Increasing global competition and heightened customer expectations have for many years now encouraged enterprises in a variety of industries to focus on, and invest in, effective operations management. In most industries, managers no longer have to be convinced of the value of taking an integrated view of the design, analysis, and operation of their manufacturing, service, and logistics operations. Indeed, in many industries, operational excellence and a sophisticated approach to supply-chain risk management based on flexibility, efficiency, and advanced tools for logistics network optimization are no longer a competitive advantage—they are necessary to compete. 

Consider, for example, the semiconductor industry. Thirty years ago, the semiconductor industry was a growing technology-focused industry and, for the first time, was beginning to face cost pressures. For years, the industry had focused on superior technology, and manufacturing was an afterthought. As long as the products were manufactured as they were envisioned by their inventors, there was little need to pay attention to capacity utilization, operational efficiency, inventory levels, or risk management; if you made them, profits would come. 

However, as the semiconductor industry matured and competitive pressures grew, firms began to focus on operations, utilizing resources effectively and efficiently, optimizing systems, and perhaps most importantly, dealing effectively with uncertainty and risk. Significant advances in the science of operations were required to bring about these changes, and by working collaboratively among themselves as well as with academia through organizations such as SEMATECH, semiconductor firms were able to make great strides, pushing the state-of-the-art in semiconductor operations to new heights. 

Biopharmaceutical firms now find themselves in a similar position. As the biopharmaceutical industry enters its fourth decade, it is entering a new, more mature phase. Revenue is growing, innovative business models and partnerships are being implemented, and products are coming to market. At the same time, this new maturity brings "adult-sized responsibility" (1). Although the science of biotechnology is advancing rapidly, with the promise of making an enormous impact on society, the operations, supply chain, and logistics of biotechnology is not keeping pace. The ability of the industry to reach its potential requires systems that can produce and deliver products safely, reliably, and cost effectively to patients, while also allowing biopharmaceutical firms to successfully navigate the many risks inherent in the industry. It is becoming apparent that the biopharmaceutical supply chain presents a unique set of operational challenges—demand is highly uncertain and dependent on the results of clinical trials and competitors' actions; supply is highly uncertain; biological processes are complex and incompletely understood; regulatory demands are significant and vary from region to region, including the existence of agencies in multiple jurisdictions that add layers of complexity; contamination is difficult to detect and can have a significant impact; product failures can cost lives; IP concerns are significant; and capacity is extremely expensive and requires long lead times to build or acquire. 

 Figure 1: Respondents indicate their level of concern about key risk categories, where the scale ranges from 1 to 5, with 1 meaning not concerned, 3 meaning concerned, 5 meaning extremely concerned.			

Adding to the complexity, mechanisms for drug production are typically not standardized even within firms, technologies continue to change, and generic drugs are poised to dramatically impact the industry (2). In recent years, this changing dynamic has been a key focus of research at the University of California, Berkeley, culminating with the recent establishment of the CELDi Biopharmaceutical Operations Initiative (BOI), focusing on the development of cutting-edge tools, techniques, and approaches to improve production systems, logistics systems, supply chain, inventory, and distribution within biopharmaceutical firms—essentially, biopharmaceutical operations. The research initiative is jointly sponsored by member firms and the National Science Foundation (NSF) under the Industry/University Cooperative Research Program. 

Figure 2: Respondents, as a percentage, indidcate how they make decisions regarding inventory level and/or the number of suppliers used (multiple selections were allowed).			

Key to the development of this initiative was a series of industry–academia workshops held at Berkeley (one sponsored by the NSF) in which the challenges and opportunities in biopharmaceutical operations management were explored. Across the industry, managers have an overlapping set of concerns, and are eager for better approaches, tools, and techniques that account for the unique characteristics of biopharmaceutical operations and help deal with these concerns. A common theme emerged from these workshops: the need for more effective risk-management tools and approaches. Many firms are specifically focusing on identifying and hedging risks associated with their operations, and are eager to collaborate to improve tools, techniques, and approaches to do so. As a precursor to a concerted research effort in this area, the BOI surveyed nearly 300 industry members to explore attitudes about risk related to suppliers, raw materials, contamination, outsourcing, disposable technology, demand forecasting, inventory, and distribution, with a particular focusing on understanding which concerns are most significant, how firms measure these risks, and what mitigation strategies they currently have in place (see sidebar, "Survey Respondents"). Below is a summary of the survey's key observations. 

Figure 3: Respondents indicate their level of concern about certain manufacturing-related risks, where the scale ranges from 1 to 5, with 1 meaning not concerned, 3 meaning concerned, 5 meaning extremely concerned.			

Overall, firms are most concerned with quality risks, contamination risks, and risks associated with lack of visibility into contract manufacturing operations. More broadly, firms are concerned with a broad spectrum of risk-related issues, including supplier risk, manufacturing reliability, inventory risks, cold-chain issues, and forecasting-related risks. In preliminary interviews that accompanied the survey, several respondents even highlighted their concern that firms in the industry lack a "global" or "system" view of risks faced, and rather than developing a cohesive strategy to minimize risk, consider risks one at a time, thereby ignoring their interactions. 

Surprisingly given these concerns, however, there is relatively little focus in the industry on detailed analysis of relevant data, relatively little formal quantification of risk, little formal modeling and simulation of risk or risk mitigation strategies, little focus on inventory optimization, and little measurement of uncertainty. 

In contrast, in many industries risk mitigation involves spending considerable resources collecting and analyzing data, assessing the types of variability in the data, optimizing resource utilization to mitigate risk, and developing rigorous models to understand where inventory and other buffers can most effectively be utilized to hedge against risk. Surprisingly, for such a sophisticated industry in so many ways (e.g., compared with basic consumer products or industrial equipment manufacturers), this industry has a qualitative view of risk management. This finding is particularly surprising given the vast amount of data that is collected in the industry.  

The BOI survey was distributed using a mailing list compiled at industry meetings and from Berkeley's BOI industry partners. Although the number of usable responses varies from question to question, surveys were at least partially completed. Forty-six percent of respondents work at biotech/biopharm firms, and an additional 24% work at pharmaceutical firms. The bulk of the remaining respondents identify themselves as equipment or raw-material suppliers, or as employees of contract organizations. Twenty-five percent of the respondents work at large companies (more than 50,000 employees), 20% work at very small firms (less than 100 employees), and the rest are distributed somewhere between those two extremes. Slightly less than one quarter of respondents' firms have no products on the market, while slightly less than half have 20 or more products on the market. In terms of annual sales, respondents also come from a broad spectrum of companies—35% are from large companies with $5 billion or more in annual sales, and the rest of the respondents are relatively equally distributed over the range from no annual sales to $5 billion in annual sales. Respondents' firms operate globally, with sales and manufacturing distributed around the world, and R&D most often concentrated on the US East and West Coasts, and in Western Europe. 

About 30% of survey respondents work in R&D, and 20% work in manufacturing; the rest are scattered throughout various roles in engineering, quality, planning, and so forth. About half are managers or directors; the rest are either consultants, or in various roles ranging from the C-suite to independent contractors. Note that the BOI team made no attempt to limit responses from a particular firm, so that the results reflect the opinions of multiple respondents within a firm. 

Figure 4: Respondents rank how frequent key risks become an issue.			

Overall, respondents are most concerned with the risks surrounding manufacturing reliability and production contamination, followed by raw-material supply and outsourcing risk. Forecast errors, catastrophic natural events, regulatory risk, and IP theft ranked further behind, although all are of concern to respondents (see 

). Interestingly, given risk concerns and the inherent uncertainty in this industry, relatively few respondents rely on quantitative modeling tools to assess risk: 72% or respondents firms use failure mode and effects analysis (FMEA) of risk, but fewer than 30% use discrete event modeling, and fewer than 27% use Monte–Carlo analysis, tools that are standard in other industries. Indeed, while 70% of respondents monitor batches lost and on-time performance, half or fewer monitor safety stock levels or customer-service level, although these are key performance indicators that are useful for measuring the cost and effectiveness of risk mitigation strategies. 

 Of all of the raw-material related risks, single-sourcing stands as the most significant, followed by contamination (other concerns included availability, comparability across vendors, extractables and leachables, and price fluctuations). These results are in spite of the fact that that only 37% of respondents indicate that their firms use multiple suppliers or similar strategies to mitigate the risk, although some responding firms are beginning to identify diversified sourcing as a key goal in the product-development stage. In addition to dual sourcing, firms turn to vendor audits, quality management systems, and large safety stocks of material in order to mitigate these risks. One respondent talked of abandoning a "just-in-time" strategy due to the associated risk. Not surprisingly, inventory costs and inventory levels are the key metrics tracked to assess raw-material acquisition performance (by 58% and 54% of respondents, respectively). Surprisingly, fewer than 15% of respondents explicitly mention tracking quality metrics in this context. In addition, about half of the respondents mention focusing on tracking the fraction of single-sourced raw materials. When determining the appropriate inventory-management policies, a surprisingly large fraction of respondents (40%) of respondents do not use quantitative or scientific approaches. Slightly over half rely on optimization tools to make these decisions, and about 15% (possibly overlapping with the optimization users) also use simulation tools (see 

Figure 5: Respondents indicate their level of concern about certain contract-manufacturing risks, where the scale ranges from 1 to 5, with 1 meaning not concerned, 3 meaning concerned, and 5 meaning extremely concerned. 			

