015.html
  8. Spector R and West M, The Art of Lean Program Management, Supply Chain Management Review, September 2006


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Philip Pratten joined the Elan Drug Technologies team as Vice President of Manufacturing Services. Philip previously worked at Catalent Pharma Solutions and has held positions with Cardinal Health, GlaxoWellcome and the Wellcome Foundation. He has almost 30 years of broad-based experience in the pharma industry and graduated with a degree in Biophysical Science from North East London Polytechnic (now University of East London). Email: philip.pratten@elan.com
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