For a bio/pharma industry in flux, contract services are playing a greater—and more diverse—role in drug development. Representatives of contract research (CRO), contract development and manufacturing (CDMO), and contract manufacturing organizations (CMOs) discuss business, technical, and regulatory changes influencing outsourcing practices for drug development.
An influx of investment in the biotech sector, drug company mergers and consolidation, development partnerships, globalization, and new drug development strategies are shaping the way drugs are brought to market. The role that contract service organizations play in the process is evolving.
The results of the annual PharmSource-Pharmaceutical Technology Outsourcing Survey indicate a generally positive outlook for outsourcing firms, as drug sponsors reported steady or increased spending for contracted services (1). To provide a closer look at key issues, representatives of contract research (CRO), contract development and manufacturing (CDMO), and contract manufacturing organizations (CMOs) shared their perspectives on business, technical, and regulatory changes influencing practices in drug development with Pharmaceutical Technology.
Consolidation generates more business
When bio/pharma companies consolidate due to mergers and acquisitions, the supplier base often changes. In the PharmSource-PharmTech survey, however, less than 7% of the respondents from contract service organizations identified acquisition of products and companies by Big Pharma as the single greatest risk to their business in the next two to three years. Rather, many who responded to the editors’ questions saw opportunity.
“A lot of consolidation is happening in the industry in the form of mergers and acquisitions. This will have beneficial effects on drug-development processes that are limited by funding and resources as mergers often provide an opportunity to increase spending for selected programs,” said Praveen Raheja, associate director, formulations, Dr. Reddy’s CPS.
“Large Biotech and Big Pharma have made a shift in strategy to outsource. This is a significant change to the mind-set from just a few years ago,” said Andrew Strong, president and CEO, VP business development, Kalon Biotherapeutics. “As a result, the work process and communication flow between biopharma and CMOs has improved. It’s more collaborative and more conducive to long-term relationships and successful outcomes. The not-invented-here mentality has softened, the interaction [is] more collaborative than protective and allows for a more successful outcome.”
“The reductions of in-house capabilities of certain major pharmaceutical companies have resulted in an increase in business with outsourcing vendors,” said Richard J. Holl, director, pharmaceutical science, Catalent Pharma Solutions. “Accompanying this reduction, numerous venture-funded and small start-ups have been established that frequently do not have the infrastructure to support the development of their drug products, and rely more on outsourced vendors to provide these capabilities.”
Mayur Valanju, head of sales and marketing, Baxter BioPharma Solutions, expressed similar sentiments. “Several years ago, the majority of development work was being done by large pharmaceutical companies. Today, we are seeing more biotech firms and virtual companies doing the initial phases of drug development and, in some cases, full commercialization. Because biotech firms generally have less in-house expertise in manufacturing than large pharmaceutical companies, they rely more on the CMO to provide a broader range of services and expertise,” he said.
“There has been a trend, particularly in the small/mid-size drug sponsors or those new to the biopharmaceutical market, towards a more consultation-type relationship with the service provider,” said Mark Rogers, senior vice-president, SGS Life Science Services. “Rather than simply asking for a pre-determined list of tests, service providers are now becoming much more involved in experimental design and assistance with regulatory issues.”
“The number of virtual pharma companies is growing,” said John S. Ross, executive vice-president, Metrics Contract Services. “Thanks to their business models, these companies are committed to working with outsourcing partners, especially when it involves potent and cytotoxic products. In addition to observing more virtual operations among drug sponsors, we see them involving more consultants who are charged with providing regulatory and CMC guidance. Drug sponsors also are relying more upon domestic CDMOs for quality outsourcing.”
Shifts in buyer behavior
Other shifts have been observed in big pharma business practices. “With major pharmaceutical companies, we are observing an increase in strategic partnering and outsourcing of development activities that were previously kept more in-house,” said Todd Stutzman, director, pharmaceutics, Catalent Pharma Solutions. “In addition, we have seen the establishment of operating units within major pharmaceutical companies that have more of an entrepreneurial approach to drug development than we have seen in the past.”
