Recent industry discussion has focused on moving contract research organizations (CROs) from the traditional role of supplemental capacity supplier to strategic and collaborative partner with pharmaceutical companies. Increasing needs to maximize the value of existing products as well as a rise in poor clinical-trial results attributable to formulation have led to redefined CRO–sponsor relationships and a greater reliance on CRO expertise in product reformulation and lifecycle management. Traditional pharmaceutical, specialty pharmaceutical, and biopharmaceutical companies must now shift their attention to product lifecycle management tactics from as early as preclinical development throughout market life (1, 2). Forward-thinking CROs provide strong evidence for the new dynamic by offering innovative solutions to product reformulation challenges for a variety of pharmaceutical dosage forms and by working to identify and execute strategies that are closely tied to client needs at every phase of the product lifecycle. 			

Industry trends depict an increasing percentage of strategic outsourcing by traditional Big Pharma companies—which are well regarded as experts in integrated brand-defense strategies—electing to rely on external expertise for complex formulations and product reformulation while retaining internal core competencies such as drug discovery and product commercialization (1, 3).

Small and medium specialty pharmaceutical companies as well as some biopharmaceutical companies rely on CRO expertise as a survival strategy in all aspects of product lifecycle management. CROs that have successfully aligned their capabilities to match increasingly complex client demands are positioned to provide sponsors with a competitive edge. Beginning as early as preclinical development, these CROs offer strategies for accelerating drug development such as expedited formulation and direct-fill of active pharmaceutical ingredient (API) into capsules for early clinical proof-of-concept studies. During prelaunch and the patent exclusivity period, CROs can work with sponsors to build prelaunch awareness and develop a product launch strategy that enables sponsors to maximize initial sales and product profitability through line extensions, product reformulation, and identification of new active ingredient forms. Finally, CROs can gather competitive intelligence and work with sponsors to develop a strategic plan for extending the patent exclusivity period through product reformulation, new dosing regimens, or novel delivery mechanisms.  

Lifecycle management: no longer an option 

Diminishing product pipelines, soaring drug development costs, strict regulatory requirements, and a competitive environment characterized by increasing generic competition define the current situation faced by pharmaceutical companies. Pharmaceutical companies must engage in product lifecycle management to exploit the full commercial potential of existing molecules and minimize the effect of generic competition. Fortunately, product reformulation and lifecycle management often increases benefits to consumers. To extend exclusivity, new products from existing branded products must show a clear, improved clinical benefit over existing products while ensuring safety and efficacy. These advantages may include enhanced kinetics, improved patient compliance, preferred dosing regimens, novel delivery systems enabling more accurate dosing or higher efficacies, improved safety profiles, new indications, or alternative dosage choices (1, 2). 

Understanding that few blockbuster products achieve top sales based solely on initial formulations and indications, pharmaceutical companies have developed systematic brand management strategies to prolong marketability and maximize product revenue and have engaged in portfolio management to deliver maximum return on investments. A recent report states that 43% of global brand teams begin lifecycle management planning as early as Phase I development. Early planning has proven most beneficial in retaining market share, defending patents, and anticipating competitive threats. Strategies for the most active pharmaceutical brands target a new product launch every year after the initial product launch, which can result in as many as 10 product formulations or indications (4–6). 

The business case for early adoption of product lifecycle management

The business case for new drug development is both difficult and risky, but the effective use of product lifecycle management strategies can reduce risk and increase opportunities for innovator companies of all sizes. For product lifecycle management  to be most successful, the groundwork must be integrated early in the drug development process, as opposed to added on a few years before a patent expires. A diverse, cross-functional team working at the clinical stage enables companies to: 					

select the optimal therapeutic indication;

develop effective formulation strategies;

use lifecycle management tactics to expand beyond the base indication of the initial product launch (2, 7). 

Because all pharmaceutical brands are not equal, companies often use strategic models to predict the decline rate of brand revenues resulting from generic competition or they use multi-attribute models to determine the intrinsic potential for brand expansion. Seasoned innovators have learned through bitter experience that the best candidates for lifecycle management have strong barriers to entry built into the product design (product or class attributes), which makes prescribers or consumers less likely to switch brands (8).  

This increased complexity reinforces the need for CRO expertise. Although established pharmaceutical companies will likely have access to a wide array of in-house resources, small and medium specialty pharmaceutical companies and biopharmaceutical companies must increasingly look outside company walls to gain access to the requisite expertise for optimal execution of a product lifecycle management strategy. 

CRO strategies for accelerating drug development

Understanding that many pharmaceutical companies face aggressive drug development timelines, intelligent CROs have aligned their expertise, service offerings, and technology to accelerate the drug development process. An expedited formulation strategy is one example of a collaborative CRO–sponsor project to meet aggressive clinical development timelines through the alignment or dedication of critical formulation, analytical, and manufacturing contract resources. CROs have been able to reduce hard-capsule formulation development to 10.5 weeks to match shortened client timelines and deliver quicker first-in-human study results. 

Similarly, pharmaceutical companies may seek strategic relationships with CROs to gain access to technologies for accelerating drug development. Partnering with a CRO can provide access to precision microdosing equipment that enables sponsors to move efficiently toward clinical proof-of-concept (

 chemical-in-capsule supplies for exploratory investigational new drug studies) or to achieve greater speed to first-in-human studies (

API microdosing or over encapsulation). A recent US Food and Drug Administration guidance cites several advantages associated with exploratory investigational new drug studies, including the ability to identify promising drug development candidates earlier in the process, thereby reducing the time and resources devoted to drug development candidates that are unlikely to succeed. Direct encapsulation of API provides an expedited strategy to first-in-human studies and can be substantially more efficient than development efforts that result in a full formulation (9). 

Strategies within the patent exclusivity period

Marketing, involving key opinion leaders, publication strategies, introducing new chemical entities to existing franchises, product repositioning, and making the decision to move from prescription to over-the-counter formulations are key strategies within the patent exclusivity period that often are retained internally by pharmaceutical companies. Marketing early on in the drug development process provides an opportunity for pharmaceutical companies to prepare the market and select the therapeutic indication and target segments that will maximize initial sales. Advisory boards consisting of thought leaders can provide market intelligence, identify unmet medical needs, shape clinical studies, improve message dissemination to key opinion leaders, and provide understanding of critical lifecycle issues. Postmarketing studies and publication strategies can be used to demonstrate scientific rationale and to increase consumer acceptance of existing products in new uses (6).  

As the competitive landscape changes with the introduction of new chemical entities to existing franchises, companies should use product repositioning strategies to reduce the risk of cannibalizing existing product revenue streams and ensure distinct messaging. Finally, the decision to move from prescription to over-the-counter products can mitigate loss of market share to generics but can be limited to medications for nonserious conditions (10). 

CRO strategies within the present exclusivity period

Pharmaceutical companies can find significant strategic advantage, however, by seeking external expertise for lifecycle management strategies, such as product reformulation, line extensions, and identification or characterization of new active ingredient forms. According to a recent report, pharmaceutical reformulation is an important defensive strategy that enables companies to maximize product return on investment in both the pre- and post-patent environment. Within the period of patent exclusivity, pharmaceutical companies can leverage CRO expertise in product reformulation to improve the manufacturing process, modify the release profile, develop alternative dosage forms, or provide access to innovative delivery technology. Potential benefits to pharmaceutical companies may include reduced operational costs because of improved manufacturing margins, the ability to add value to abandoned compounds with poor solubility or bioavailability through innovative formulations and the opportunity to extend the life of existing products by ten to fifteen years. Potential benefits to patients include options in route of administration, improved efficacy, greater tolerability, convenience, and increased compliance. In short, reformulation is one of the most classic and cost-effective strategies for maximizing product sales within the present exclusivity period (11).  

