Typically, companies have pursued two paths for dealing with their capacity utilization problem: closing or divesting unnecessary facilities, or going to into the CMO business as a way of absorbing the capacity.
Facility closures are the most direct approach and are relatively straightforward to accomplish in North America, but they are more difficult in Europe because of social regulations and negative publicity. In both Europe and North America, divesting the facility to another bio/pharmaceutical company or to a contract manufacturer has been a viable alternative. This approach has its drawbacks: the sale process can be long and drawn out, and in a few extreme cases, the bio/pharmaceutical company has been forced to take back the facility when the CMO option has proven not to be viable to safeguard product supply.Where an underutilized facility still has strategic value, the bio/pharmaceutical company may seek to sell the excess capacity in the contract manufacturing market. This typically has marginal benefit, however, as the bio/pharmaceutical company seldom allocates the necessary resources to the business and is so selective about the projects it will take that it signs very few deals.
In recent months, two bio/pharmaceutical companies have announced a new and more innovative approach that may be a much better alternative to closure, divestiture, or contract manufacturing. Eisai and Biogen Idec have established a strategic partnership that they believe can serve as a model for manufacturing capacity management for the bio/pharmaceutical industry. Under the terms of the agreement, which became operational on Feb. 1, 2013, Biogen Idec is leasing part of an Eisai solid-dose manufacturing facility in Research Triangle Park, N.C. (RTP), and is manufacturing oral solid-dose products for itself and for Eisai in the leased facility. In a parallel arrangement, Eisai will fill and finish Biogen Idec biologics products at its injectable manufacturing facility in RTP, as well as package the oral solid-dose products.
The 10-year lease agreement gives Biogen Idec the option to purchase the Eisai solid-dose facility. Approximately 50 Eisai personnel have moved to Biogen Idec to support the solid-dose manufacturing.
The partnership grew out of the confluence of challenges that the two companies were facing. Eisai had to address the utilization problem at its solid-dose facility as its Alzheimer’s treatment Aricept approached loss of exclusivity, said Lou Arp, general manager of Eisai’s RTP manufacturing site and president of global oncology manufacturing. For its part, Biogen Idec needed to bring small molecule capability in-house and add more capability to its supply chain to reduce risk, according to Machelle Sanders, vice-president of manufacturing and general manager of its RTP manufacturing site. Solid-dose products are new territory for Biogen Idec, which has traditionally focused on biologics.
The two companies were familiar with each other’s capabilities and culture well before their discussions began. For one, their two facilities are located in close proximity to each other in RTP. In addition, both have been involved in a manufacturing group within The North Carolina Biosciences Organization and have benchmarked each other’s best practices as part of that group.
Both Sanders and Arp say that their partnership is truly strategic and different from a traditional CMO deal. They describe it as a “reciprocal and co-dependent relationship,” in which issues that arise will have to be handled consistently for both parties. So, for instance, the way in which Biogen Idec resolves a problem in the manufacture of an oral solid-dose product for Eisai will be reflected in (or reflective of) how Eisai handles a similar problem in the manufacture of injectable products for Biogen Idec. The sometimes-adversarial relationship that can arise in a traditional CMO-client relationship can’t be tolerated in their partnership, they contend.
As one might expect, governance will be a key to success in the partnership. The two companies have established a joint steering committee consisting of three representatives and director-level leadership from each. Manufacturing, engineering, and quality professionals are included on the committee.
Both Sanders and Arp maintain that the compatibility of their corporate cultures will be the central factor for the partnership’s success. “Finding the right partner with the right values” was crucial in establishing the relationship, and the fact that they are both mid-size companies able to be flexible and nimble is also important.