In late July 2008, Sen. Sherrod Brown (D-OH) issued a letter to Merck & Co. (Whitehouse Station, NJ) to request additional information on the company’s outsourcing practices. Brown is a member of the Senate Committee on Health, Education, Labor and Pensions. The committee held hearings in April 2008 on FDA's inspection process as part of investigation of contaminated heparin supplies from China. The hearings included testimony from Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research and from Pfizer ( New York). 

 In his letter dated June 24, 2008 to Merck, Brown requested the following information: 

 • Specific mechanisms that the company uses to track the chain of custody for each ingredient in its drugs and biologics

 • Procedures the company uses to ensure that every facility in the chain operates in a manner consistent with Merck’s quality and safety standards 

 • The percentage of external sourcing that the company contracts out to US-based companies 

 • The top 10 countries to which Merck outsources by the percentage of business outsourced 

 • A rough percentage breakout of the types of outsourcing for which Merck has contracted in each country 

 • The estimated average and median wages paid at companies producing active pharmaceutical ingredients for Merck in each country, compared with the average and median wages that would be paid had Merck manufactured these functions internally. 

 Brown also requested an analysis of the top three reasons that typically prompts the company’s decision to outsource to China, India, and other developing nations. He also requested that the company assess the impact of its outsourcing activities on the price of drugs it sells in the United States. 

 This is the second time Brown has requested information on the outsourcing activities of large pharmaceutical companies. Brown also directed a letter to Gerald Migliaccio, vice-president of quality at Pfizer, who testified at the April Senate HELP Committee hearing that Pfizer outsources 17% of its active ingredients and drug-product manufacturing. Brown requested additional information on the following: 

 • The amount of annual cost-savings by Pfizer for outsourcing 

 • A list of instances in which Pfizer has outsourced to a “firm in a country without drug-safety standards comparable to those of the US in whole or part because that firm has the technical capacity nowhere available in the US.” 

 In his letter to Pfizer, Brown said that pharmaceutical outsourcing raises several important issues. He cited “the increased risk associated with drug components manufactured in countries with notoriously weak and unenforced drug-safety standards…; the negative impact of pharmaceutical outsourcing on US jobs and US communities…; [and] the fact that despite paying a steep price for pharmaceutical outsourcing, our nation still pays the highest prices in the world for prescription drugs.” 

 Also in June, Brown requested additional information from FDA on on the volume of outsourced drug ingredients, the added cost of regulating outsourced ingredients, and the bearer of these costs. Specifically, Brown asked FDA to supply estimates of the volume of pharmaceutical ingredients outsourced by US drug manufacturers to China and other countries “with weaker drug-safety regimens than those of the US.” He also requested estimates for “the incremental annual cost of protecting the public from tainted pharmaceutical ingredients produced in countries without drug-safety regimes comparable to those in the US.” Brown further asked that Woodcock offer her opinion on the best means of holding drug companies accountable when they outsource. 

 In addition to seeking more information on outsourcing, Congress is  evaluating FDA’s system of inspecting foreign drug-manufacturing facilities. In April 2008, the US House of Representatives Energy and Commerce Committee issued a discussion draft on the Food and Drug Administration Globalization Act of 2008 to address the funding and authority of FDA in regulating the safety of the country’s drug supply. The discussion draft was designed to stimulate discussion in Congressional hearings and serve as basis for drafting legislation. The discussion draft builds on four other bills (H.R. 3610, H.R. 3624, H.R. 3115, and H.R. 3484) and investigations conducted by the House Committee on Energy and Commerce’s Subcommittee on Oversight and Investigations, a report from FDA Science Board’s Subcommittee on Science and Technology, the Administration’s Food Protection Plan and Import Plan, and input from other stakeholders. The proposed measures include the following: 

 • Creating an up-to-date registry of all drug and device facilities operating within the US or exporting products to the US. These facilities would be required to register annually with FDA. Registration would require payment of an annual fee to cover the cost of FDA inspections. 