Similarly, the depth and breadth of CRO experience may be used to strengthen the competitive position of pharmaceutical companies in selection of indications to maximize the label before patent expiry and for the identification and characterization of polymorphs, salt forms, co-crystals and hydrates that may have increased benefits or effectiveness with drug delivery technologies.  

CRO strategies for extending the exclusivity period

Key strategies for extending the patent exclusivity period include product reformulation, alternative dosing regimens, novel delivery mechanisms, combining complementary in-house actives into a new product, combination products involving alliances between companies, creation of branded generics, and pediatric or orphan indications. A recent report indicates that product reformulation is the most cost-effective way to extend the lifeline of most brand-name therapies. With careful attention to patent expiration dates and intelligence about competitive products, sponsor pharmaceutical companies and CROs can work together to develop a strategic plan for extending the market life of an existing branded product through product reformulation. Key strategies focus on the reformulation of the drug product in novel ways and may include modifying the release profile, developing alternative dosing forms of the API for niche markets, or applying novel or proprietary delivery mechanisms to improve accuracy, efficacy, or patient compliance (6).  

Combination products are another trend in the pharmaceutical industry because of rapid sales uptake, significant patent protection, and sufficient barriers for generic competitors. The complex nature of development objectives for combining complementary active ingredients into a totally new product is served particularly well by experienced CROs (5).  

Branded generics provide an opportunity for pharmaceutical companies to partner with generics companies to soften the blow of market share erosion through partnerships. This strategy allows both sides to benefit from their respective core competencies.  

Finally, deciding to pursue pediatric or orphan indications can be a strategy to extend the exclusivity period of a drug. The potential to maximize revenues, however, is often limited because of small market size or infrequent use (8).  

The following case study exemplifies the integration of efforts by the pharmaceutical development services of MDS Pharma Services, engineering services, and a customer's product vision to produce a combination product. 

Applying innovative and creative thinking was instrumental in the successful development of an iontophoretic system for Transport Pharmaceuticals' medical device. (

is the transdermal delivery of drugs by an electrical current.) The customer had established therapeutic efficacy in a Phase II trial and was developing a new treatment system which would enable patients to self-administer treatment. The project scope included formulation development of an antiviral topical cream, followed by the design and development of a dispensing and sealing process for a unit-dose drug cartridge as part of an iontophoretic drug delivery system.  

The disposable sealed cartridge components were designed for a handheld device. The customer's medical device CRO designed and manufactured the receptacles, seal lidding, dispensing nozzle tips, and induction sealing carriers. MDS Pharma Services, the device CRO, and the customer worked in collaboration to develop the process and manufacture of the final product. MDS Pharma Services and the customer collaborated to establish methods and controls for the product. 

The drug cartridge consisted of a plastic receptacle with an electrode and pad, cream that fills the pad, and a foil lid. Dispensing the cream onto the pad in the disk-shaped receptacle involved a unique ensemble of equipment for recirculation, heating, and dispensing. To ensure the reliability and accuracy of the filling process through the manufacturing run, it was necessary to reduce the viscosity of the bulk cream by heating  and liquefying it for smooth flowability. A recirculation loop was included to ensure homogeneity.  

The cream was manually dosed from the loop into a nonwoven pad in each receptacle using a stationary micromatic pipettor equipped with a 1-mL syringe and fitted with a Luer-Lock custom nozzle. Heaters were placed around the nozzle and pipettor barrel to maintain heated conditions throughout the dispensing process. Each receptacle was situated into a grooved cylindrical holding carrier for dispensing and sealing purposes.  

One of many challenges was to achieve repetitive accurate dosing with even distribution of cream on the raised portion of the padded cartridge. Overfilling or irregular syringe ejections resulted in an excess of cream overflowing the pad, which interfered with the seal integrity. Therefore, it was critical to determine the appropriate fill volume for a sealed cartridge and to define the optimal distribution of cream in the pad. A series of experiments were performed to determine the processing temperatures, target fill weights, and the rate of dispensing to achieve the most desirable filling conditions. Several nozzle configurations were evaluated to measure the spread and penetration of the cream into the pad. Consistency of filling was then monitored by performing content uniformity on individual filled receptacles manufactured throughout the process. 

An induction sealer hermetically sealed the filled receptacles. Following the filling of each receptacle, a foil-tabbed lid was positioned on the surface of the cream. The carrier containing the filled receptacle was then placed under the pneumatically driven sealing head, and the induction field melted the foil seal layer, thus bonding the receptacle rim. This aspect of the process required attention to the material composition and configuration of the lid. The performance of several lidding materials was evaluated by conducting tests for burst strength, peel integrity, and weight loss on lidded receptacles. The stability of the lids under accelerated conditions as well as freeze–thaw performance were evaluated. Sealing parameters for the induction sealing cycle and air pressure also were identified. A modification of the pressure pad in the sealing head was necessary to ensure a smooth, even surface for uniform sealing.  

After identifying the correct materials and processing parameters, a demonstration batch was prepared to evaluate the feasibility of producing batch sizes that would meet the customer's needs. A production rate of more than 300 units per hour was established through careful layout of unit operations and dedication of personnel. This process was transferred from the laboratory to production under good manufacturing practices for the manufacture of clinical trial materials. The product is now in Phase III clinical trials. 

Contract research organizations that understand the increasing complexity in today's pharmaceutical industry have positioned themselves to become more than a traditional capacity supplier. By closely aligning internal capabilities to client needs, these firms can provide a true competitive advantage in accelerating the drug development process, thereby maximizing product marketability within the exclusivity period and extending patent exclusivity for maximum profitability. 

 is a section head, Formulation Development, at MDS Pharma Services, and 

 is a product manager, Pharmaceutics, Biopharmaceuticals & Pharmacology, MDS Pharma Services, tel. 425.487.8282, 

*To whom all correspondence should be addressed. 

1. M. Rios, "The Outsourcing Advantage in Formulation Development," 

2. R. Daly and M. Kolassa, "Start Earlier, Sell More, Sell Longer," 

3. I. Kola and J. Landis, "Can the Pharmaceutical Industry Reduce Attrition Rates?" 

4. J. Ho, "Extending the Product Lifeline," 

Articles

By forming strategic collaborative partnerships with contract research organizations, pharmaceutical companies can take advantage of several strategies for accelerating drug development, maximizing profitability, and extending patent exclusivity.

Outsourcing Reformulation and Lifecycle Management: The Expanding role of CROs

Until recently, the costs of maintaining laboratory equipment were not a major factor in the cost-savings initiatives of many pharmaceutical companies. Concerns over compliance, equipment uptime, and quality of results meant that using multiple maintenance contracts with multiple vendors remained a normal practice. But now, initiatives have become edicts as no stone is left unturned in the search for organizational efficiency and profitability. Today's pharmaceutical company is less risk-averse and aggressively pursuing cost savings on laboratory equipment maintenance by implementing internal initiatives and working more closely with outsourced maintenance providers. 			

The maintenance models summarized in Figure 1 show the options available to pharmaceutical companies. The benefits this model can provide vary according to policy, history, makeup of a company's decision-making unit, and the amount of internal resources currently allocated to equipment support. The definition of 

 also varies among companies. In this article, the definition is based on basic service delivery comprising initial response time, first-time fix rate, quality of repair, on-time delivery of preventive maintenance, and robustness of the qualification regime.  