 The most significant manufacturing-related risk as identified by respondents was contamination, followed in decreasing order by human resources issues, and yield variability. Respondents were also concerned with increasing titers, but seemed less concerned with the challenges posed by disposables (see section below). Respondents also identified a variety of other concerns surrounding product validation, equipment reliability, and managing capacity. Securing sufficient supply and was also noted among the respondents' comments (see 

Four primary strategies are used to mitigate risks including training, statistical analysis, quality management techniques, and a focus on improving both internal and external communication. About 40% of respondents identify training and education as a key manufacturing risk-reduction tool, while more than 30% identify statistical analysis and quality management. Moreover, respondents repeatedly highlight the positive impact of good communications both internally and with CMOs and suppliers on manufacturing yields.  

When addressed specifically, manufacturing contamination was reported to be a primary concern of 64% of the respondents (see next section). 

Figure 6: Respondents indicate how well they explicitly model demand variability in their planning processes.			

 Of the various issues and concerns surrounding contamination, media contamination is by far the largest concern: 39% of respondents identified this as their most significant contamination-related concern. Cross-batch contamination was a distant second at 19% (followed by lack of detectability of contamination, and extractables and leachables). To address these concerns, respondents report primarily turning to high-temperature/short-time (HTST) pasteurization, physical segregation, and better assay technologies at roughly equivalent levels (each by between 45% and 47% of respondents). About 60% report experiencing a contamination event once or more a year, and roughly 14% experience such an event once a month or more frequently (see 

 Almost 60% of respondents report using CMOs for some or all of their manufacturing. Although respondents show concern about all aspects of their relationships with CMOs (e.g., reliability, visibility, flexibility, and IP) the most dominant concerns are around quality and compliance (these are the only categories for which a plurality of respondents indicated "extreme concern"). To address these risks, the most commonly noted approaches include a comprehensive focus on prescreening and monitoring CMOs, frequent audits, and keeping a representative on the CMO site (and dual-sourcing where possible and reasonable) (see 

Over half of respondents (53%) currently use disposable technology for commercial manufacturing, and a total of 83% either plan to or are likely to use disposable commercial manufacturing technology in the future. The most reported significant risks around this technology focus, in decreasing order of reported significance are: comparability as products are scaled up for commercial runs, timely availability of supplies from suppliers, and extractables and leachables. To address these risks, respondents turn to many of the same approaches that they use for managing raw-material risks, including using multiple suppliers where possible, stringent vendor qualification and audits, extensive quality control testing and validation, and carefully constructed contracts specifying minimum inventory levels. 

 About half (49%) of the respondents consider forecast errors a significant risk; less than a quarter (24%) are not concerned. In spite of this, 30% do not explicitly model demand variability in their planning process, and another 45% only model some upside and downside scenarios; only 18% explicitly model demand dist ributions (see 

By far, the dominant approach (70% of the respondents) to dealing with demand uncertainty is to hold extra inventory—most of the other cited approaches have to do with securing extra capacity, either internally or through relationships with CMOs. About one third of respondents explicitly track forecast accuracy by comparing point forecasts with actual demand, and about one quarter suggest that their firms do not explicitly track forecast accuracy. 

 Of the various risks associated with finished-goods distribution, cold storage and expiration-related issues are more of a concern than contamination, theft, and counterfeiting. No single approach stands out in the reported mitigation methods for these concerns, although respondents seem to continually explore alternative suppliers and methods for packaging, shipping, and storage (in particular, they mention continual quality auditing of transportation service providers, secure packaging, tracking systems, diversification, inventory management software, and so forth). More than 80% of responding firms store inventory in multiple sites, selecting these sites in most cases for their proximity to manufacturing sites or their low operating costs. Once finished goods shift to distributor control, only 25% of respondents are not concerned with distributors' risks, although only 20% are confident in their visibility into distributors' risks, suggesting a key area of potential improvement. 

This survey provides initial insights into the current state of risk management and risk-mitigation strategies in the biopharmaceutical industry. In subsequent surveys, the BOI team intends to explore specific risk-mitigation app-roaches and metrics currently employed by progressive firms, in order to develop a better understanding of which metrics, tools, and approaches are particularly useful. At the same time, there is clearly a need within the biopharmaceutical industry for analytical tools and approaches that account for the specific characteristics of this industry, and that use the vast quantities of data available to help managers make more rigorous, informed, model-based decisions to manage and mitigate the complex set of risks faced by the industry. 

1. Ernst & Young, "Beyond Borders: Global Biotechnology Report," 2007.  

2.R. Johnson and P. Kaminsky, "Biopharmaceutical Operations: Developing the Science," 

is a Professor of Operations Research and Industrial Engineering and Director of the CELDi Biopharmaceutical Operations Initiative at the University of California, Berkeley, 

 work at the CELDi Biopharmaceutical Operations Initiative. 

Articles

A UC Berkeley survey provides insight into biopharma's risk concerns and strategies.

Survey: Optimizing Global Biopharmaceutical Operations Through Risk Mitigation and Management

The increased globalization of the pharmaceutical/biopharmaceutical industry is reflective not only in the major players' shifting patterns of revenue growth from established to emerging markets, but also in their drug-development activities, including clinical research. Although the United States and Europe still account for a dominant share of global clinical-trial studies, Asia, particularly China, continues to rise in importance as a location for clinical research. As the number of clinical trials increase in Asia and other emerging markets in Latin America, the large CROs are too expanding into these markets using a combination of acquisitions, partnerships, and select internal investments. 

Clinical research is becoming increasingly global in nature. Although the United States and Europe still represent the dominant destination for clinical studies, Asia and Latin America also are rising in importance as a location for clinical trials. 

 a public registry of clinical-trials information for federally and privately funded trials conducted under investigational new drug applications maintained by US National Institutes of Health, identifies 139,372 registered clinical studies in the US and 182 countries, according to data as of Jan. 25, 2013. US-only sites accounted for 41% of registered studies, and non-US only studies 43%. Six percent of registered studies are in both the US and outside the US, and in 9% of the studies, the location was not specified. The US and Canada combined account for 77,030 studies or 53.3% of the global total registered in 

 and Europe accounts for 37,454 or nearly 27%. East Asia (including China, but excluding Japan) has 11,954 studies or 8.6% of the global total, and Southeast and South Asia a combined 5320 registered clinical-trial studies or 3.8% of the global total, according to 

. Mexico, Central America, and South America collectively have 8332 or 6.0% of the global number of registered clinical studies.  

As the globalization of clinical trials continues, the major CROs are expanding their operations in Asia and South America. In January 2013, Charles River Laboratories acquired a 75% ownership of Vital River, a commercial provider of research models and related services in China. For the past 10 years, Vital River has been a licensee for production and distribution of Charles River's research models in China. The agreement provides an option for Charles River to acquire the remaining 25% of Vital River at a later date. As part of the Vital River acquisition, Charles River will be the exclusive global partner for distribution of model-creation services offered through Beijing Vital Star Biotechnology. The services of Beijing Vital Star Biotechnology include humanized model creation using inducible pluripotent stem cell and other technologies. 

In June 2012, Quintiles announced its plans to establish a Quintiles regional headquarters for China in Shanghai and expand laboratory-testing capabilities in China, which includes a partnership with Shanghai Clinical Research Center (SCRC). Under a joint-venture agreement, Quintiles will engage SCRC to provide laboratory-testing services to local customers. Founded under the collaborative framework of the Ministry of Science and Technology and Shanghai Municipality in 2008, SSCRC is a full-service clinical research center in China. To provide the infrastructure for its growth strategy in China, Quintiles is investing $14 million to establish a new 4000-m

 headquarters in Shanghai to serve China and nearby Asian countries. The facility is expected to accommodate more than 450 employees in the next five years. The Quintiles–SCRC collaboration follows the 2011 launch of Kun Tuo, a Quintiles' CRO that serves local and global biopharmaceutical companies in achieving successful registration of medicines in China. Quintiles began operations in China in 1997 and now has existing offices in Beijing, Dalian, Hong Kong, and Shanghai.