 • Requiring FDA to inspect foreign and domestic drug and device facilities every two years. Manufacturers would be prohibited from introducing a drug, drug ingredient, or device into interstate commerce until an initial facility inspection has occurred. Registration would be suspended for refusing, impeding, or delaying an inspection. 

 • Restricting entry of imports lacking certain compliance documentation. After a phase-in period, importers of drugs for commercial use who lack compliance documentation relating to identity, safety, and purity would be required to ship products only through ports of entry with federal testing laboratories. 

 • Requiring manufacturers of drugs and drug ingredients to test for contaminants 

 • Allowing FDA to issue fines for violations of drug-safety requirements, extending FDA’s authority to recall drugs and detain unsafe drugs discovered during inspections, and allowing FDA to destroy counterfeit or adulterated commercial imports 

 • Requiring drug labels to identify the source of the API and its place of manufacture and to require device labels to indicate the country of manufacture 

 • Creating a dedicated foreign inspectorate within FDA 

 • Prohibiting FDA from closing or consolidating any of the 13 field laboratories or 20 district offices that were operational as of Jan. 1, 2007 (1).

 1. US House of Representatives Energy and Commerce Committee,Discussion Draft of the Food and Drug Administration Globalization Act of 2008 (Washington, DC, Apr. 2008), accessed July 14, 2008. 

Articles

APIs

The pharmaceutical industry?s outsourcing practices receive increased attention as Congress evaluates the role of outsourcing in drug-safety issues.

Outsourcing Practices Scrutinized by Congress

The United States Pharmacopeia (USP) adopted residual solvent requirements last month. The new standard requires companies to retrospectively assess the level of solvents present in their active pharmaceutical ingredients (APIs), excipients, and final dosage forms. 

 General Chapter <467> Residual Solvents applies to all substances and products that are subject to relevant control of solvents likely to be present in a substance or produt (1).  

Several methods for determining residual solvents included in the chapter are, by USP's own admission, screening procedures "...useful to identify and quantify residual solvents when information regarding which solvents are likely to be present in the material is not available" (1). Even though these methods may be appropriate for some materials and products, they will not be suitable for all monographed items. The need to attain compliance to this standard presents some companies with the significant challenge of evaluating multiple products, excipients, and APIs while trying to maintain ongoing activities with stagnant resources.  

As a result, many companies have sought assistance from contract laboratories in developing and validating methodology to evaluate their materials and achieve  compliance under the new standard. In these situations (i.e., where every material and dosage form needs to be evaluated for compliance in a short period of time), it is important for companies to understand what information their contract laboratory requires so a satisfactory outcome for both parties can be realized.  

 "The best thing anyone can do in working with a contract lab [in these situations] is to have a general understanding of what they want accomplished and when they want the work completed by," says John Daniels, vice-president and general manager for Celsis Analytical Services, a contract laboratory based in Chicacgo. "They should review their process and understand its impact to the work they are having us perform." 

Similar thoughts are expressed by Assad Kazeminy, president and CEO of Irvine Analytical Laboratories (Irvine, CA), who says he likes to see as much information as possible from the chemistry, manufacturing, and controls and the drug-master-file filings. This data helps the laboratory "to fully understand the physical and chemical properties of the material we are researching," he says. 

 web seminar on residual solvents, Harry Ingersol, director of chemical services for Celsis, elaborated on some key information regarding what a contract laboratory needs to know to effectively and expeditiously evaluate material for residual-solvent compliance. 

As a general rule, says Ingersol, the information needed by a contract laboratory can be divided into two main categories: sample information and method-verification information (2). At a minimum, sample information should include the material name, chemical identity, and solubility profile. The requester also should indicate whether the material is an ingredient in the final dosage form or is the final dosage form itself. The solubility profile should specify the diluent in which the material is readily dissolved (e.g., water, dimethylformamide, dimethylsulfoxide). 