 Figure 1: Cost savings and quality according to maintenance model.

The amount of cost savings depends on how much effort the company has already put into reducing costs. For example, if a company operates an outsourced asset-management program, then it would not realize the same savings as a company currently contracting to original equipment manufacturers (OEMs), if both moved to an on-site triage model. Figure 1 assumes OEM contracts are in place and that OEMs set the quality standard because they design, manufacture, and provide applications support for their products—even though some do not live up to this standard in practice. The figure also assumes that independent service providers have lower costs but inferior service to OEMs, when in practice some are more agile, flexible, and responsive than the OEMs.  

The asset-management model manages the work of OEM maintenance providers on a call-out time-and-materials basis to deliver cost savings, whereas the on-site engineer model delivers savings through increased labor efficiencies. The on-site triage model combines the strongest attributes of these last two models into a single solution. Figure 1 claims the on-site engineer and triage models provide higher service quality than OEMs. (This claim is justified later in this article.) 			

Does that mean the triage model is the best model? The answer depends on each company's business priorities and its ability to gain the support of and mobilize multiple scientists and functional stakeholders to drive organizational change. Some models require more thought-process changes than others. 

A typical pharmaceutical research and development (R&D) and manufacturing organization deals with at least 150 laboratory equipment providers and has key contracts in place for the most prevalent mission-critical equipment, including high performance liquid chromatography (HPLC), fast performance liquid chromatography (FPLC), ion chromatography (IC), mass spectroscopy (MS), centrifuges, plate readers, and robotic liquid-handling systems. At a typical site, HPLC represents 35–50% of equipment by volume, but MS support will constitute the highest aggregate maintenance spending, followed closely by HPLC.  

Significant internal time is needed to manage the commercial aspects (

 the service level and response time) of major contracts and to ensure service levels meet the needs of the overall business as well as those of specific laboratories. Each equipment provider has unique preventive maintenance and qualification protocols, response times, and service reports, thereby creating significant ongoing administrative challenges.  

It also may be difficult to understand clearly the real value that each contract provides. Contracts pass risks onto the provider. If equipment is reliable, then contracts are very profitable to the service provider. But the converse also is true. Knowledge of equipment failure rates, uptime, and cost of ownership all would help companies make better risk assessments, but companies rarely find the resources to collate and manage such asset knowledge effectively. Therefore, most companies committed to OEM contract regimes usually focus on price reviews with their OEMs rather than on performance, risk, and service-level efficiency opportunities that could benefit their business. Reducing price without improving efficiency is achieved by persuading an OEM to reduce its margins, with cost reductions of as much as 10% attainable in some situations (especially if the company also is buying significant quantities of new product). Stakeholders also have an opportunity to move away from contracts altogether and work with an OEM on a time-and-materials call-out basis, in which contracts are placed for scheduled preventive maintenance only. In this model, financial risk is passed to the pharmaceutical company, with opportunities for cost savings of more than 10%. But companies rarely have the asset knowledge to be confident enough to make such a decision.  

Scientists often favor OEM contracts or a time-and-materials approach because they maintain the long-standing personal relationships that played a major role in their decision to procure a specific product in the first place. Conversely, managing multiple contracts is expensive and it squeezes OEM margins rather than focusing on efficiency improvements, which means there are minimal opportunities to reduce costs in subsequent years. Moreover, there is always the danger that prices will increase as OEMs strive to win back margins demanded by their shareholders.  

In some localized regions, independent providers offer maintenance support for OEM equipment. These organizations often have weaker technical-support infrastructures than OEMs. They are prepared to work at lower margins, however, so their prices often are significantly lower. Moreover, some independent providers offer multivendor maintenance support, which gives companies the opportunity to consolidate service providers and reduce the number of contracts they manage. Many of these providers are staffed by former OEM engineers who may have pertinent factory-training certificates but may not be up to date on modern equipment. Therefore, companies should check the level of training at an early stage of their evaluation process. In addition, some firms are staffed with lower cost but lower skill engineers, so quality may be questionable. Most independent providers are small family businesses, and it may be unlikely that they will have the support infrastructure and processes required to meet scientists' service-quality requirements or corporate remits to standardize suppliers and processes across sites or countries.  

Many large pharmaceutical companies have their own laboratory equipment maintenance teams, whose activities range from contract management to financial reporting, or company-employed in-house engineering staff that performs maintenance in laboratories or workshops. In the former case, it is, of course, important that the maintenance model (discussed later) integrates with these groups to prevent work and cost duplication.  

Although the industry trend is shifting away from having in-house groups, there are a few companies seeking to roll out the in-house implementations that were successful at the local sites to their other sites around the world. In some cases, these in-house teams provide metrology services. In other cases, they provide workshop services for apparatus or a laboratory bench–based frontline service for various equipment. The advantage of this frontline support is that response rates are much faster than calling in an off-site OEM. An in-house resource can be on site in less than 1 hour, compared with the typical 48-hour response time from an OEM. A faster response increases equipment uptime, which in turn increases scientist productivity. In-house teams typically have a 30% success rate of making a repair without recourse to an OEM. Of course, the cost saving must be weighed against the cost of employing the team and maintaining its technical expertise. The challenge of this model is to ensure in-house teams are sufficiently trained so that parts consumption is contained and OEMs are only used as a last resort. Otherwise, the company pays twice for the same maintenance. In fact, many companies no longer view the skills required to effectively deliver equipment maintenance as a core activity and therefore have abandoned this model.  

Maintenance models based on asset management are becoming increasingly popular in the pharmaceutical industry. In this model, a pharmaceutical company has one contract with a provider that takes full responsibility for managing the maintenance process and all the OEMs that provide the service. Cost savings result from cancelling OEM contracts and managing service on a call-out time-and-materials basis, although some complex equipment or scientist-defined equipment is still backed by an OEM contract. The provider, through a team of administrators, scrutinizes OEM invoices and service-level agreements to ensure work performed matches that invoiced and that no unnecessary work is performed. The provider records maintenance activities and costs incurred in their own system or in a company-wide asset-management system that manages all site assets (not just laboratory equipment). This process allows them to generate reports that detail, for example, current asset value, asset performance, asset location, and asset cost of ownership, thus providing their clients with a greater understanding of maintenance spending and equipment lifecycles. 

Asset management providers often use financial and statistical models originally developed by actuaries working in the pension, life insurance, and medical insurance industries to calculate risk. These models calculate the spread of risk for all on-site equipment, which is then factored into their price proposals. OEMs use these basic techniques to calculate the price of service contracts. The scale here, however, is much larger; therefore, the opportunity for risk management and mitigation is much greater.  

A wide range of different business models can support the asset management model. For example, a fixed price is quoted for all services, and risk is transferred to the asset management provider. The advantage in this case is that stakeholders realize their savings up front. The downside is that they are still paying for the provider to assume the risk. Another example is a variable price proposal based on labor and parts used, with the provider taking a management charge and a performance bonus based on achieving agreed cost-savings targets. The disadvantage in this case is that cost savings are only realized with time; however, risk is transferred to the company, which means costs savings will likely be greater over time, especially when the provider has an incentive to reduce costs.  

