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Demand for outsourced services of technical R&D activities is increasing.
In pharmaceutical science several divergent paths typically exhibit clear validity. Decisions often boil down to embracing instead of eschewing risk, to accelerate as the only priority, or to trust a partner rather than emphasize self-reliance. Each molecule, each company or research group possessing that molecule, has an assortment of strengths and weakness to guard against or to leverage. Multiple factors weigh in the balance when deciding how best to move forward, and increasingly the route chosen is to outsource research, development, and manufacturing.
The global contract development and manufacturing organization (CDMO) industry, averaging across several market research firm estimates, is currently valued around $100 billion (1). In part, this growth is shaped through direct regulatory influences suggesting, if not demanding, that a drug have multiple sites of manufacture to spread the risk for supply chain planning. Above regulations, companies also seek to reduce the complexity of their operations internally, and to reallocate internal resources most effectively.
According to Hanns-Christian Mahler, CEO and board member of ten23 health—a new CDMO that offers development, manufacturing, and testing services for injectables—there are a variety of reasons as to why demand for outsourced services of technical R&D activities is increasing. “[Reasons] include a potential lack of internal asset(s) for a given technology and/or specific requirement,” he says. “For example, the building and operating costs of a sterile fill/finish facility are significant. If a pharma company would not have sufficient molecules in a portfolio that would benefit from being manufactured in that facility, the costs could be quite prohibitive, and outsourcing is surely much more cost efficient.”
There could also be instances where a pharma or biotech company has an asset but does not necessarily have the required technology or features, Mahler continues. For smaller companies, in particular, he adds, there may not be internal knowledge or industry and scientific expertise available. “Hence, specialized providers, such as ten23 health, may provide significant advantages for [such companies], contributing to faster development timelines whilst minimizing and derisking any R&D obstacles that can be anticipated by the Experts,” Mahler states. “Finally, even in existence of internal assets and internal experts, there may be insufficient capacity in house.”
Focusing somewhat on internal capacities and the fact that the outside economic environment is encouraging. Ramesh Subramanian, chief commercial officer, Aragen, believes it is a buoyant time for R&D outsourcing at the moment. He specifies that this buoyancy can be attributed primarily to three reasons, “increased fund flowing into [the R&D outsourcing] space, a high number of targets in the pipeline, and renewed interest in pharma R&D due to the COVID-19 pandemic.”
“In fact, as a direct consequence of this better funding environment, we are seeing increasing number of biotechs pursuing their research programs with renewed vigour,” Subramanian adds. “In the past, those companies that were quite conservative in advancing their discovery programs are now focusing on advancing their assets quickly through the development continuum to reach the proof-of-concept milestone. With this shift, we see more biotechs approaching us for more end-to-end integrated solution offerings, from discovery through to Phase IIb—where their assets get them better valuations. Venture capitalists are also open to a longer-term view on development and willing to take risks for such potential upsides from valuation of successful programs. For Big Pharma, outsourcing of all but core activity is the de rigour approach to achieve fastest development timelines.”
Sy Pretorius, MD, president, Clinical Development, and chief medical officer at Parexel, points to the need to focus on and build a lasting relationship when partnering. “To meet complex industry challenges, successful outsourcing partnerships are essential,” he asserts. “This is necessitated by increasing pressures to reduce the cost of drug development and to bring therapies to market sooner. Rather than purely transactional in nature, these partnerships should be truly collaborative. Strong relationships can foster innovation beyond contractual obligations and typically leads to higher levels of staff engagement and better quality. The reason for continued demand for outsourced services can be attributed to a variety of factors including a burgeoning drug pipeline, record levels of funding, lack of in-house resources or expertise, and increased operational complexities.”
“Outsourcing happens in many different shades,” notes Mahler. “Outsourcing can include full technical programs including drug substance and drug product, it can include only specific studies. It could be only for early-stages of a program or the opposite, just for the commercialization stage. In the end, the outsourcing model needs to fit to the needs of the pharma and biotech company, their own expertise and knowledge base and their preference on either working with the most qualified outsourcing partners for specific studies, versus the preference on working with just one partner.”
Subramanian reflects that the focus of Big Pharma has now shifted to ensure they can retain their core activities in-house. “[Big Pharma’s] definition of core has become a lot smaller as they look to CDMOs to be their R&D engines. We are seeing these emerging trends in R&D outsourcing,” he says. “Pharma/biotechs are looking for more integrated discovery service offerings to leverage on the efficiencies and synergies of chemistry and biology offerings from one service provider/co-location of these capabilities. In the outsourcing of development services, pharma/biotech companies still prefer to have the final drug substance being manufactured closer to their locations in the United States/European Union. Given the greater demand for access to capacities, a large number of these biotechs leverage the capacities/expertise available in Asia to execute the initial steps and the final steps in US/EU.”
The range of relationships is large, encompassing full-service outsourcing (FSO) to functional provider (FSP) type arrangements, Pretorius states. “Likewise, these [relationships] range from tactical/per study outsourcing to more strategic programmatic outsourcing,” he notes. “Landing on the right outsourcing model requires an assessment of each individual organization’s needs. Functional service provision continues to be a core outsourcing model allowing the vendor to provide embedded teams that support sponsors for specific services and work directly with their client’s systems and infrastructure. In other instances, a hybrid, more limited scope might work best”.