Quintiles is expanding elsewhere in Asia. In October 2012, Quintiles began its first global study involving Indonesia, made possible by an exclusive alliance with Prodia Clinical Laboratory for in-country testing of samples from Indonesian patients in clinical trials. In an Oct., 24, 2012, press release, Quintiles noted prior to its partnership with Prodia that Indonesia had been difficult to include in global trials because of requirements that all local samples be tested in-country before samples or data could be exported. In November 2011, Quintiles announced an exclusive partnership with the Jakarta-based Prodia Clinical Laboratory, through its sister company Prodia, which gave Quintiles exclusive access to Prodia's central laboratory for a two-year period.  

To enhance its bioanalytical service offerings in Asia, Quintiles formed, in December 2012, an exclusive partnership with BioCore, a Seoul, Korea-based bioanalytical CRO. BioCore is a provider of bioanalytical liquid chromatography–tandem mass spectrometry. Under the agreement, BioCore will provide its services to Quintiles exclusively for a two-year period. Quintiles' growing global bioanalytical capabilities began with its acquisition of Advion BioServices in 2011. In July 2012, Quintiles opened a global commercial solutions business in Brazil. Quintiles had earlier expanded its global commercial solutions business into Russia, the Middle East, and North Africa.  

In 2012, Covance reported that its early-development facility in Shanghai, China received a good laboratory practice certificate from China's State Food and Drug Administration. The Covance facility in Shanghai provides nonclinical safety assessment, bioanalytical, 

 pharmacology, and drug metabolism and pharmacokinetics (DMPK) services. Covance opened the facility in August 2010.

PAREXEL opened a customer-care office in Shanghai in December 2012 for Perceptive Informatics, a subsidiary of PAREXEL and eClinical solutions provider. In November 2012, PAREXEL formed an alliance with the National Taiwan University Hospital to provide drug-development services in Taiwan. Earlier in 2012, PAREXEL was chosen by the Korea Drug Development Fund (KDDF) to serve as the fund's CRO. The KDDF is a consortium of three health-related Korean ministries: the Ministry of Knowledge Economy, the Ministry of Education, Science and Technology, and the Ministry of Health and Welfare. KDDF was established in September 2011 with assets of $1 billion to develop at least 10 new drugs by 2019 for the global market. The alliance with KDDF follows PAREXEL's 2012 collaborative research agreement with the ASAN Medical Center based in Seoul.   

In October 2012, ICON and the Korea National Enterprise for Clinical Trials (KoNECT) formed a partnership to advance the clinical-trials industry in South Korea. Through the agreement, ICON and KoNECT will collaborate on a series of educational events for local and multinational pharmaceutical companies, investigators, and industry officials. KoNECT was established in 2007 with the support of the South Korean government, academic institutions, and life-science industries to provides clinical-research resources, training, and support.  

In February 2012, ICON completed its acquisition of BeijingWits Medical Consulting, a CRO in China with staff located in Beijing, Shanghai, Chengdu, Guangzhou, Wuhan, and Hong Kong. The company provides services for Phase I to Phase IV clinical studies to global and local pharmaceutical, medical device, and biotechnology companies. Also, in 2012, INC Research opened a facility in Seoul, South Korea. INC Research provides Phase I to IV clinical development services in the Asia/Pacific region with coverage across China, India, Australia, Singapore, Philippines, South Korea, Taiwan, Hong Kong, Malaysia, Thailand, and New Zealand.  

The CROs WuXi PharmaTech and PRA signed a joint-venture agreement in December 2012 to offer a broad platform of Phase I–IV clinical trial services in China, Hong Kong, and Macau. The joint venture will provide services, including clinical-trial monitoring, project management, regulatory strategy and submissions, data management, biostatistics, drug-safety reporting, and medical monitoring. The clinical operations of WuXi and PRA in China will combine to operate as an independent CRO and will be jointly owned by their respective parent companies. WuXi will contribute clinical and regulatory experience to the joint venture from its China-based clinical organization. That organization covers all regions of the country and has employees working in 16 Chinese cities, with offices in Shanghai, Beijing, and Guangzhou. WuXi also will supply laboratory services to the joint venture through a preferred-provider arrangement. PRA will support the joint venture on with its global expertise and staffing and with its China-based staff and global technology capabilities, encompassing data capture, trial management, and other information-technology systems. The companies will market the joint venture's services to their respective customers. In February 2012, PRA also opened an office in Singapore for PRA's central clinical operations location for the region. 

Sidebar: Partnerships in drug development in China: AstraZeneca and WuXi AppTec

Biopharmaceutical/pharmaceutical companies partner with CROs in emerging markets for various reasons. Access to large pools of patients or targeted patient populations important to the development of a particular drug and potentially lower costs comparative to Western-based CROs are some common reasons. As emerging markets, however, become increasingly important in the revenue position of the major companies, partnering with domestically domiciled contract services providers also provide biopharmaceutical/pharmaceutical companies a way to access local markets.  	

The use of such partnerships as a vehicle for pharmaceutical/biopharmaceutical companies to access local markets is evident in a recent partnership between MedImmune, the biologics arm of AstraZeneca, and the China-based CRO WuXi AppTec, to advance a biologic-based drug being developed by AstraZeneca.  

In September 2012, MedImmune and WuXi AppTec formed a joint venture in China to develop and commercialize MEDI5117, a novel biologic for autoimmune and inflammatory diseases. Under the agreement, MedImmune is providing technical and development expertise, and WuXi AppTec is providing local regulatory, manufacturing, preclinical, and clinical-trial support. When undertaking clinical-trial development in China, the government requires local manufacture of medicines that have not been approved in other markets. The joint venture will control the development of MEDI5117 for autoimmune and inflammatory diseases in China, and the two companies will have equal ownership in the joint venture. AstraZeneca/MedImmune will have the option to acquire the full rights to commercialize MEDI5117; otherwise, the joint venture will have the right to commercialize the product. WuXi AppTec will earn revenue based on services provided to the joint venture. MedImmune will receive various milestone payments as the program progresses. 

MEDI5117 is a fully human monoclonal antibody that depletes IL-6 and bears MedImmune's proprietary half-life extending mutation (known as the "YTE" technology) designed to give a long duration of action. IL-6 is known to be an important mediator in the production of inflammation and pain in a variety of disease states. MEDI5117 is currently in Phase I in the US and Europe. In China, a local investigational new drug application will be filed for MEDI5117, and following that process, Phase I trials will be initiated. 

Sidebar: CROs form public–private partnerships to advance clinical research

Public–private partnerships are increasingly an important piece of the drug-development paradigm. These alliances provide value for CROs in helping to secure patients for clinical research, and the research entity, private or public, in advancing clinical research. Several CROs recently have announced such partnerships.  

In January 2013, Covance formed a five-year exclusive agreement with the Royal Liverpool and Broadgreen University Hospitals NHS Trust for early clinical research. The Royal Liverpool and Broadgreen University Hospitals NHS Trust is one of the largest and busiest hospital trusts in northern England, with an annual budget exceeding £400 million ($631 million). Earlier in 2012, Covance, the French National Institute of Health and Medical Research's (Inserm) subsidiary Inserm Transfert SA, and the seed-investment company Inserm Transfert Initiative formed a multiyear scientific collaboration agreement for R&D. Under terms of the agreement, Covance will conduct discovery and early-development studies, using its capabilities, including those at its facilities in Porcheville, France, and Alnwick, United Kingdom, for projects managed by Inserm Transfert, the knowledge-transfer company of Inserm, and preclinical studies for start-ups within Inserm Transfert Initiative's portfolio. These Inserm Transfert Initiative companies will also gain access to the scientific, operational, and program-management expertise from Covance. 

In September 2012, the CRO -Pharmaceutical Product Development (PPD) and the Global Allergy and Asthma European Network e.V. (GA

 LEN) formed a strategic alliance in which GA

 LEN will provide PPD access to the network's allergy and asthma experts and to more than 100 allergy and asthma sites in Europe. GA

 LEN is a multidisciplinary research network addressing all aspects of allergic diseases with a view to reducing the burden of allergy and asthma.  

 LEN to increase the amount of research it conducts in allergic diseases,as well as provide the network with earlier access to new medical therapies to help accelerate their development. PPD and GA

 LEN will work to reduce allergy and asthma study start-up times, increase the number of patients recruited for clinical trials, and ensure the availability of resources and training to increase the number of physicians and support staff conducting research.  

In early 2012, PPD also formed a alliance with the Scottish government through NHS Research Scotland, part of the United Kingdom's National Health Service (NHS), to increase the amount of clinical research conducted in Scotland. PPD will work closely with the major health boards across Scotland to further reduce study start-up times, streamline regulatory approval processes, increase the number of patients recruited for clinical trials, and ensure the availability of resources and training to increase the number of physicians and support staff conducting research. The initiative covers a broad range of Phase I-III trials across multiple therapeutic areas, as well as biosimilar and post-approval studies.  