The asset management model relies on an OEM to carry out preventive and repair maintenance, which can make the model transparent to scientists if managed correctly. Nonetheless, companies should be aware that providers working in a fixed-price contract or under a cost saving–based incentive may have to reduce service quality to reach their targets. This task is often achieved by limiting the frequency of call-outs or the situations in which call-outs are allowed or by implementing additional approval steps to authorize the use of certain spare parts, which may compromise service quality. Many stakeholders have witnessed a decrease in quality from other company outsourcing initiatives and may view the lab equipment initiative with suspicion. Therefore, great care must be taken when defining the service level agreement. To ensure all asset management data are recorded, some providers route all calls for assistance through their own call center and then call in the OEM on the scientist's behalf. This process must be carefully planned to prevent delays of getting an engineer on-site or a hotline support call returned. In addition, many OEMs provide priority response to contract customers over call-out time-and-materials customers, so service response times may get longer.  

By adopting this model, companies can expect to save 15–20% of their maintenance spending compared with full-price OEM contracts and soft-cost savings in terms of reduced administration expense. Moreover, they can expect to gain a much better understanding of the location, condition, and cost of ownership of their assets.  

Typically, more than 80% of a pharmaceutical R&D and manufacturing company's maintenance expense can be attributed to five or six key equipment technology groups. It is in this dynamic that the on-site engineer model delivers the greatest cost savings compared with standard OEM contracts.  

In this model, engineers are deployed permanently on-site to provide preventive and repair maintenance for all equipment from one or more key technology groups. For example, a site containing 5000 pieces of equipment may have 500 complete HPLC systems, so HPLC is a key technology group. To calculate the number of engineers needed to carry out maintenance, the number of hours required to deliver the specified service level is divided by the utilization efficiency of a single engineer. For example, if the system predicts the hours required as 10,000 and the utilization is 1430 hours, then the number of engineers required is seven. The service provider's knowledge system shows line item information of the labor hours and parts usage from historical data gained from other sites to assist with this calculation. Companies usually pay a provider a fixed price for the labor, with spare parts and consumables given at either a fixed price or as used, within an agreed upon margin. This approach depends on whether the company wishes to assume or transfer financial risk.  

The financial make up of a typical OEM service contract comprises parts, labor, travel (typically 20%), and profit. Travel is not incurred with an on-site model, therefore this expense is immediately a cost saving. The provider, however, will have ensured the on-site team is fully utilized to contain cost. In practice, a provider can help by smoothing out preventive maintenance peaks and troughs and by providing value-added labor services that would otherwise be charged for, including equipment moves, salvages, and software and firmware updates, as part of the contract. Dedicated on-site teams do not have the same cost-overhead burden as field-based teams, and this may lead to lower costs. Spare parts for supported equipment are kept on-site, which drives first-time fix rates from approximately more than 70% to greater than 90%, thereby reducing revisit costs. 

Overall, this model should produce a 20–25% hard-cost savings compared with full-price OEM contracts as well as soft-cost savings. On-site engineers provide maintenance and administration for all equipment of a specified technology regardless of vendor. Therefore, there are opportunities to standardize maintenance and qualification protocols across the technology, which minimizes the cost of compliance. Having engineers permanently on-site means breakdown response can decrease from more than 48 hours (typical OEM response time) to less than 1 hour, thereby reducing the amount of backup equipment required and freeing scientists to conduct analysis rather than repair equipment.  

To deliver effective on-site multivendor maintenance requires in-depth technical backup, recruitment, training, parts sourcing, and information technology systems. Therefore, it is likely the most capable providers will be global equipment providers who see a business opportunity in maintaining equipment manufactured by their industry peers and competitors. The information technology system used will need to record every maintenance event and cost transaction to match the capabilities of the dedicated asset management model. The provider also will need the systems and processes to manage the complete maintenance process at smaller, less well-resourced manufacturing sites of 500–1000 items of equipment and be able to dovetail into in-house resources, systems, and processes at larger sites of at least 5000 items, where in-house maintenance management or maintenance delivery groups provide support to scientists. 

Will scientists believe a multivendor on-site engineer model can deliver higher quality service than their OEM? Not initially. They will have many questions relating to engineer training, competence, parts availability, and software support. Therefore, it is vital to engage laboratory personnel early in the evaluation process so that their concerns can be addressed by means of the proof statements available from those companies already successfully implementing this model. Often companies implement the on-site model on a small scale at first and then use this success to win over more skeptical stakeholders.  

Each of the models previously described offers cost and service level benefits. One current industry trend sees the asset management, frontline, and on-site models merging into a single combined triage model (see Figure 2). The model can work independently of in-house maintenance groups or in conjunction with in-house maintenance groups as required. This model consolidates all laboratory equipment maintenance under one overall provider with one contract and one invoice point. 

Figure 2: Laboratory equipment maintenance triage. 

An on-site engineer team directly maintains the most prevalent, mission-critical equipment to provide the highest service level and the biggest cost savings. Less prevalent equipment is maintained by managing the OEM on a call-out time-and-materials basis or by procuring a contract from the OEM. The exact split between direct maintenance and OEM management is derived by understanding the needs and concerns of scientists and balancing those needs against the speed with which the company wishes to make cost savings. In some cases, the on-site team may be initially restricted to one or two technologies or to a restricted number of cost centers to prove the viability of the model. Maintenance events and transactions for all equipment are recorded in the same information technology management system, providing comprehensive asset management capabilities and service-quality performance monitoring regardless of whether the equipment is maintained by an on-site engineer or external OEM.  

Irrespective of the initial triage, equipment can be migrated from the OEM to direct on-site maintenance over time, as scientists become comfortable with the performance of the on-site team. Equipment usually transitions to on-site engineer maintenance by means of the frontline model, which gives the on-site team the opportunity to hone their skills before taking on full maintenance responsibility.  

Cost savings realized with the triage model will be a combination of those described with asset management (15–20%) and on-site engineer (20–25%), depending on how equipment is split between the two models. Service quality for equipment maintained by the on-site team will be the highest, as described previously. Transition to the more efficient on-site model over time releases further costs savings (typically 5–7%) and improves service quality for a greater percentage of equipment, protecting the maintenance solution from demands for further cost savings in subsequent years. 

Cost reduction is a driving force in the pharmaceutical industry, but companies should not forget the critical role maintenance plays in generating high-quality results that get their products to market faster. Reducing quality to achieve savings will increase costs elsewhere. Fortunately, new maintenance models focused on efficiency improvements can deliver both cost savings and enhanced service quality. 			

 is the sales and marketing director at PerkinElmer LAS, Laboratory Services SBE, Chalfont Road, Seer Green, UK HP9 2FX, tel. 144 1494 679183, 

New maintenance models focused on efficiency improvements can deliver cost savings and enhanced service quality.

Considerations for Outsourcing Laboratory Equipment Maintenance

2005 has been a good year for the contract services industry, and 2006 promises to be nearly as successful, according to the 2005 PharmSource–

 outsourcing survey. But as pharmaceutical outsourcing activity grows, companies are looking for more sophisticated ways to manage and control their contract services expenditures.

Nearly 50% of the 193 pharmaceutical company survey respondents expect that their 2005 outsourcing spending will increase by 10% or more, compared with 2004 expenditures. Sixteen percent of respondents anticipate their spending will increase by 20% or more.

	The expected growth in spending is especially high among small pharmaceutical and biopharmaceutical companies. Overall, 56% of respondents from those companies expect to see their spending grow by 10% or more, while less than 45% of respondents from other segments anticipate that kind of increase. Expectations of spending increases are largely the same for buyers of development services and of commercial manufacturing services.