Pretorius observes that the pandemic forced industry to reexamine how research studies are designed and conducted, while also demanding record-breaking speed of innovation. “As a result, digital medicine was embraced in ways never seen previously. Decentralized clinical trials (DCTs) became embedded in the overall clinical development ecosystem and part of the new norm in how we operate,” he emphasizes. “At Parexel, DCTs are now being woven into 80% of Phase II/III trials and 100% of real-world evidence new trial proposals include DCT elements.”
However, Pretorius cautions this movement is not without obstacle. “A challenge is the lack of industry-wide data standards and how best to manage more and more data from disparate and diverse sources across multiple platforms while ensuring quality,” he says.
Mahler adds that downstream manufacturing and the supply chain were affected by the pandemic. “The significant demand in vaccine manufacture also led to significant demand in primary packaging and disposables,” he stresses. “This has an impact on the globally available outsourcing capacity for any kind of (sterile) product development and manufacturing, which certainly has become smaller given the capacity need for vaccine manufacturing, and the shortage in supplies of raw materials poses some specific challenges and risks for supply chain planning and inventory.”
When contemplating the pandemic, Subramanian specifies that, on a global scale there has been an obvious impact on resources, with CDMOs required to prioritize COVID-19 targets and vaccines—an aspect that will continue onto the future as new variants of the virus continue to develop. “Geo-diversity has also been on the rise, and if innovators are too reliant on China, Europe, or India, they will look to rebalancing their spread. However, the net result is that India has been the biggest beneficiary—as there was more reliance on China previously,” he says.
“The other interesting impact of COVID-19 has been the development further down the chain from the messenger RNA (mRNA) vaccines,” Subramanian continues. “So, there is much greater interest now in areas like oligonucleotide discovery and development, and even peptides—areas that Aragen is investing in due to increasing demand. In terms of mRNA vaccines, we are also seeing innovators look for smaller aspects of its production from lipids to linkers—basically they look for anything that can increase speed and deliver customer value.”
Looking beyond the pandemic, Subramanian expects that industry will see a continuation in oncology as a leading therapeutic area of interest, although he adds that there has also been a rapid uptick in demand for central nervous system (CNS) targets. “Almost all Big Pharma is involved in oncology, so on the development side, we see a similar make up in CDMOs and of course in technologies like HP,” he says. “CNS is interesting, as there have been several high-profile failures. So, innovators are looking for partners to advance several candidates simultaneously to increase their chances of success.”
For Mahler, other potential trends that will likely impact outsourcing of R&D services are the diverse therapeutic modalities and APIs being investigated. “For example, in the category of therapeutic proteins, we see increasingly complex formats,” he says. “We also see a huge variety of indications and administration routes, including the challenging intravitreal and subcutaneously administered products.”
Additionally, the trend for self-administration is broadening out to areas such as oncology, where devices are typically required (i.e., an increasing trend towards drug/device combination products), Mahler notes. “Of course, these [trends] bring specific challenges related to the product design, manufacture, and testing,” he adds.
Pretorius returns focus to DCTs. “Given the rapid speed of adoption and the evolving vendor and regulatory landscape, [contract research organizations] CROs are particularly well-placed to deploy DCT strategies because of the breadth of experience obtained across multiple sponsors,” he empathizes. “Some CROs have been active in the space for more than a decade enabling them to leverage significant learnings and expertise.”
Looking toward another burgeoning area, cell and gene therapy, Pretorius lauds the availability of new technologies, which are allowing industry to see the potential of such innovative therapies. “For patients, [cell and gene therapy] provides promising options with potentially less toxicity,” he says. “We are seeing significant interest and investment in this area beyond treatment for oncology.”
As parting thoughts, Mahler expresses his belief that “outsourcing and the development and commercialization of medicines in general should be more a ‘system thinking’ approach. Companies or outsourcing services may be getting so specific about one given part of the product, that the interconnectivity and dependency of all the components of a drug product are being forgotten: a sterile product can only be reliably and reproducibly manufactured if the formulation, primary packaging, and processing parameters are wisely chosen in its entity.”
Furthermore, Mahler stresses the importance of focusing on ‘people’—patients and employees—as well as the planet. “We, at ten23 health, hence embed considerations of fairness and sustainability in all we do. There is only one Planet,” he adds.
Pretorius also points to the larger operating system, observing that outsourcing can also prove beneficial in the area of regulatory operations through aiding with submissions, product registration, tracking agency interactions, and so on. “This [service] requires working in tandem with partner internal regulatory teams and carefully defining roles and responsibilities to assure alignment,” he says. “At Parexel, our regulatory outsourcing teams consist of former regulators from FDA, European Medicines Agency, National Medical Products Administration, among others with specialized knowledge and first-hand experiences of regulatory expectations.”
While there is much to weigh and evaluate, the uptick in outsourcing appears well founded on benefits and advantages. This has led to what might be termed a ‘run’ on available scheduled slots within CMOs and CDMOs. Currently, not only must one place a large cash down payment but also the requesting company must now face wait times of around 12 months to get their place in the que. However, in this case good things take time, and time taken pays dividends at the (pun intended) finish line.
PWC, Current Trends and Strategic Options in the Pharma CDMO Market, PriceWatershoueCoopers, November 2019.
Supplement: Bio/Pharma Outsourcing Innovation 2022
When referring to this article, please cite it as C. Spivey, “Balancing Internal Focus Against External Capabilities,” Bio/Pharma Outsourcing Innovation 2022, Supplement to Pharmaceutical Technology (February 2022).