According to Kazeminy, "Providing a material-safety data sheet along with the sample would greatly aid the contract laboratory. It would inform us of any special handling requirements as well as indicate the proper storage for the material in question." Information regarding test preparation (e.g., pulverize, sonicate) is helpful if the material is not completely soluble and is not provided in a powder or granular form as noted in the text of Chapter <467>, which states, "...the substance under test needs to be dissolved to release the residual solvent" and "...product may first need to be pulverized into a fine powder..." (1). 

In the case of residual solvents, the customer should also disclose what residual solvents and/or impurities they know to be present based on their synthesis route, manufacturing process, and developmental work. By being aware of the impurity profile of the material, the contract laboratory will be in a better position to determine potential interference with methodology.   

Disclosing information regarding the sample is only part of the information needed by the contract laboratory for developing and validating suitable methods. Information regarding current methods used to evaluate the identity, strength, quality, and purity of the material or dosage form can assist the laboratory in developing appropriate methodology for detecting the presence of residual solvents.  

Customers should disclose global internal requirements associated with method development. Specific company validation parameters help the contract laboratory develop methods that meet system suitability. At a minimum, information regarding the specificity, resolution, sensitivity, signal-to-noise ratios, and whether multiple injections of spiked samples are desired for quantitative-test development.  

According to Ingersol, "Other requirements may be necessary for more complex situations such as when the sample is not completely soluble or the solvent is not one of the Class 1, Class 2 Mix A, or Class 2 Mix B standards" (3).  Specific equipment preferences can also assist the laboratory in developing suitable methods if the customer intends to ultimately use the method as a routine release procedure in their own quality-control laboratories.  

The time required to purchase, install, and qualify new laboratory equipment needs to be addressed in the proposed work schedule to help ensure that the contract laboratory develops and validates a method that is ultimately compatible with the customer's equipment.   

Understanding the regulations and their impact on company-specific products, policies, and procedures is another necessary requirement to ensure a smooth and productive relationship between the contract laboratory and the potential customer. Many companies have product commitments to regulatory authorities. Communicating these obligations upfront 

 a confidentiality agreement will help alleviate misunderstanding and frustration as the project moves forward.  

The material details and scope of work should be documented in a project initiation form. Many contract laboratories have a standardized form for potential customers to complete before they start work. In some cases, the forms can be downloaded directly from the laboratory's website and can help expedite turnaround time.  

Using the standardized forms provided by the contract laboratory will help increase efficiency as well. The laboratory is familiar with these forms and can readily locate and interpret the work that is being contracted. There are also employees available at these laboratories to assist clients in completing these forms to ensure completeness and accuracy. This helps open up the communication lines early in the process and establishes a solid foundation for the successful completion of the project. 

As regulations continue to evolve, companies are more likely going to be required to retrospectively review their product portfolio. For example, the European Medicines Agency guideline on specification limits for residues of metal catalysts or metal reagents scheduled to come into effect this September aims to "recommend maximum acceptable concentration limits for the residues of metal catalysts or metal reagents that may be present in pharmaceutical substances or in drug products" (3). Achieving compliance to this standard may require companies to seek assistance from contract laboratories because, as with residual solvents, the assessment requires an evaluation of excipients, APIs, and final product.  

Being prepared to provide complete documentation regarding a project and understanding the regulatory impact of compliance requirements is critical for establishing and maintaining a productive relationship with a contract laboratory. This groundwork is especially important as industry faces more of these new and comprehensive regulations.   

 is a guest writer this month while columnist Jim Miller is on vacation. A member of 

 Editorial Advisory Board, Schniepp is a pharmaceutical consulstant at Schniepp & Associates in Boxborough, MA, 

, General Chapter <467> Residual Solvents (Rockville, MD, 2008).  