	The increased spending by pharmaceutical companies is translating into even faster revenue growth for contract services providers. Overall, 62% of contractor respondents expect their revenues to grow by 10% or more in 2005, including nearly 70% of commercial manufacturing contractors. Contractors cite small pharmaceutical companies as their fastest-growing segment, especially for development services, but contract manufacturers are getting a bigger boost from Big Pharma.

Respondents from pharmaceutical companies indicate that the 2006 spending growth should rival that of 2005, with 48% expecting increases of 10% or more next year. Certainly, there seems to be plenty of opportunity for pharmaceutical companies to expand their use of contract services: Only small companies are outsourcing a substantial portion of their development and manufacturing activity. Among Big Pharma and Mid-size Pharma companies, which account for nearly 80% of industry R&D expenditures, only a few companies are outsourcing more than 50% of their chemistry and manufacturing (CMC) activities. 

This year's survey again underscores the importance of contractors achieving "preferred-provider" status with major clients. Among pharmaceutical company respondents, 45% report that half or more of their 2005 services spending will go to formally designated preferred providers, and only 18% say preferred providers receive less than 10% of their business. Overall, 33% of contractor respondents report that half or more of their revenues will come from formal preferred-provider relationships.

Interestingly, the responses indicate that the preferred-provider trend may be leveling off. In fact, the responses for expected preferred-provider share for 2007 are largely the same as for 2005.

	Other procurement innovations also are working their way into sourcing practices. Sixty percent of pharmaceutical company respondents report using electronic procurement technology for sending and processing at least some of their requests for proposal (RFPs), including 90% of Big Pharma respondents. Among contractor respondents, 85% respond to at least some RFPs electronically, although electronic procurement represents less than a quarter of RFP activity at most contractors.

	Online reverse auctions, in which vendors bid against each other in real time, are used in less than two-thirds of cases, and are especially uncommon in Small Pharma companies. Still, 46% of Big Pharma respondents say that at least some bids are awarded using reverse auctions. Less than 50% of contractor respondents have participated in reverse auctions.

	The growing role of procurement has been an often talked-about trend in sourcing, and this year's survey partially validates that trend. Only 15% of pharmaceutical company respondents say that procurement groups control the sourcing process today, but another 13% say procurement groups are likely to control the process in the future. Nearly half of respondents characterize the procurement group as influential in the sourcing process but not controlling. As one might expect, the effect of procurement groups is greater in large pharmaceutical companies and cost-sensitive generic pharmaceutical companies. But, the effect is less in small companies that have smaller bureaucracies.

Perhaps the survey's most surprising result is the low expectation for offshore outsourcing. Overall, 53% of respondents indicate they have no current interest in outsourcing to India or China. The low level of interest by small companies is to be expected (63% of small company respondents say they have no current interest in sourcing from India or China) because they lack the scale to find and supervise offshore vendors. Nonetheless, the lack of interest was high even among Big Pharma respondents (54%). The lack of interest is greater among development services buyers (60%) than it is among manufacturing services buyers (45%).

Still, our survey shows that offshore sourcing is making in-roads into the pharmaceutical industry. Overall, 16% of respondents indicate they are actively sourcing from India or China, and 27% say they are looking for vendors or are developing a strategy for sourcing in those countries. Not surprisingly, generic pharmaceutical companies seem to be the most active offshore sourcers: 32% of respondents from generic pharmaceutical companies report that they are actively sourcing from India or China.

	Clearly, respondents expect offshore sourcing to proceed slowly: only 11% expect that India or China will account for a quarter or more of their spending in five years. Nonetheless, respondents indicate that as they move in that direction, they will be quite willing to work with Indian and Chinese suppliers directly, not just with US companies that have offshore operations.

Most service providers fully expect to face Asian competition. Among contractor respondents, 21% report they are now feeling competitive pressures from India or China, and 42% expect to face that competition within the next 5 years. Providers of development services are much less concerned than manufacturing services providers: 42% of development services respondents view India or China competition as "not an issue," but only 21% of manufacturing respondents take that view.

	Among service providers concerned about Asian competition, most respondents expect to take action by emphasizing less price-sensitive services (57%). Others are considering establishing facilities or joint ventures in Asian countries.

 outsourcing survey portrays a pharmaceutical outsourcing industry that is firing on all cylinders. Thanks to the rejuvenation of new product pipelines, pharmaceutical companies' need for services is expanding rapidly, and contract service providers are reaping the benefits.

	The survey indicates that pharmaceutical companies are accompanying their increased expenditures with heightened attention to receiving the most value for their dollars spent. The preferred-provider concept is now well-established, and companies are turning to more-sophisticated technologies and strategies to manage their spending. In fact, respondents probably have understated the growing role of information technology and the effect of procurement professionals on the sourcing process: Those developments are mandated as much or more by efforts to comply with the Sarbanes-Oxley Act as they are by the quest for sourcing efficiencies.

Similarly, it is likely that respondents have underestimated how the emergence of vendors in India and China will affect drug development. Development and manufacturing costs are under pressure throughout the industry: Big Pharma must cut costs to preserve margins while increasing the flow of new products, and Small Pharma is under pressure from venture capitalists and public equity investors unwilling to commit the growing sums required for drug development. Pharmaceutical companies will find business models that allow them to access lower-cost development and manufacturing resources offshore.

During the past five years, the PharmSource–

 outsourcing survey has been a bellwether of trends in the pharmaceutical contract services. On the basis of this year's edition, contractors can look forward to another strong year but increasingly demanding customers.

 is the president of PharmSource Information Services, Inc., and the publisher of 

, 9868 Main Street, Fairfax, VA 22031, tel. 703.383.4903, fax 703.383.4905, 

2005 has been a good year for the contract services industry, and 2006 promises to be nearly as successful, according to the 2005 PharmSource–Pharmaceutical Technology outsourcing survey. But as pharmaceutical outsourcing activity grows, companies are looking for more sophisticated ways to manage and control their contract services expenditures.

Good Times and Expanding Horizons in Pharmaceutical Manufacturing

Pharmaceutical companies are under constant pressure to innovate, comply with a myriad of regulations, and meet the demands of quality standards—all while delivering as much profitability as possible. Challenges are escalating. Investors are accustomed to double-digit growth, which is a goal pharmaceutical companies will be hard-pressed to achieve as patents expire, blockbuster launches decline, and large customers, especially governments, step-up pricing pressures on the industry.  			

At the same time, compliance with stricter regulatory requirements is lengthening the time to launch a drug into the marketplace. The average number of clinical trials per new drug application has more than doubled in the past 30 years, and the average number of patients participating in clinical trials has increased two and half times during the same period. Research and development (R&D) costs also are rising. In fact, the cost of bringing a new drug to market has more than doubled in the past decade and is approaching US$1 billion (1). The pharmaceutical industry's general and administrative costs are high as well—at 28% of revenue, based on A.T. Kearney's analysis of the top 10 pharmaceutical companies' 10K submissions. Pharmaceutical general and administrative expenses, as a percentage of revenue, were two-thirds higher when compared with a broad mix of companies in highly technical, process industries, consumer goods, and retail mix. There's no quick fix, but pharmaceutical companies must control costs and increase productivity. 

It's inevitable that global outsourcing will become a part of the answer as it has in other industries (see Figure 1). Financial institutions, led by GE, Citibank, Amex, and HSBC, are guiding the way. In 1999, Citibank formed e-Serve International Ltd., a business processing company based in India. The company's offerings include transaction, customer care, and technology services. Four years after being established, e-Serve performs more than 100 million transactions per year.  