Quintiles also formed a strategic partnership in Scotland with four teaching health boards in Aberdeen, Dundee, Edinburgh, and Glasgow as part of its prime site program, which engages researchers and investigators in clinical research. The partnership builds on Quintiles' experience in working with NHS Scotland's four university-based academic research centers in Aberdeen, Dundee, Edinburgh, and Glasgow. As part of the partnership, Quintiles will introduce technology that uses electronic health records to improve health outcomes. 

CROs are keeping pace with the increased globalization of the biopharmaceutical/pharmaceutical industry through a combination of acquisitions, partnerships, and select investments.

CROs in a Global State of Mind

As pharmaceutical companies contend with increased cost pressure and the need to accelerate development timelines, CMOs/CDMOs play a vital role.  The author examines the alliance strategies of contract services providers as a means to build their development and manufacturing capabilities and facilitate more efficient projectmanagement and technology transfer in the outsourced relationship. 

In the arena of pharmaceutical outsourcing, when speaking of partnerships, the discussion typically focuses on the relationship between a pharmaceutical/biopharmaceutical company as the sponsor company and a contract services provider. The emphasis is on the expectations between customer and supplier and the capabilities offered by the contract services provider to the sponsor company and the ways in which the project may be most effectively managed to meet specified deliverables. And while these partnerships remain the key focus of pharmaceutical outsourcing, partnerships among contract services providers, ingredient suppliers, and academia also are becoming a part of the outsourcing paradigm as companies seek to combine capabilities, services, and products to deliver a more integrated and efficient solution to a sponsor company. 

 Jean-Christophe Riou/Radius Images/Getty images			

Formulation development andfinished-product manufacturing

In 2012, several CDMOs and CMOs formed partnerships as a means to expand their offerings. For example, Catalent Pharma Solutions and the CDMO Bend Research partnered to provide integrated solutions for pharmaceutical companies seeking to develop and manufacture specialized multiparticulate oral controlled-release products. The companies offer combined expertise in formulation development, and Catalent provides further capabilities in analytical and chemistry, manufacturing and control (CMC) development, solid-state optimization, and clinical and commercial manufacturing. As part of their agreement, Catalent and Bend Research are developing joint operations and technology-transfer protocols. The partnership is geared toward complex, multiparticulate controlled-release products, which traditionally have presented a high scale-up risk when they are transferred to commercial manufacturing sites. The companies are aligning their scientific expertise and processes to ensure that developments are undertaken using quality-by-design principles (QbD). Bend also brings laboratory-scale modeling expertise that complements Catalent's expertise in formulation development and manufacture of controlled-release compounds. Catalent's Winchester, Kentucky facility is a commercial facility for multiparticulate products. 

Earlier in 2012, Catalent Pharma Solutions and BASF formed a broad collaboration and open alliance to provide solutions to overcome bioavailability challenges of new molecular entities with solubility or permeability challenges (i.e., Biopharmaceutics Classification System Class II and IV compounds). The alliance combines the expertise of both companies to provide feasibility studies across multiple technologies, solid-state chemistry, consulting and training, formulation services, excipients, and optimal dose-form development from scale-up to commercial supply. One specific application for addressing solubility issues is the use of hot-melt extrusion (HME). BASF has a portfolio of solubilizers and excipients for HME, including its Soluplus excipient, and Catalent offers HME technologies (OptiMelt). Catalent has made recent investment in its OptiMelt HME and fluid-bed laboratory- pilot-, and commercial-scale equipment at its Schorndorf, Germany, facility as well as in training and method development at its facility in Somerset, New Jersey.  

On the clinical side, Catalent and the CRO PAREXEL  formed an alliance in October 2012 to provide a fully integrated, end-to-end clinical-trial-material supply-chain solution. This solution is intended to streamline the clinical supply process and reduce development timelines while improving service quality. In the alliance, PAREXEL brings clinical-trial-management services and global clinical logistics capabilities, and Catalent brings manufacturing, packaging, and labeling solutions. 

To build cross-functional expertise, Catalent Pharma Solutions also launched the Catalent Applied Drug Delivery Institute to promote innovation, knowledge-sharing, and collaboration between industry leaders, academic experts, customers, and regulators to enhance understanding of available, emerging, and future drug-delivery technologies. As part of its mission, the Catalent Applied Drug Delivery Institute, which was launched in 2012, will serve as a link between industry and academia by providing guidance, counsel, and resources on major issues pertaining to drug development, drug delivery, and formulation. The institute will develop programs that facilitate mutually beneficial collaborations, increase communication, and shed light on regulatory issues affecting drug developers and researchers. It also will pursue a multitiered approach of seed funding, strategic counsel, and educational programs to advance the adoption of emerging technologies.  

Other companies also are pursuing collaborations. In October 2012, Bend Research and Dow Chemical formed an exclusive collaboration to provide science-based spray-dried dispersion (SDD) solutions and select new polymers for poorly soluble oral drugs. Under the agreement, Dow and Bend Research will work together to provide fully characterized polymers supported by QbD principles as well as  tailor materials to meet the performance needs of specific drugs. In addition, the two companies will develop and commercialize new materials for SDDs that address technology gaps in manufacturability and delivery to provide greater drug-product utility and therapeutic performance. Specifically, Dow will provide the excipients hypromellose and hypromellose acetate succinate as well as cellulosic and noncellulosic polymers.  

The collaboration combines Dow's capabilities in materials design, high-throughput screening, and pilot-plant and commercial scale-up operations with Bend Research's SDD screening, formulation, scale-up, and technology-transfer capabilities. Dow is supporting the collaboration with several technologies, including high-throughput synthesis with API/polymer screening, laboratory-scale product development, and structure/property optimization as well as a cGMP market-development plant capable of supporting clinical development.  

In January 2013, Xceleron, a provider of bioanalytical accelerator mass spectrometry (AMS) services for early drug development, partnered with Crystal Pharmatech, a China-based solid-state research CRO, to offer drug developers early bioavailability data for producing optimized solid-state forms and formulations. The partnership seeks to apply AMS technology and related expertise to address pharmacokinetic uncertainty by providing early clinical and solid-state information to provide better information earlier in drug development about a drug candidate's later-stage readiness. Xceleron applies human microdose and microtracer techniques using ultra-sensitive AMS to investigate the pharmacokinetics and metabolism of developmental drugs in Phase 0, Phase I, and Phase II/III clinical trials. 

Contract API manufacturers and fine-chemical producers also are partnering to expand their collaboration. For example, in 2012, DSM and Almac formed an alliance in biocatalysis. The agreement grants both parties access to their enzyme platform technologies, services, and expertise for the manufacturing of APIs. Almac brings to the table capabilities in enzyme identification, scale-up, and implementation into early-phase projects, and DSM brings capabilities in commercial-scale bioprocesses to enable production from preclinical to commercial-scale manufacturing. This collaboration will also enable Almac to offer its customers a preferred partner for large-scale production. 

In 2012, Carbogen Amcis and ADC Biotechnology formed an alliance to provide customers with development and manufacturing services for antibody drug conjugates (ADCs). ADC Biotechnology is developing a "lock and release" solid-phase immobilization technology for production of ADCs. The alliance will offer services for the development, scale-up, manufacturing, and formulation of protein-based drug conjugates. ADC Biotechnology will provide access to proprietary solid-phase immobilization technologies for conjugation and long-term storage of ADCs, and Carbogen Amcis will focus on focus on small- to large-scale GMP supply and on the formulation of ADCs. 

Onyx Scientific and Molecular Profiles partnered in 2012 to deliver end-to-end services from initial drug discovery to early- and late-phase manufacturing. The complementary alliance involves Onyx Scientific's specialty in API production and initial solid-state screening and Molecular Profiles' expertise in formulation and analytical development and early-phase clinical-trial-material manufacturing. Onyx Scientific also has sites in India, at which it provides late-stage clinical-trial and commercial manufacturing services. 

Alliances with academia also provide an opportunity for a CDMO or CMO to enhance its capabilities. For example, in January 2012, Almac completed its Knowledge Transfer Partnership (KTP) with Queens University, Belfast, to develop, improve, and embed bioprocesses to facilitate the delivery of novel products for its biocatalysis business. The overall aim of the partnership was to allow technology transfer of fermentation and molecular/microbiology expertise from Queens University to Almac. Almac met the specific partnership objectives by sharing a program of work with academics at Queens and by attending training courses organized through University College London, which allowed Almac to embed key learning back into the company. Since completion of the KTP, Almac has successfully scaled fermentation and bio-oxidation reactions to thousands of liters.  