2. H. Ingersol, "Beyond Theory: How to Implement Changes to 

 Chapter <467> Residual Solvents," web seminar presentation hosted by 

 and sponsored by Celsis, Apr. 22, 2008, available at 

3. EMEA, Guideline on the Specification Limits for Residues of Metal Catalysts or Metal Reagents (London, Feb. 2008). 

Outsourcing

Providing the right information upfront may ease new requirements to assess solvent levels.

Help Your Contract Laboratory Help You

Increased outsourcing, particularly among smaller biopharmaceutical companies, is helping to drive growth in the global market for contract research organizations (CROs), according to a recent industry analysis by Turner Investment Partners. The report points to strong underlying fundamentals, particularly among some of the top CROs, as they expand globally and in preclinical and early-stage development activities.

The global CRO market is valued at $16.3 billion and is expected in increase at a compound annual rate of $12.6% to reach $29.4 billion by 2011, according to data from Goldman Sachs (1). Demand for CRO services is coming from the large pharmaceutical companies as well as from smaller biopharmaceutical companies. The report estimates that biotechnology companies provide more than 30% of CROs’ revenues, an increase from 21% in 2003. CROs also are generating more of their revenues from outside the United States as the number of clinical trials conducted globally increases. The report estimates that more than 40% of CROs’ revenues are generated outside the US. And future prospects are strong. The report estimates that collectively, less than 25% of all drug research and development (R&D) spending is outsourced (1).

There are approximately 500 CROs globally. The large CROs generally offer two kinds of services (preclinical and clinical)  that in effect provide one-stop shopping. Preclinical activities include chemistry and animal-testing services in laboratories to assess drug safety before clinical or human testing. Clinical services include functions such as project planning and management, patient recruiting, and trial monitoring and analysis to test the safety and efficacy of drugs (1). 

Most CROs work under fixed-price contracts. Preclinical contracts typically have lower values than clinical contracts and also are shorter in duration. A typical preclinical contract may be valued at $2 million or less and last for months. Clinical contracts, however, may total as much as $100 million or more and be multiyear in length. The report says that preclinical contracts have been the most profitable (1). 

The report points to strong fundamentals for the CRO sector, which has experienced sustained profitability during a recent high period of expansion. Since 2004, the six largest CROs have increased headcount by 57% to 37,300 employees but have increased their book-to-bill ratio to about 1.4 during the past year. “Such a high book-to-bill ratio, in our judgment, provides high earnings visibility, i.e., a good picture of CROs favorable future profit trends,” concludes the report (1). 

The report cites five large CROs with especially good growth prospects over the next two years. These include: Covance (Princeton, NJ) with a market capitalization of approximately $5 billion; Icon (Dublin, Ireland), market cap of roughly $2 billion; Kendle International (Cincinnati, OH), market cap of $540 million; Parexel Laboratories (Waltham, MA), market cap of $1.5 billion; and Charles River Laboratories (Wilmington, MA), market cap of $4.4 billion. 

 These major players are making strategic investments to expand globally as well as to augment their capabilities in preclinical and early-phase development. 

In June 2008, Covance announced that it is partnering with WuXi PharmaTech (Shanghai) in preclinical services. The two companies entered into a memorandum of understanding to create a 50-50 joint venture to provide preclinical contract research services in China. WuXi is building a 323,450-ft

 facility in Suzhou, China, for the joint venture. The facility is expected to be completed in 2009. Covance also plans to make an initial investment of approximately $30 million. The move not only positions Covance in China, but also complements its preclinical operations with WuXi’s drug-discovery and development services.

 WuXi is one of the leading contract CROs in China. The company was formed in December 2000, and last year had an initial public offering on the NY Stock Exchange. In 2007, its China-based operations provided services to more than 80 pharmaceutical and biotechnology customers, including 9 of the top 10 pharmaceutical companies, according to the company.