 Figure 1: In global outsourcing, pharmaceutical companies are following other industries.

Other industries such as automotive (in Stage 4) and consumer products (in Stage 3) have shown substantial progress in moving along the lifecycle curve. Procter & Gamble, for example, is consolidating its administrative functions into three business service centers in Costa Rica, the United Kingdom, and the Philippines. This initiative is part of Procter & Gamble's Organization 2005 program. These three sites will provide employee services, purchasing, information technology, finance and accounting, and customer logistics. As a combination of traditional outsourcing (

 using an external firm rather than internal resources to provide a service) and offshoring (

 seeking services outside the country), global outsourcing represents an opportunity to find the most efficient and effective means of bringing drugs to market. Traditional outsourcing is not new to the pharmaceutical industry. Many companies already look outside their own walls for services in information technology, payroll, manufacturing, clinical trials, and clinical trial data management.  

Until recently, however, pharmaceutical companies have been reluctant to outsource beyond the United States and Europe, in part because of concerns about intellectual property protection, demands for regulatory compliance, worries about political stability and business continuity. Given the pressures on the industry, however, the potential benefits of global outsourcing are difficult to ignore. Simply put, the industry cannot maintain the 

 A.T. Kearney analysis indicates that if growth and pricing pressures maintain their current trajectory, by 2008 the US pharmaceutical industry will face a US$48-billion gap between investor expectations and estimated revenue (see sidebar, "Running the numbers"). 

Because global outsourcing can help pharmaceutical companies address cost pressures and the need for increased productivity, while also leveraging capacity and capabilities, it is inevitable that the global outsourcing trend will grow. The opportunities for pharmaceutical companies are significant: accelerated time to market and greater profitability. On the other hand, companies that wait to see how others in the industry fare may be forced into playing catch-up. 

Why push the outsourcing envelope? Although cost-cutting often is the first reason cited—and certainly a key concern—global outsourcing can yield various benefits. First, time is money, and outsourcing can save time. If companies can shorten today's long lead times for drug development by handing off tasks to third parties that can perform them more quickly because of fewer constraints or additional resources, they will find themselves in an advantageous position. For example, companies conducting clinical trials in India and China can take advantage of a large population base and a diverse pool of currently untreated patients, which are two factors that can accelerate clinical trials. 

Global and domestic outsourcing can play a key role in shortening the drug development process by enabling pharmaceutical companies to hand off selected tasks, thereby freeing up resources to devote more time to additional strategic activities. Global outsourcing also can enhance the quality of and access to talent. Many firms are tapping into India's pool of scientists, who have solid capabilities and strong expertise. AstraZeneca, for example, recently built a research facility in Bangalore that focuses on tuberculosis. The company plans to invest another US$30 million during the next five years for laboratory equipment and operations costs. "Our investment here in Bangalore is definitely not based on cost, because the cost of doing research is mainly a small part of the total global research and development efforts," Sir Tom McKillop, AstraZeneca's chief executive, told India-based pharma portal 

. "The only reason for opting for India is the quality of scientists." 

Of course, the savings are compelling. The costs of direct and indirect personnel, depreciation costs, and material are roughly 40% lower in countries such as China and India (see Figure 2). Our analysis assumes that indirect staff includes both local offshore and US corporate oversight; local offshore oversight helps lower costs. 			

One example is clinical trial costs. ClinTec International, a privately owned full-service contract research organization with headquarters in Germany, for example, reports that recruiting 200 patients in the United States for a one-year study would take approximately 3–6 months. ClinTec claims this time can be cut in half by recruiting patients in India. The time required for data analysis also can be significantly shorter, from 6–10 weeks in India 

 nearly four months in the United States. According to the company, the estimated cost savings may reach 50–60% compared with the costs of conducting the trials in the United States. Lower costs are a result of lower wages of key personnel involved in conducting clinical trials and data monitoring (

 clinical research assistants, project management, clinical data management, and biostatisticians) and lower investigator grants (

payments to physicians for their expertise and time in monitoring clinical-trial patients).  

In addition to these savings, companies can avoid significant fixed costs and capital outlays. For instance, by partnering with a local pharmaceutical company for selected drug discovery efforts, companies can minimize capital investment associated with setting up their own R&D facilities in offshore locations. For labor-intensive activities, the low costs of labor and infrastructure abroad are more than enough to offset such added expenses as additional travel and higher telecommunications costs.  

Despite the opportunities, the news isn't all good. When A.T. Kearney and CFO Research Services conducted interviews with executives and professors from 13 pharmaceutical and biotechnology companies and academic institutions in Q2–Q3 2004, those surveyed expressed many misgivings about turning over complex functions to third parties overseas (2). "Pharmaceutical companies are notoriously conservative on everything they do. They do not like to give up control of anything," notes Andrew Bonfield, chief financial officer of Bristol-Myers Squibb.  

Given pharmaceutical company executives' low tolerance for error, this lack of control, even when ceded to qualified personnel, is understandable. Mistakes can lead to regulatory delays, mask a drug's true effects, or potentially even harm patients, thereby opening up pharmaceutical companies to significant liability. Russ Bantham, general counsel and senior vice-president of the Pharmaceutical Research and Manufacturers of America, summarized the importance of data integrity in a comment that is applicable beyond clinical trials: "Misreading, losing, or misentering one piece of data could result in a multibillion-dollar lawsuit." 

Intellectual property protection is very high on the list of worries. "Clearly if you go offshore, the ability to protect your proprietary information such as patents is subject to much higher risk," says Maurice Greaver, president of Greaver & Associates, a management consulting firm. Compliance is another big concern. Vendors in emerging markets such as India and Asia have various levels of experience in satisfying rigorous and constantly changing regulations. Add to this the difficulty of managing relationships between pharmaceutical companies and offshore companies from another corner of the world as well as the potential for delays, and the challenges begin to look nearly overwhelming.  

Many of the most troublesome issues are beginning to be addressed. New legislation on intellectual property protection in India, for example, brings the country's intellectual property laws in line with those of the international community in accordance with the World Trade Organization. How these new laws will be enforced is under debate, and it will certainly take some time for them to become standard practice.  

In China, for example, the intellectual property situation is subject to interpretation. Pfizer's patent problem with Viagra is one high-profile example. The Chinese government revoked the patent in 2004, claiming the company had not adequately shown that Viagra was worthy of patent protection (Pfizer has appealed the ruling). The Chinese government also is enacting laws and regulations to curb the theft of intellectual property, however. During the past two years, Chinese courts handled more than 1700 intellectual property violations, and the government established a work group to address the issue. With the enforcement of intellectual laws a key issue, these moves don't immediately resolve the intellectual property problems, but they are a step in the right direction. 

Of course, many risks remain, and it is imperative that pharmaceutical companies develop a detailed plan for avoiding or actively managing them. 

Where to explore global outsourcing options may be a big question companies face. The territory isn't as uncharted as it may seem. Financial institutions, automotive companies, and consumer products companies are further along the offshoring curve. Although the needs of each industry are unique, pharmaceutical companies can learn from the experiences of other firms.  

For instance, one-fifth of Fortune 500 companies already have R&D facilities in India. GE has its second-largest R&D facility in Bangalore. With an investment of US$60 million and 1600 researchers, GE plans to add another 800 researchers. In just the past three years, the center has filed for 95 patents.  