Aesica formed a partnership with the Center for Pharmaceutical Engineering Science at the University of Bradford in the United Kingdom to enable the team at the University of Bradford to use the GMP capabilities and assets held at Aesica while Aesica will benefit from the center's research facilities. The partnership builds upon the relationship between the two parties. The center offers several processing technologies, including HME, but relies on the GMP expertise of the formulation development team at Aesica to manufacture GMP clinical-trial supplies. 

The goal to offer integrated and more seamless delivery of services is also achieved through individual company strategy and focus. For example, in 2012, AMRI launched SMARTSOURCING, an approach that further focuses its research and contract manufacturing services to the various needs of the life-sciences and other industries. It is designed as a series of strategic sourcing options for customers.   

The rationale for the SMARTSOURCING arose in response to changing industry fundamentals, namely increased pressure on pharmaceutical companies to deliver accelerated and increased drug-discovery success with reduced budgets and resources. Moreover, due to downsizing in the United States and Europe, many large pharmaceutical companies have lost experienced scientists with drug-discovery and development expertise, and as a result, may rely more on their contract service providers to fill knowledge gaps. This provides further opportunity for CROs and CMOs to reconsider their current service strategies to find more appropriate ways to meet the market's changing needs. SMARTSOURCING is an approach that seeks to address that by offering insourcing or outsourcing, or a hybrid model of both, to deliver scientific expertise, according to an Apr. 30, 2012, AMRI press release. 

Sidebar: The marriage of contract service providers and biopharmaceutical/pharmaceutical companies

Providing contract-manufacturing services is not in of itself new for bio/pharmaceutical companies, and several companies have well-established contract activities for API development and manufacturing, formulation-development, drug delivery, and finished drug-product manufacturing. In general, these third-party services provide a way for pharmaceutical/biopharmaceutical companies to leverage internal expertise and manufacturing capacity to augment revenues through contract services, and these companies have become an important part of the outsourcing market. 

Some examples of companies positioned in the market this way include: the contract services business of Pfizer (Pfizer CentreSource), Sanofi (Commercial and External Partnership, Industrial Affairs [CePiA]), GlaxoSmithKline, Hospira (One 2 One), Mitsubishi Tanabe Pharma (API Corporation), Bayer (Bayer Healthcare Pharmaceuticals), Boehringer Ingelheim, AbbVie (AbbVie Contract Manufacturing), Baxter International (Baxter BioPharma Solutions), Merck & Co. (MSD API), Sandoz (the generic-drug business of Novartis), Teva Pharmaceutical Industries (Teva Active Pharmaceutical Ingredients [TAPI]), and Mylan. A review of these companies' activities shows capabilities in both API and finished product manufacturing. 

For example, Pfizer CentreSource, headquartered in Kalamazoo, Michigan, is a provider of APIs and dosage-form manufacturing. It is a supplier of fine chemicals, steroid APIs (e.g., corticosteroids and hormonal steroids), and steroid intermediates. It also provides custom fermentation services as well as sterile manufacturing (blow/fill/seal/services) and solid-dosage manufacturing, including high-containment services.  

One 2 One, the contract manufacturing arm of the specialty pharmaceutical company Hospira, provides development services and finished-dose manufacturing of parenteral drugs. One 2 One specializes in fill–finish of biologics and lyophilization and can provide access to leading biopharmaceutical markets by using several manufacturing facilities in the US, Europe, and Asia.  

 AbbVie Contract Manufacturing is the new name for the contract manufacturing activities of AbbVie, following the formation of AbbVie as an separate research-based biopharmaceutical company in January 2013 following the separation of AbbVie from Abbott. AbbVie Contract Manufacturing provides contract manufacturing services for biologics, drug products, and potent compounds.  

The CMO division of Sanofi, CEPiA, provides corticosteroids, steroid diuretics, vitamin ±2, cardiovasculars, analgesics, anti-inflammatories, antihistamines, antibiotics, prostaglandins, and opiods (morphine and codeine salts). The company has expertise in multistep custom synthesis, steroid chemistry, prostaglandins chemistry, enzymatic conversions, synthesis of high-potency compounds, peptide and protein chemistry, micronization, and large-scale chromatography. The contract arm uses Sanofi's chemical, fermentation, and biotechnological facilities in France, Germany, Italy, Hungary, Eastern Europe, Singapore, and India.  

On the API side, Bayer Healthcare Pharmaceuticals uses several plants for its contract activities. Its supply center in Bergkamen, Germany is Bayer Pharma's major facility for the production of intermediates, active ingredients, and bulk pharmaceutical chemicals for steroid hormones through chemical and microbiological synthesis. It also has a micronization plant in Berlin-Charlottenburg, another API plant in Elberfeld, Germany, and a second major chemical facility for hormone and steroid production in Orizaba, Mexico. Also, on the API side, the contract-services arm of Boehringer Ingelheim provides contract manufacturing of biologic-based APIs, chemical APIs, and fine chemicals. On the biologics side, a key offering is its BI Hex high-expression system for monoclonal antibody production. 

Sidebar: The anatomy of a partnership: API development and manufacturing for an orphan drug

FDA approval of a new molecular entity (NME) is a crucial milestone for the commercialization of a drug. Bringing a NME through the drug-development and regulatory-review process to eventual commercialization requires the application of a myriad of capabilities, which may be internally provided by a biopharmaceutical company or externally by a contract services provider. For smaller biopharmaceutical companies, the role of a CDMO and/or CMO is particularly important for advancing a NME, with the partnership between a sponsor company and the CDMO/CMO often beginning early in development and continuing through drug development and commercialization. 

Such was the case for the biopharmaceutical company Aegerion Pharmaceuticals, which received FDA approval in December 2012 for Juxtapid (lomitapide), a small-molecule, microsomal triglyceride transfer protein inhibitor that Aegerion developed as a once-day capsule for treating patients with certain severe lipid disorders, including homozygous familial hypercholesterolemia (HoFH). Aegerion Pharmaceuticals develops drugs for rare diseases, and the orphan drug lomitapide was approved as an adjunct to a low-fat diet and other lipid-lowering treatments, including low-density lipoprotein (LDL) apheresis where available, to reduce low-density lipoprotein cholesterol (LDL-C), total cholesterol (TC), apolipoprotein B (apo B) and non-high-density-lipoprotein cholesterol (non-HDL) in patients with HoFH, according to a Dec. 24, 2012, Aegerion Pharmaceuticals press release. HoFH is a serious, rare genetic disease that impairs the function of the receptor responsible for removing LDL-C (i.e., "bad" cholesterol) from the body. A loss of LDL receptor function results in extreme elevation of blood cholesterol levels, according to the company release. HoFH patients often develop premature and progressive atherosclerosis, a narrowing or blocking of the arteries. 

Catalent Pharma Solutions is providing the finished product for Juxtapid following a seven-year clinical-trial-materials supply relationship with Aegerion. The partnership, which included analytical development, clinical-trial-material supply and manufacturing, will now be expanded with Catalent as the exclusive supplier of Juxtapid in 5-mg, 10-mg, and 20-mg strengths for the US and European markets from Catalent's Kansas City, Missouri facility. Catalent will also support Juxtapid packaging and qualified-person release from Catalent facilities in Bolton and Swindon, United Kingdom, for the European market.  

On the API side, in January 2013, Aptuit signed a long-term supply agreement with Aegerion Pharmaceuticals for commercial quantities of the API lomitapide. Aptuit provides integrated early- to mid-phase development services, including drug design and discovery, preclinical biosciences, API development and manufacture, solid-state chemistry, drug-product formulation development and manufacture, sterile fill–finish, clinical sciences, and consulting. The company maintains five global facilities with approximately 800 employees in Europe and the United States and has a strategic relationship with Laurus Labs in India. 

To gain a perspective on this partnership and overall trends in outsourcing, Patricia Van Arnum, executive editor of 

, recently spoke to Kevin Duffield, senior director, API, at Aptuit.  

 Aptuit and Aegerion Pharmaceuticals recently signed a long-term supply agreement for commercial quantities of the API lomitapide, a newly approved drug. Can you provide some background on the partnership with the company? Was Aptuit also involved with clinical supply of the drug and how did the relationship begin?  

The companies began working in 2007 to support early clinical trials with API and drug product. Aptuit had made the API to support clinical trials and product launch and will continue to supply over the coming years.  

  Can you explain how the integration of various service deliverables occurred across the company's US and European sites and with the sponsor company? What were the critical success factors in terms of project management and communication?  