To strengthen its preclinical service offerings for biopharmaceutical companies, Covance purchased a partially constructed manufacturing facility located on a 47-acre property in Prince William County, Virginia, from Eli Lilly (Indianapolis, IN) in November 2007. Covance plans to transform the facility into a 410,000-ft

 early drug-development laboratory offering safety testing and chemistry-analysis services. Covance plans to relocate approximately 450 current employees from its existing operations in Vienna, Va., and Chantilly, Va., to this facility by 2011, and hire an additional 100 employees by 2014. The total planned investment for this project is approximately $175 million.  

In June 2008, Kendle acquired DecisionLine Clinical Research (Toronto), a privately owned, early-phase CRO that specializes in Phase I studies involving the measurement of pharmacodynamic effects of central nervous system (CNS) drugs. The move is part of Kendle’s strategy to enhance its position in Phase I testing. 

"With Phase I growth expected to outpace the broader outsourcing market at approximately 15%, early-phase development remains an important need for our customers and an area of significant growth opportunity for Kendle," said President Simon Higginbotham, in a company release." The addition of DecisionLine is an important step in building Kendle's global capabilities for exploration of early-phase drug candidates and supports our strategic initiative to drive growth in our Phase I business.” 

In June 2008, Parexel announced it was expanding its clinical logistics capabilities to support its clients' global clinical trial supply requirements. The company's clinical logistics services provide centralized coordination of clinical study supplies, laboratory services, and ancillary supplies. Also in June, Parexel agreed to acquire ClinPhon (Nottingham, UK), a clinical technology organization. 

To further expand globally, Parexel acquired a minority interest ownership in the clinical pharmacology business of Synchron Research (Ahmedabad, India), a privately held CRO, in March 2008. The move builds on the company’s previous relationship with Synchron. In 2004, Parexel formed an strategic collaboration with Synchron and in 2006, the company acquired a majority stake of Synchron’s clinical trials business operations in Bangalore, India, and a minority equity interest in Synchron’s clinical pharmacology business in Ahmedabad. In 2007, Paraxel opened an office in Hyderabad, India.

In September 2007, Parexel also acquired Taiwan–based APEX International Clinical Research to strengthen its global capabilities throughout the Asia-Pacific region, including mainland China, Hong Kong, India, Taiwan, Singapore, Indonesia, South Korea, Malaysia, Thailand, the Philippines, New Zealand, and Australia.

Other CROs are expanding globally as well. Charles River Laboratories formed a joint venture with Shanghai BioExplorer to form Charles River Laboratories Greater China, Preclinical Services Shanghai Company. Charles River owns a 75% stake and control in Charles River Laboratories Greater China. The venture includes a new 50,000-ft

 facility in Shanghai, which is expected to open in the second half of 2008.

Charles River is also building a new facility in Sherbrooke, Quebec, to support the company's preclinical services business. When completed, the new facility will be approximately 300,000 ft

. Approximately 25% of the facility will be constructed in a first phase and will be dedicated to one or two clients. The first phase is scheduled to be opened by the first quarter of 2009. The timing of construction of the remaining phases will be dependent on market demand. The Sherbrooke facility is eventually expected to employ 1000 people, who will work collaboratively with 1600 staff members in the company's Montreal facility.

In June 2007, Icon acquired DOCS International , a leading European based clinical research staffing organization, for $40 million. DOCS International, which operates in eight European countries, focuses on the training and supply of contract and permanent clinical research personnel to the pharmaceutical and biotech industry. 

 1. T. Hoang et al., “Contract Research Helps Keep Drug Pipelines Flowing Sector Focus Report” (Turner Capital Investment, Berwyn, PA, 2008). 

Global Feature

Strong profitability and good growth prospects bode well for the global market for contract research organizations.

PTSM: Pharmaceutical Technology Sourcing and Management-08-06-2008

Outsourcing Practices Scrutinized by Congress

Help Your Contract Laboratory Help You

Fundamentals Are Strong for Global CRO Market