What about CMC?
While the preferred-provider model now dominates much of the clinical research outsourcing activity among the global bio/pharmaceutical
companies, it has made much less progress in formulation, process development, and manufacturing. This reflects a variety
of historical and technical characteristics of CMC activities.
The historical factor in the lower penetration of the preferred-provider model in the CMC areas is that there is much less
outsourcing experience there than in clinical research. While as much as 35–50% of clinical-research expenditures at global
bio/pharmaceutical companies are outsourced today, outsourcing of CMC activities is probably less than 20%. Outsourcing of
CMC activities has always lagged clinical research by at least five years. There are several reasons for that slower pace
For one, CMC development requires a broader range of scientific and technical competencies than clinical research. Whether
it is API process development or dose formulation, the set of tools and technologies that are potentially needed is vast,
and the cost of investing in necessary staff expertise and equipment is prohibitive. It is unlikely that any single contract-service
provider will have the complete range of capabilities needed to serve the needs of a global bio/pharmaceutical company with
a diversified pipeline.
A second factor has been the fact that CMC is much more involved in creating, or at least working with, the intellectual property
that bio/pharmaceutical companies are so keen to protect. Clients will often split up activities among multiple suppliers
to avoid exposing the complete IP portfolio to any one vendor, and will keep critical activities in-house, e.g., final stage
synthesis of small molecule APIs,
A third factor has been the fact that CMC development usually involves research and development facilities and manufacturing
sites in which bio/pharmaceutical companies have made heavy investment for equipment and infrastructure. Those facilities
are expensive to operate, and there is strong incentive to keep them as fully utilized as possible. Companies are often more
likely to move projects and products among captive facilities than they are to outsource them to a contract development manufacturing
organization (CDMO) or contract manufacturing organization (CMO).
Nevertheless, the outsourcing of CMC activities appears to be growing, particularly in areas requiring specialized expertise.
For instance, most global bio/pharmaceutical companies outsource most of their clinical-packaging activities, which require
specialized capabilities in package design and logistics, and where requirements tend to fluctuate widely through the year.
Analytical chemistry is another area where there is considerable outsourcing, especially for specialized testing and stability
storage. The preferred-provider model is well established in those service areas.
Where things are heading
As preferred-provider relationships evolve, they are moving in the direction of tighter cooperation between the bio/pharmaceutical
company and the service provider across a broader array of responsibilities. For instance, deals announced by Covance (with
Lilly and sanofi-aventis) and Aptuit (with GlaxoSmithKline) in recent years have involved taking on activities that span discovery,
preclinical toxicology, CMC development, and clinical research (see Table II).
Table II: Preferred-provider organization (PPO) agreements.
Another step in this evolution is likely to involve service providers taking on an entire activity, effectively supplanting
the bio/pharmaceutical company's in-house capabilities. Recent examples include Fisher Clinical's takeover of clinical-packaging
operations at Lilly, and Lonza's takeover of the development, clinical and launch manufacture of Novartis's biologics pipeline.
The power of the preferred-provider model ultimately lies in its demand that the bio/pharmaceutical company and service provider
work together more closely, share information more readily, and ultimately share responsibility for outcomes. As the client
and provider get more comfortable working together, the preferred-provider model will continue to play a crucial role in restructuring
the bio/pharmaceutical business model.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, firstname.lastname@example.org