India is getting the lion's share of attention as an offshore destination and is at the center of the pharmaceutical offshoring activity in emerging markets (see Figure 3). China is beginning to gain a foothold in the pharmaceutical space as well. A cross-industry A.T. Kearney study on foreign direct investment reinforced the attractiveness of China and India at a macro level. These countries took the top two spots in positive investor outlook, likely first-time investments, and most preferred offshore investment locations for business processing functions and information technology services. 

Figure 3: Cost structure differential between EuropeanâUS manufacturers and manufacturers in India and China. Key to numerical superscripts: (1) includes cost of goods sold without cost for raw material; (2) assessment of direct personnel cost reduction from approximately 60 to 6 total salary dollars (tsd)/FTE, indirect personnel cost reduction factor of 2; (3) assessment of direct personnel cost reduction from approximately 6 to 3 tsd/FTE (source: A.T. Kearney).			

The study, which included a survey of CEOs, CFOs, and other senior executives of the world's largest 1000 firms about their opinions of various investment destinations, revealed that investors look to China and India for different strengths (see Figure 4). India offers vast experience in business process outsourcing, and a large, well-educated labor force. Two million proficient English speakers with strong technical and quantitative skills graduate from Indian schools each year. When it comes to the pharmaceutical industry, India has an impressive and ambitious workforce. On the other hand, investors in various industries prefer China for incentives, costs, and infrastructure. Although China is now perceived as ranking behind India in terms of information technology and English-language skills, the country is working to narrow the gap. 			

Leading companies in various industries are increasingly following multinational strategies to ensure business continuity. Conducting businesses on new shores opens a company up to a range of new risks such as natural disasters and political instability. Alternative plans and partners help create a buffer against the unexpected.  

Because of the complexity and risk associated with offshoring, not all companies realize significant advantages. Still, by looking at how other companies manage outsourcing risks and tap into the opportunities, pharmaceutical companies can draw their own roadmap for success. Companies at the forefront of the outsourcing trend succeed by taking a methodical approach to planning and implementing their outsourcing strategy. 

 Organizations typically have good intentions to approach outsourcing in a strategic fashion but end up outsourcing on an 

 basis, according to a recent report from CAPS Research, A.T. Kearney, and Arizona State University (3).  

Best-practice organizations, on the other hand, begin with a big-picture view of the challenges they are wrestling with and the goals they want to achieve. Cost-cutting is an important consideration but also the easiest one for rivals to copy. Companies should consider whether they need to speed up the development process or gain access to innovative technology. 			

Leading companies also look explicitly at each activity to decide whether to send it offshore. If the decision is made to offshore the activity, the companies then determine which geographic markets are best suited to the function (see sidebar, "What to move? It depends" for a comparison of pharma companies' current approaches) Of course, the answers to these questions will evolve over time.  

It is also important that companies assess the most appropriate business model such as one that reflects the organization's risk and return profile. A captive model established and run by the parent organization offers maximum control, process consistency, and intellectual property protection. But at the same time, companies reduce the savings potential, lay out more capital, and take more time to start up operations when compared with outsourcing. Captive models work best for processes that require more control. Selected examples may include functions such as discovery and bioprocess R&D and clinical development. Each company's specific circumstances, however, will determine whether one particular model is more appropriate than another.  

A joint venture model has lower levels of business risk and investment than a captive model. Joint ventures enable companies to retain a great deal of control over processes and to accelerate time to market. Among the drawbacks, though, are the capital investment required, the management and contractual complexities, and the risks of transferring skills to partners. Selected examples of joint ventures could include clinical trials, formulation development, and manufacturing process development. 			

Contract manufacturing and outsourcing offer significant cost savings, maximum speed to market (which accelerates benefits), increased flexibility, and low capital investment. But there are also risks, including less control of processes and output, the risk of public reaction to job loss, and less protection of intellectual property. Business processes such as information technology, accounts receivables and payables, and payroll are examples of areas in which this approach has been successful. In addition, contract manufacturing is increasingly being considered for outsourcing.  

Figure 6: Top pharmaceutical companies R&D and manufacturing offshoring activities and ramp-up plans in India (source: company 10Ks, A.T. Kearney research and analysis).

Regardless of the business model chosen, top global outsourcing companies begin their strategies with a solid fact base rather than a reliance on perceptions. A solid business case should be built, supported by baseline performance metrics, to guide implementation of the outsourcing strategy. 

Top outsourcing companies also involve senior management from departments that will be affected by outsourcing strategies such as those in R&D, engineering, manufacturing, and logistics. They contemplate what-if scenarios to determine how these scenarios could affect resources and results. 

Finally, top companies make better outsourcing decisions when the choices are integrated with a longer-term vision and plan, instead of making decisions as short-term tactical responses. Focusing on the near-term makes it difficult for suppliers to gauge future demand, which in turn can lead to capacity issues in the future.  

 It is always important to apply a rigorous supplier-selection process, especially when evaluating suppliers in emerging markets. By standardizing the process, organizations can save time and incorporate lessons learned from past experiences into future situations.  

Figure 7: FDI Confidence Index 2004, China versus India (source: A.T. Kearney Global Business Policy Council survey).

Pharmaceutical companies must have a complete understanding of their strategic reasons for outsourcing each task and of the benefits they want most to gain. For example, if a company values speed to market more than cost savings, then it should weight its supplier evaluations accordingly.  

One of the most important factors to consider when outsourcing to a company in an emerging market is the candidate's track record. A supplier that has demonstrated its capabilities working for other large pharmaceutical firms and has a sustainable track record on quality and intellectual property protection is likely to be a more attractive candidate. Reference checking is a normal course of business in any outsourcing arrangement, but when dealing with emerging markets, due diligence is critical. 

Leading companies often look for opportunities to bundle services and to strategically partner with a smaller number of suppliers when appropriate. One executive told us, "We are interested in outsourcing to a partner that can perform the entire development through launch." Because such arrangements lead to spending more with each supplier, they help companies negotiate greater cost savings and more favorable contracts.  

 The executives we interviewed believe it is important to structure a contract with pricing that benefits both sides. A win–win deal is better than squeezing maximum concessions from a supplier because it sets the stage for working together constructively. If the contract is priced too low, then there is a danger that the partner will quit or raise prices sharply in the future. 

Key decision makers should be involved in the selection of suppliers. Senior management from departments that will be affected by outsourcing strategies such as those in R&D, engineering, manufacturing, and logistics also should play an active role in developing the outsourcing strategy. It is important to consider a range of perspectives given the potential for significant changes in resources and results. 

Each outsourced activity and each outsourcing strategy has its own goals and potential complications; therefore, the structure of each contract should reflect those differences. In some instances, a company may want process improvements from a supplier, notes Rudy Hirschheim, a professor at Louisiana State University. Offering incentives that reward service providers for such improvements is the best way to make them happen, he says. 

 Turning an activity over to a third party doesn't mean forgetting about it. "Outsourcing does not mean abandoning. You must manage on a daily basis," says David McGirr, chief financial officer of Cubist Pharmaceuticals.  

To receive the full benefits of outsourcing, companies must establish formal roles, procedures, and metrics. Best-practice companies appoint a governance committee to manage the selection and performance of service providers, review and approve the outsourcing strategy, and resolve issues. They create a process for reviewing suppliers on a quarterly basis (or less often for less-strategic relationships). Timelines and frequent communication are important parts of the equation. 