Aegerion's approval for lomitapide provides a new treatment for an orphan indication with few alternatives. The ability to rapidly develop the API process, analytical methods, and solid-state formulation was critical to meeting the aggressive commercialization timeline of Aegerion. During the development cycle, many overlapping project activities were conducted to speed the process to the new drug application filing. For instance, three different Aptuit R&D sites worked on process-justification studies. A large number of analytical methods needed to be developed and validated. This work was spread across Aptuit sites to conduct the work in parallel and to take advantages of a larger network of expertise.  

Another critical factor was the ability to identify and resolve solid-state chemistry issues and to rapidly translate fundamental science in this area to plant-scale control of API morphology and particle size. Aptuit's West Lafayette, Indiana  team are leaders in this science and worked hand-in-hand with the Aegerion and Aptuit's Harrisonville, Missouri production unit to scale up and validate the process. 

 Can you provide further insight  in the synthesis of lomitapide to understand the context of the services delivered? 

 The synthesis is a multistep convergent synthesis that requires several weeks to complete. Services delivered included raw-materials sourcing, auditing, and qualification. More than 20 quality-control methods for raw materials, intermediates, and final product were developed and validated. Basic R&D into the chemical process was conducted at Aptuit, along with the process-justification design-of-experiment  work to establish a foundation for the critical process parameters. Solid form and particle-size control technology was developed and implemented at plant scale. A prospective process-validation campaign, during a multimonth timeframe, was completed. All services were conducted under cGMP-compliant practices and a pre-approval inspection was successfully completed with all appropriate documents to support filings with FDA. Overall, five Aptuit sites contributed to the successful activity with the bulk of the work being done in 2011 and 2012. 

 On an industry level, how is the outsourcing model evolving between contract service providers and sponsor companies? What factors have shaped relationships during the past five years, and what do you see the future holding?  

 To bring potent/orphan compounds to market in the shortest possible time requires collaborations that rely on incredibly open communication, trust, and responsiveness to changing needs and circumstances. Mutual resource commitments and dedicated people working in collaboration to solve problems on short timescales are essential to drive parallel activity and to manage the risks that go with accelerated timing. The supplier has to provide compliant science with exceptional commitment to service and a will to win on behalf of the sponsor and its  prospective patients. The sponsor has to provide open communication of goals and recognition of the efforts of the supplier to meet their goals (both verbal and financial). Flexibility and speed to response, along with broad technical capability, are driving the business and will continue to be the difference maker between suppliers in the coming years. 

Sidebar: An emerging model: manufacturing-capacity sharing arrangements

Achieving a good return on assets through manufacturing-capacity utilization is an ongoing challenge for biopharmaceutical/pharmaceutical companies. Pharmaceutical companies need manufacturing capacity on hand to produce commercial products and also to launch new products as they come through their drug-development pipelines. The inherent uncertainty of drug development, however, makes it difficult to balance the need for timely access to manufacturing capacity with the interest of avoiding underutilizing capacity and a resulting reduction on a return on assets. One strategy taken by some companies has been to enter manufacturing capacity-sharing agreements, which allows one partner to monetize underutilized capacity and another partner to secure access to manufacturing capacity. 

In December 2012, Biogen Idec and Eisai formed such a strategic alliance to strengthen the manufacturing capabilities of both companies' facilities in Research Triangle Park (RTP), North Carolina. Under the terms of the agreement, Biogen Idec will lease a portion of the Eisai facility to manufacture oral solid dose products for both companies. Eisai will provide Biogen Idec with vial-filling services for biologic therapies and packaging services for oral solid-dose products. The 10-year lease agreement gives Biogen Idec the option to purchase the Eisai oral solid-dose facility.  

Approximately 50 Eisai personnel are expected to become Biogen Idec employees in early 2013, building on the company's RTP workforce, which exceeded 1000 in 2012. Eisai currently employs approximately 225 full-time employees at its RTP site. Biogen Idec and Eisai have both operated manufacturing facilities in RTP since the mid-1990s.  

Merck & Co. and MedImmune, the biologics arm of AstraZeneca, also have a capacity-sharing arrangement in biologics, an arrangement the companies formed in September 2011. The relationship emerged to address underutilized capacity on behalf of MedImmune and a need for Merck to secure biologics capacity for its biologics program.  

In the arena of pharmaceutical outsourcing, when speaking of partnerships, the discussion typically focuses on the relationship between a pharmaceutical/biopharmaceutical company as the sponsor company and a contract-service provider.

Seeking Strength in Partnership Strategies

Preferred-provider relationships are transforming the bio/pharmaceutical industry. The largest clinical CROs are focused almost exclusively on gaining and implementing preferred-provider relationships with the global bio/pharmaceutical companies. The author examines the nature of these relationships and implications on drug-development activities.

Preferred-provider relationships are the "new new thing" in the contract services industry, even though they have been around for almost five years now. The largest clinical CROs are focused almost exclusively on gaining and implementing preferred-provider relationships with the global bio/pharmaceutical companies. Josef von Rickenbach, CEO of PAREXEL International, recently described the trend toward these strategic sourcing relationships for clinical research services as "a once-in-a-lifetime industry transformation" of the bio/pharma industry.

The interest in strategic sourcing relationships is part of a total rethinking of the traditional R&D paradigm at global bio/pharma companies. The traditional model was built on a vertically integrated organization, usually housed on remote campuses that conducted all phases of discovery and development. That organization was meant to generate a large number of development candidates, often referred to as "shots on goal," and required a tolerance for high failure rates to produce a few commercially successful drugs. 

The traditional R&D model was possible because of the spectacular profits generated by blockbuster drugs, but as those blockbusters have gone off patent, global bio/pharma companies have been forced to discard it. For one thing, global bio/pharma companies found that those isolated organizations were not effective at identifying promising new products. Following the lead of other high-tech industries, companies realized that innovation could come from anywhere. They have, therefore, begun moving their discovery operations to centers of medical research, such as in San Francisco and Boston, where they can interact with academic researchers and small bio/pharma companies to identify and acquire the most promising new technologies and candidates.

Global bio/pharma companies also have had to abandon the traditional model because of its, largely, fixed costs. With the revenues and profits from blockbuster drugs eroding, global bio/pharma companies can no longer afford to maintain such costly infrastructure. Reducing costs by reducing fixed overhead and making expenses as variable as possible have become major objectives.

This is where the strategic sourcing arrangements have become central to R&D strategies. Preferred-provider arrangements are enabling global bio/pharma companies to realize cost savings across a number of fronts: 

Preferred-provider arrangements have enabled bio/pharma companies to reduce their fixed operating costs by transferring staff and facilities to their preferred providers. 

They have made operating costs more variable by letting companies buy just the services they need when they need them. 

They have leveraged the operating efficiencies and economies of scale of the large CROs, which generally have better operating skills than the bio/pharma companies themselves. 

They have taken advantage of the CRO's expertise and investment in information technology. Information technology has become the differentiating capability in clinical research by enabling companies to collect clinical-research data more quickly and accurately from all over the globe. 

They have given bio/pharma companies access to patients worldwide, including countries such as China and India, thereby enabling companies to complete studies more quickly and at lower cost. 

They have reduced contract and vendor management costs because there are fewer vendors to manage and audit and because vendors and clients can establish processes that facilitate their cooperation. 

Most of the major preferred-provider relationships involving global bio/pharma companies were announced in 2010 and 2011, so the past two years have been crucial periods of implementation. What has been impressive so far is the success that CROs seem to be having in making these arrangements work. The deals are remarkably complex, involving the transfer of dozens of trials, hundreds of staff, and sometimes, entire facilities from the bio/pharma company to the CRO. Typically, the transfers are staged to ensure that the process is orderly, and studies are not seriously delayed during the hand-off. Despite the complexity, there have been no reports of serious problems in the transfers, and CROs have not reported major unexpected costs or delays resulting from the hand-offs. The smooth transition is in part thanks to the governance structures that have been established to oversee these preferred-provider relationships, typically involving senior management from both sides of the relationships to ensure that the participants are aligned strategically and operationally, and potential problems are tackled quickly. 

One of the most interesting aspects of the growth of these strategic sourcing arrangements is the impact on business-development activities at the large CROs. Senior executives at the major CROs believe that no more than half of the potential deals for clinical services have been done, and less than that for preclinical services. The greatest fear among these companies is that if they lose out on a strategic opportunity with a bio/pharma company, it will be a long time before they get to do business with that company again. As a result, the CROs are being aggressive in going after these deals. They are bidding them at fairly low prices to lock in relationships with the hope that lower sales expenses, greater visibility to workflows, and opportunities for add-on work will boost their margins over the longer term.  

The big CROs also believe that the ability to offer a broad range of integrated services is important to winning strategic deals. The initial preferred-provider contracts often involved primarily data-management and site-management activities, but companies realize that being able to offer a broader range of services can make them more competitive. This increase in services has driven acquisition and alliance activity to add crucial services, such as bioanalytical testing, and to broaden geographic coverage. 