Specialty services offered by contract service providers are being used to fill gaps in knowledge, expertise, and resources. “Drug sponsors are now more inclined to outsource activities to CMOs with niche capabilities and CMOs that add value to the development process, either in terms of integrated operations, shorter time to market, or providing support throughout the lifecycle management of the product,” said Raheja.
As in any purchasing arrangement, buyers are becoming more selective when weighing outsourcing options. “Drug sponsors have become more informed consumers of outsourcing services. We see a more savvy client, with better internal infrastructure to support outsourcing,” said Strong. “Even the smaller, more virtual companies understand what expertise they need from analytical, regulatory, and process development. The use of consultants to support their interactions with CMOs has increased the virtual company’s understanding of what it takes to get to the clinic.”
“There also is increased engagement and influence from procurement groups within client organizations, which makes pricing and costs a more critical factor in the selection of service providers,” said Magdalena Mejillano, vice-president, cGMP labs, PPD. Drug sponsors also are seeking ready access to data and technical documents through a centralized repository or portal that is interactive, flexible, and easy to navigate, she said. “Clients often request key performance indicators including quality metrics, project turnaround times versus targets, actual versus budgeted spend, project team utilization, etc.”
Large-molecule drugs are bigger business
Growing interest in research and development of biologics-based drugs also is shaping the demands on contract service organizations. In the 11th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, BioPlan Associates estimates that the $190 billion worldwide market for biopharmaceuticals is growing at a healthy 15% annually (2).
“The drug pipeline has continued to shift from small molecules and higher volume indications to biologics with lower volume indications. As the pipeline has shifted, so have the opportunities that are provided to CMOs,” said Valanju. “As such, it is increasingly important that CMOs have the technical expertise to manage biologics within their facility. Additionally, as volumes from individual molecules have dropped, CMOs have had to adapt and implement processes to manage more molecules at one time.”
A surge in investment in small biotech companies, especially in initial public offerings in the United States, has spurred activity. “The flow of investment, primarily from a very strong series of IPOs in the US market during 2013, has been welcome and has helped a number of our customers to progress lead drugs through the clinic,” explained John Sandles, business analyst, Fujifilm Diosynth Biotechnologies.
Outsourcing of biologics manufacturing has seen an increase over the past couple of years, said Mark Pearson, director business development, Dr. Reddy’s CPS. “This increase may be due to increased funding following the recession, and that drug companies have become more risk averse. Outsourcing mitigates risk of capital investment in manufacturing plants for the drug companies,” he said.
The increase in biologics drug development has spurred contract services activity for reasons other than cost cutting. Eric Langer, president of BioPlan Associates reports that new data from the his company’s annual study (2) indicates that cost control is becoming less of a driver of outsourcing activity. Instead, outsourcing is becoming more connected with higher-end, technical activities for which the right partner is more important than an extra dollar saved, he reports (3).
For example, analytical laboratories see increased demand for testing for biosimilars. Mejillano reports seeing “a definitive shift in outsourcing analytical services for biologics and biosimilars compared to small molecules. In addition, extractables/leachables for both small- and large-molecule products as well as generic product testing are on a growth trajectory in terms of outsourced work.”
Ron Connolly, senior vice-president, commercial operations, Frontage Labs, offered similar observations. “Many sponsors in the market segment of biosimilars are outsourcing most of the analytical work due to the need for trained chemists and equipment in order to perform testing to characterize molecules. As a specialized, high growth area, many sponsors do not have the capacity in house and look for organizations to guide them through the process,” he said.
However, the biologics market faces challenges. “The current biologics market is successful based on the criteria of revenue growth, and improvements made by biologics to people’s quality of life. This is balanced by project failures and reimbursement challenges,” said Aileen Ruff, strategic director, advanced delivery technologies, Catalent Pharma Solutions. “To be more successful, the basics need to be addressed. The industry needs to get better at discovery and at determining which products will succeed and applying technologies, clever development strategies, and quality by design to get product to market.”