Pharmaceutical companies can evaluate the opportunities of global outsourcing by considering the strategic approaches of other industries and of the pharmaceutical companies already outsourcing outside the United States and Europe.

Outsourcing Beyond the Comfort Zone

The potential for dust explosions during pharmaceutical development and manufacturing is often overlooked. During processing and transporting, bulk powders can form airborne dust clouds and generate a static charge. In addition, the process containment systems designed to protect employees from potent compound exposure can create ideal conditions for high concentrations of airborne dust to collect inside processing vessels and equipment. These combined factors can lead to an increased risk for dust explosions during pharmaceutical processing operations. 			

Under the right circumstances, all materials can be explosive. Similar to hydrocarbon vapors, dust suspended in air can ignite and burn extremely rapidly. If these conditions occur in a confined area such as in processing equipment or in a manufacturing suite, a dust explosion may occur. 

Moreover, dust explosions can release high pressures. Based on our experience, we found that it is common for active pharmaceutical ingredients (APIs) to be capable of releasing pressures in the 8–10 bar range, which is often considerably higher than the processing equipment's pressure rating.  

Protection against dust explosions can be accomplished by preventing the explosion from occurring or by reducing the negative effects if the explosion occurs. This article focuses on a risk assessment approach and implementation strategy for engineering controls to prevent dust explosions in the pharmaceutical manufacturing environment. The scope of this article is limited to materials that can deflagrate. Materials known to detonate require additional control measures beyond the scope of those items discussed here.  

Although the article is intended to be a practical guide to managing the risk of explosive dusts, it is not intended to be relied upon as a definitive risk management program. Pharmaceutical drug developers and manufacturers should create their own risk management programs with assistance from process safety professionals to address the specific explosive dust risks of their respective operations. 

			The first step in evaluating explosive dust hazards is to identify the parameters that can contribute to an explosion or a deflagration.  

A dust explosion is a combustion process (see Figure 1). All components of the fire triangle—oxygen, a fuel, and an ignition source—must be present for a fire or an explosion to occur. If any one part is removed, the risk of explosion is eliminated. It is preferable to remove two sides of the fire triangle to provide a higher safety factor when managing dust explosion risk. 

Figure 1: For a fire to occur, all components (ignition source, oxygen, and fuel) of the fire triangle must be present.			

In the pharmaceutical industry, the fuel frequently is the API and, to a lesser extent, the excipients (

 binders, coatings). Nonetheless, APIs have a wide range of explosivity and sensitivity to an ignition source (

An ignition source must provide sufficient energy to create an explosion. Ignition sources include open flames,  exposure to hot surfaces, high temperatures, friction, mechanical impact (

metal–metal contact), electrical sparks, and electrostatic discharge.  

In the pharmaceutical industry, however, the main ignition source tends to be from an electrostatic discharge, which can be generated by processes such as sieving, milling, pouring, mixing, and pneumatic transport. The grounding and bonding of equipment and tools minimize the risk of ignition. 

For an explosion to occur, an adequate amount of oxygen is required. For most organic materials such as pharmaceutical materials, oxygen concentrations that are less than 8% volume are unlikely to support combustion (1). By maintaining oxygen concentrations in process equipment at 5% or less, one can eliminate the risk of combustion while still allowing a 3% safety factor to account for any leaks in equipment that may allow the oxygen to escape. 

In many cases, the API is the fuel source. APIs have a wide range of explosivity or sensitivity to an ignition source. Explosive characteristics vary among materials and can depend on the properties of the material, particle size, impurities, and moisture content among other factors.  

lactose and starch) have a low explosive potential, but there are some exceptions. For example, magnesium stearate has a low MIE (minimum ignition energy) at 1–3 mJ. When considering the fire triangle principles, the fuel or the API is always present and can rarely be eliminated.  

Fuel must be present in a sufficient quantity and be airborne to be explosive in a dust cloud. Explosive dust testing of the fuel is useful for determining how sensitive a compound is to an ignition source or electrostatic discharge and the explosion severity. 

				Although explosive dusts are hazardous, they can be processed safely. Nonetheless, safe processing requires a basic knowledge of the materials being handled and a hazard evaluation of the process conditions and equipment. This section describes tests and guidelines to help evaluate a hazard.  

Using a risk assessment model, the following two core tests should be conducted on APIs and excipients that may have explosive properties: 					

explosion severity (Kst) (bar m/s) (see sidebar, "Terms and definitions).

An approximately 500-g sample is required to complete MIE and Kst testing. One should conduct testing using a recognized standard such as the ASTM 

E2019-99, Standard Test Method for Minimum Ignition Energy of a Dust Cloud in Air 

E1226-00, Standard Test Method for Pressure and Rate of Pressure Rise for Combustible Dusts

Particle size, moisture content, and humidity all can affect sample analysis. The sample should be tested in an environment that is as close to the processing conditions as possible (

 samples from the same supplier and with the same particle size). 

Testing for minimum ignition temperature (MIT), minimum explosive concentration (MEC), and limiting oxygen concentration (LOC) may not be required based on process conditions and containment considerations. For example, the MIT typically is much higher than processing temperatures, even in fluid-bed dryers or heated jacketed vessels. In these cases, temperature is unlikely to be an ignition source. 

It may be prudent to sample and test the formulation's blend 

as well as the active component, depending on the process train, the percentage active component in the blend, and the batch size. For example, if the material goes through a milling step, a sample of the milled material should be sent for analysis. If the API has a low MIE, then excipients with higher MIEs may act as a secondary fuel source, thereby contributing to the overall explosion severity. 

Another challenge for the pharmaceutical industry is that 500 g of API may not be available for testing. In this case, several conservative assumptions must be made until test data can be collected (see Table I). 

The evaluation of process equipment hazards should include dust capture, extraction, dust collection, and cleaning of contaminated equipment. In addition to explosive-dust testing, several assumptions and pieces of information are required to complete the hazard evaluation. 

 The MEC of an active component is typically in the 30–100-g/m

 concentration range. This concentration can be achieved inside a process vessel or an intermediate bulk container, but it is unlikely to be achieved in workroom air where there is good containment.

The batch size is an important parameter because it relates to the MEC and can help researchers determine the feasibility of achieving the MEC during processing. For a batch size of less than 10 kg, for example, it would be difficult to achieve the MEC during a dispensing operation, depending on the size of the process container. 

The drug load or %API is an important value when evaluating the process train and hazard level of the unit operations and the quantity of available fuel. In general, blends with a high %API (

75% or more) will be more hazardous than blends with a low %API (

 1%). Exceptions may be made when the excipients are considered to be explosive.

 Distributions with median particle sizes less than 100 μm may be more sensitive to energy and ignition sources (4, 5). For an explosion to occur, the material must be in a dust form (median particle size <400 μm) (4, 5) and be dispersed in the air in a higher concentration than the MEC. This consideration is important when evaluating the hazards of a process that causes size reduction such as milling.

Various systems and measures can be used to safely handle and process explosive pharmaceutical compounds in a range of manufacturing procedures.

Pharmaceutical Technology-08-01-2005

Outsourcing Reformulation and Lifecycle Management: The Expanding role of CROs

Considerations for Outsourcing Laboratory Equipment Maintenance

Good Times and Expanding Horizons in Pharmaceutical Manufacturing

Outsourcing Beyond the Comfort Zone

Risk Management of the Explosive Dusts in the Pharmaceutical Industry: A Practical Approach

Reducing Time to Market with A Science-Based Product Management Strategy

The Preferred Solution