Table I: Major preferred-provider relationships in clinical research.			

Preferred-provider deals have primarily been struck (or at least announced) in the clinical-research arena (see 

), but they are beginning to spread into other R&D activities. In a recent presentation at the JP Morgan Healthcare Conference in San Francisco in January 2013, the CEO of Charles River Laboratories, James Foster, said that strategic sourcing activity had "reached an inflection point" in the preclinical research area. Charles River had secured several such deals recently and has seen more such deals in the pipeline. Activities supporting drug discovery, which by most accounts have been only minimally outsourced to this point, is another area on the verge of considerable growth. 

In the areas of developing and manufacturing APIs and drug products, few preferred-provider relationships have been established thus far. Outsourcing trends in these areas have traditionally lagged those in clinical research by as much as five years, and are complicated by the vast array of process and delivery technologies that are required to support a typical global bio/pharma company's portfolio. There have been a few noteworthy successes, especially in clinical packaging, where as many as half of global bio/pharmaceutical companies have established preferred relationships with one of the three major clinical packagers. Bio/pharma companies are also showing increased interest in models that hand-off all aspects of product development, from clinical through commercial, to a single CDMO. 

This is a time of great experimentation with new business models at global bio/pharma companies, and we are likely to see many variations on the preferred-provider model in coming years. This new environment will call for a combination of vision and operating skill on the part of CRO and CMO executives as they help define the bio/pharma business model of the future. 

 is president of PharmSource Information Services and publisher of 

Preferred-provider relationships are transforming the bio/pharmaceutical industry.

The State of Outsourcing Partnerships

Sidebar 1: The marriage of contract service providers and biopharmaceutical/pharmaceutical companies

Sidebar 2: The anatomy of a partnership: API development and manufacturing for an orphan drug

Sidebar 3: An emerging model: manufacturing-capacity sharing arrangements

When speaking of partnerships, the discussion typically focuses on the relationship between a pharmaceutical/biopharmaceutical company as the sponsor company and a contract-service provider.

Building Toolboxes through Cross-Functional Partnerships

Noncompliance   of APIs with specified quality standards can be fatal, as shown by the   heparin scandal in 2008. Quality control                          tests of the API imported from China by finished   dose manufacturers in the United States were unable to discover the   deliberate                          adulteration with oversulfated chondroitine   sulfate because analytical methods can detect only those quality defects   and impurities                          for which the analyst is actively looking and   the method is capable of detecting. Although new analytical methods,   such as                          spectroscopic screening, may help to further   improve quality-control tests, quality can never be "tested into" a   product (1,                          2). Hence, vigorous quality management is needed   during production; GMP and GMP monitoring are also needed. 

During the past   years, FDA and the competent authorities in Europe have tightened their   supervision of pharmaceutical supply                          chains. In the US, FDA began to prepare industry   for tougher standards; from the podium at various conferences, FDA   officials                          have stated plans to require companies to   conduct on-site audits at outside contract-manufacturing facilities. 

In the   European Union, the case is even clearer: every manufacturing   authorization holder (MAH) is responsible for monitoring                          the GMP compliance of all APIs and certain   excipients used in manufacturing "by conducting audits at the   manufacturing and                          distribution sites of the manufacturer and   distributors of active substances" (3).  The upcoming revision of   chapter 5.26                          of the EU GMP guide will state, "Suppliers of   active substances and certain excipients considered to be high risk   materials                          used as starting materials should be   periodically audited to confirm that they comply with current GMP   requirements" (4).                          ISO certificates, GMP certificates from third   countries, and certificates of suitability (CEP), for example, "cannot   replace                          on-site audits of active substance suppliers"   and may serve only as interim and temporary measures between audits (5).    If                          the European authorities discover significant   GMP deficiencies during their own inspections of an API manufacturer,   the MAHs                          using these APIs, and especially their qualified   persons (QP), are held liable for neglecting their duties (6).   

The standards for GMP-compliant production of APIs are laid down in the International Conference on Harmonization's (ICH)                       guideline, ICH Q7 

.   But what exactly are the requirements for such on-site audits to   monitor the GMP compliance of API suppliers? A generally                       accepted standard for auditing GMP compliance of   API or other starting-material manufacturers, however, is still missing.                       Instead, both in scientific literature and in   practice, quite different approaches to auditing can be found. From an   industry                       point of view, recommendations for "good" auditing   often are limited to hints, examples, or a collection of typical   findings                       (7). Many authors seem to believe that GMP audits   of APIs cannot be fully standardized (8, 9). The quality of an audit   then                       depends on the experience and quality of the   individual auditor. Consequently, the quality of audits does vary   considerably                       (10). Clearly, a defined quality management for   such audits is essential for monitoring GMP and quality-management   system                       compliance during audits.  

Indeed,   initiatives by third-party industry groups, such as the European   Chemical Industry Council's (CEFIC) Active Pharmaceutical                       Ingredients Committee (APIC); blue inspection body   GmbH, which provides accredited GMP audits; and Rx-360, an international                       pharmaceutical supply-chain consortium, have   already proposed audit standards, as discussed later in this article.   The authorities,                       too, have taken tangible steps towards   standardization. For example, FDA has issued a guidance document for its   inspectors                       that explicitly covers the conduct of API GMP   inspections (11). Similarly, the Pharmaceutical Inspection Convention   and the                       Pharmaceutical Inspection Co-operation Scheme   (PIC/S) have issued an Aide Memoire for GMP-inspectors who conduct   audits of                       API manufacturers (12). 

A standardized, ICH Q7 compliant, API GMP audit would consist of the following (13):  

A document review (approximately 40% of the on-site audit time) in which a minimum set of documents concerning both the site's                             GMP system and the individual API(s) must be looked at (see 

). The more documents that are available before the actual audit the better because these can be evaluated without compromising                             the on-site audit time and process flow. 

An on-site assessment of the shop floor   (approximately 50% of the on-site audit time), which covers the entire   process flow                             but prioritizes individual aspects. One   example is corrective actions and preventive actions (CAPAs) of earlier   audits/inspections                             (see

Meetings (no more than 10% of the on-site audit time).

The resulting audit report, which   demonstrates to the authorities that the audited API supplier is in fact   GMP-compliant.                             The audit report must contain all relevant   GMP-related observations and findings and should be structured according   to the                             chapters of ICH Q7. In particular, all   deficiencies must be referenced to specific ICH Q7 requirements (10).  

The   time between audits (i.e., from initial audit to surveillance audit) and   the amount of time needed for each individual                       audit (i.e., on-site audit time, time for audit   preparation, report writing, CAPA follow-up) are important. European   MAHs,                       for example, are advised by EMA to audit their API   manufacturers on a risk-based schedule, approximately every two to three                       years (14). The suggested minimum duration of each   audit is set to two or three days by the European Compliance Academy's                       Qualified Person (QP) Association and EMA,   respectively (15, 16). According to the QP Association, shorter audits   may be acceptable                       if a risk-based justification can be provided,   whereas larger sites and/or audits abroad will definitely require   additional                       time. The suggested audit times do include   preparation and post-processing. The sheer number of audits required and   the time                       needed for each one, however, still put MAHs and   API suppliers through a tough time. 

So, wouldn't it be a   great idea for the MAH to concentrate on those audits that are most   important to the company? But which                       audits are most important? All APIs need auditing. A   risk-based approach will only help to prioritize which API needs to be                       audited first. Audits can, however, be prioritized   not only according to risk, but also according to their individual   relevance.                       Even though an API may pose few risks, it can still   be extremely relevant to the MAH, for example, because of the   intellectual                       property involved, the sheer quantity of the API,   or any number of other reasons. It would be prudent to prioritize audits                       into those that the MAH will conduct and others   that can be sourced out. The MAH would concentrate on audits that are   most                       important to him. All other audits can be sourced   out to a third party. 

This approach   especially makes sense for APIs that are used by several MAHs.   Currently, each MAH will send an auditor to the                       API manufacturer, so that the same manufacturing   process is being checked over and over again. From a quality point of   view,                       this situation is not advisable. The overall time   spent in auditing the API and the burden put on the API manufacturer are                       considerable, each single audit is relatively   short, and the same aspects are likely to be audited repeatedly while   other,                       equally important aspects, tend to be left out of   an audit. It will, therefore, be much more efficient if MAHs pool the   effort                       spent on auditing an API. The combined audit could   be more thorough, although still being considerably shorter than the   current                       sum of individual audits. Sharing an API audit thus   does improve audit quality and reduces the burden for API   manufacturers. 