Expanding borders, opportunity, and risk
With growth rates of biopharmaceutical consumption and production in emerging markets outpacing established economies, contract service providers see both opportunity and risk in these areas.
“The emergence of BRIC [Brazil, Russia, India, and China] countries is highly significant and it has become increasingly important to serve these regions with development, delivery, and supply solutions, which is why it’s imperative to continually invest in new facilities and capabilities,” said Min Park, group product manager, advanced delivery technologies, Catalent Pharma Solutions.
A global supply chain for raw materials may provide some cost-effective options for drug manufacturers, but not without quality risks. The emergence of low-cost API and products primarily from India and China puts additional pressure on costs, reports Franco Negron, vice-president, N. America operations and integration, Patheon Inc.
“Drug sponsors are experiencing higher uncertainty with the ability of offshore markets to comply with GMP regulations, an uncertainty that’s been fueled in recent years due to high-profile lapses in drug product integrity,” said Ross. “As a result, they are relying more upon domestic CDMOs that offer proven high-quality standards and more transparent operations.”
“The supply chain within the pharmaceutical industry has become more complex due to high market dynamics and globalization. A growing number of customers and products and a fluctuating market demand make it more challenging for contract manufacturers to plan ahead,” said Peter Soelkner, general manager, Vetter Pharma International GmbH.
Regulatory oversight offers positives and challenges
Foreign regulatory agencies have also increased their inspection of drug manufacturing facilities, said Stutzman. “These organizations sometime have unique interpretations of cGMP requirements and differing opinions as to how to achieve compliance,” he commented.
“Harmonization has had a positive impact on the analytical services,” said Paul Skultety, vice-president, pharmaceutical development services, Xcelience. “This makes it easier to meet the regulations as you have one set of criteria to test against.”
Others see progress and room for improvement. “Regulatory bodies, in general, have increasingly strengthened their requirements,” said Soelkner. “While it’s challenging to keep abreast of changing regulatory standards, the relentless push to increase quality is vital to patient safety. More explicit requirements, like the cGMP rule for combination products from the FDA, gives us as a contract manufacturer a better insight into what authorities expect on a granular level. Ideally, we would like to see a move toward global harmonization of regulatory standards.”
“CDMOs continue to be challenged by the various standards for GMP processes at different developmental stages as established by different country’s regulatory authorities,” said Ross. “It would be helpful to have more global consistency.”
New opportunities, new tasks
Recent regulatory action has created additional opportunities that contract service organizations are addressing. A risk-based approach to drug development allows industry to institute product elements during the development phase based upon product knowledge of interactions with container/closure systems and the manufacturing process, said Kelly Davis, director, regulatory affairs, Baxter BioPharma Solutions. “The utilization of this approach requires industry to better understand the impact of container/closure and manufacturing process changes. Industry is now provided the ability to manage their products based upon scientific data vs. legalistic interpretation of regulatory guidances.”
“The implementation of quality by design (QbD) and its acceptance in the industry is creating the need for an updated approach in the drug-development process,” said Connolly. “The increased work to understand the finished dosage form can be substantial depending on the product and manufacturing process. There has been a notable increase in the amount of sample analysis required to understand the process design space and critical quality attributes.”
“The most significant change is the focus on supply-chain security,” said Negron. “Better control of suppliers, more reliable processes, and greater flexibility to meet shifting demands is increasingly important. Also, CMOs and sponsor organizations are now jointly responsible for the integrity, safety and efficacy of their products,” he said.
1. J. Miller, “Positive Outlook for Outsourcing,” Pharm. Tech., 38 (8 supp.) 6-12.
2. BioPlan Associates, 11th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production (Rockville, Md, 2014).
3. E. Langer, “Outsourcing No Longer Just for Cost-Cutting,” Pharm. Tech., 38 (6) 58-60.