EMA has   explicitly permitted such third-party audits, provided that contractual   arrangements are made corresponding to Chapter                       7 of the GMP Guide and that the auditor does   fulfill certain requirements (5). Industry initiatives, which are   discussed in                       the "Industry initiaves" section of this article,   help in this situation (17). Most of these initiatives have set up   strict                       rules regarding auditor qualification. Most   initiatives also have set their own standards for conducting the audit,   so that                       the buyer of the resulting audit report can expect   certain minimum standards.

Rx-360 was founded in the US in   June 2009 by volunteers from the pharmaceutical and biotechnology   sectors, including branded                       and generic-drug producers and suppliers. It aims   to provide a broader, more thorough audit than is typically conducted.   The                       findings of Rx-360 audits can then be shared with   multiple pharmaceutical firms, thus reducing the number of audits that a                       supplier must host and that a pharmaceutical firm   must conduct. In this way, the consortium believes it can reduce the   overall                       audit burden on both suppliers and drug   manufacturers. 

Rx-360 offers three   types of audits: "collaborative audits," in which several MAHs ask   Rx-360 to have one supplier audited                       and the MAHs share the audit costs; "sponsor's   audits," in which one pharmaceutical manufacturer covers the costs of   the audit,                       the report of which is then released to additional   requestors for a fee; and "subscription offers," in which manufacturers                       can access the available audit reports of the   consortium for a fee. 

Rx-360 organizes the   audits but commissions their execution to external auditors. These   auditors must comply with a set of                       minimum qualifications including, but not limited   to, a minimum of five years of GMP operational pharmaceutical   experience,                       involvement in at least five audits of the relevant   supplier/audit type, and at least three conducted audits in the last 12                       months. The Rx-360 audit guidelines are based upon   regulatory standards as well as best practices; the standard for API   audit                       and the corresponding report matches the structure   of ICH Q7 (18, 19). 

 CEFIC is an association of   chemical manufacturers in Europe. CEFIC's Active Pharmaceutical   Ingredients Committee (APIC) has                       started the "APIC Audit Program" as a third-party   program for auditing API manufacturers and contract manufacturers as   well                       as distributors. Its aim is to offer a turnkey   solution for auditing GMP compliance of API manufacturers and/or   distributors.                       Audits can be initiated by one or more MAHs "in   order to get independent information about the GMP compliance status   about                       the API supplier (e.g., when preparing for   authority inspections)" (20). Audits can also be initiated by an API   manufacturer.                       It should be noted, however, that, at least for the   time being, European competent authorities generally will not accept   self-initiated                       audits. 

As with Rx-360,   auditors working for the APIC Audit Program must fulfill a strict set of   formal requirements and pass through                       APIC's own training courses. As a rule, APIC audits   will be performed by two auditors for two days. These audits result in                       a standardized report that is not tightly bound to   ICH Q7 but will include "detailed descriptions of all subjects covered                       during the audit, objective evidence for any GMP   deficiencies found during the audit" and an unambiguous rating of these   deficiencies                       (20). 

Apart from larger   association initiatives, such as Rx-360 and CEFIC, other company   initiatives exist, ranging from intercompany                       associations such as the German Association of   Research-Based Pharmaceutical Companies (Verband forschender   Arzneimittelhersteller,                       VfA), in which audit reports are only shared   between members to Diapharm, a company that markets accredited API GMP   audit                       reports to pharmaceutical companies. 

 Roughly 20 members of VfA have   started an exchange-scheme for audit reports, called JA VfX, through   which the audit results                       can be shared with other members of the community.   Audit standards and criteria for auditor selection, however, are not   made                       transparent to nonmembers. 

 The Asociación Fórum Auditorías   (AFA) was founded in Spain in 2005 by pharmaceutical companies to   provide an infrastructure                       to satisfy requirements for supplier validation.   AFA offers joint sponsorship of audits by common interest or by   campaigns                       for distant geographical areas, sharing travel and   accommodation expenses. Differing from initiatives such as Rx-360 or   Diapharm,                       AFA not only organizes the audit, but also conducts   the audit with its own auditors who need to demonstrate, among other   qualifications,                       a minimum of two-year's experience working in an   organization regulated by GxP principles, holding an upper-management   position,                       and audit execution experience prior to any   AFA-internal training course. Information on AFA's auditing standard has   not yet                       been published. 

 Diapharm, an international   pharmaceutical service provider with offices in Germany, Austria, and   the UK, started an API GMP                       auditing scheme in 2008. Audits can either be   ordered by one or by several pharmaceutical companies. As a speciality,   Diapharm                       also offers a joint audit even if each MAH obtains a   different API from the API manufacturer. Again, the actual audits are                       conducted by external auditors. The audit as well   as the audit report (35 to 70 pages) match the ICH Q7 standards. Auditor                       qualification standards are among the highest in   the industry in that Diapharm only commissions audits to inspection   bodies                       that are accredited according to ISO 17020. 

 In 2009, a group of industry   experts from the European Fine Chemical Group (EFCG), the International   Pharmaceutical Excipients                       Council (IPEC) Europe, IPEC Americas, the European   Association of Chemical Distributors (FECC), and the Pharmaceutical   Quality                       Group (PQG) set out to develop a certification   scheme for excipient suppliers. The resulting consortium, EXCiPACT, is   starting                       an auditing scheme to provide independent   third-party certification of manufacturers, suppliers, and distributors   of pharmaceutical                       excipients (21). EXCiPACT's guidelines are   dedicated to excipients only and are rather detailed and   state-of-the-art. Auditor                       requirements again are comparable to Rx-360, with a   detailed standard having been defined based on ISO 19011, a standard   for                       auditors; ISO 17021, a standard for certification   bodies; and additional items. 

GMP and GDP audits   of pharmaceutical material suppliers are legally required and are   crucial to support the safety of drug                       products. High quality audits by independent third   parties and the sharing of such audits between pharmaceutical   manufacturers                       are important means to reduce the burden for MAHs   and API suppliers alike. Organizations such as Rx-360 or EXCiPACT help   by                       setting and enforcing the necessary quality   standards for these third party audits. As a consequence, effective and   efficient                       GMP auditing is turning into daily practice more   and more, thus resulting in fewer but better and more thorough audits. 

is managing director at blue inspection body GmbH, Hafenweg 18-20, 48155 Muenster, Germany, tel: 49 251 625620 40, 

is senior vice-president of quality at Amgen and a member of the Rx-360 board of directors. 

*To whom all correspondence should be addressed. 

 amending Directive 2001/83/EC (Brussels, July, 2011).

 4. EC, Draft Chapter 5, "Production," in 

Good Manufacturing Practice Medicinal Products for Human and Veterinary Use, Eudralex, 

http://ec.europa.eu/health/files/gmp/chapter5_pc11-2010.pdf

 5. EMA, "Q&A: Good Manufacturing Practice," 

 http://www.ema.europa.eu/Inspections/GMPfaq.html

Procedure for Dealing with Serious GMP Non-compliance or Voiding/Suspension of CEPS Thus Requiring Co-ordinated Administrative                       Action," in:

 Compilation of Community Procedures on Inspections and Exchange of Information 

 7.  MHRA, "Good Manufacturing Practice: Common deficiencies," 

 http://www.mhra.gov.uk/Howweregulate/Medicines/Inspectionandstandards/GoodManufacturingPractice/FAQ/Commondeficiencies/

11.  FDA, Program 7356.002F, Chapter 56 "Drug Quality Assurance Program," in 

 12.   PIC/S PI 030-1, Aide-Memoire Inspection of Active Pharmaceutical Ingredients (Geneva, 2009). 

14.  EMA, EMA/INS/GMP/459921/2010 Rev 13, "A Model for Risk Based Planning for Inspections of Pharmaceutical Manufacturers,"                       in 

Compilation of Community Procedures on Inspections and Exchange of Information

15.  EMA, EMA/INS/GMP/459921/2010 Rev 13, "Guidance on the occasions when it is appropriate for Competent Authorities to conduct                       inspections at the premises of Manufacturers of Active Substances used as starting materials," in 

Compilation of Community Procedures on Inspections and Exchange of Information 

16.  QP Association, "Checklist Auditor Qualification and Performance," 

 http://www.gmp-compliance.org/daten/training/QPA_Checklist.pdf

17.  H. Champion, "Shared Supplier Audits—A new day for supply chain quality," 

 http://www.contractpharma.com/issues/2012-09/view_features/shared-supplier-audits-275514

Rx-360 Audit Standards for Active Pharmaceutical Ingredients and API Intermediates, v. 1.0 

20. API Compliance Institute, "What Is the APIC Audit Programme?" 

 http://www.api-compliance.org/mse_APICOMPLIANCE_Registration.html

Adherence to GMP in API manufacturing is crucial in determining the safety of drug products.

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