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Restructuring in the biopharmaceutical industry is renewing a focus on resource optimization.
Staff reductions, cost-cutting and doing more with less is today's reality for biopharmaceutical companies. A recently released analysis by BioPlan Associates, the 7th Annual Report and Survey of Biopharmaceutical Manufacturing, which gained the input of 327 biomanufacturers globally, examined the impact on biopharmaceutical manufacturers' internal operations and outsourcing activities (1).
The survey examined 13 areas of operational changes affecting biomanufacturing. Biomanufacturers ranked productivity, cost-cutting, employee performance, and production quality as areas receiving their greatest focus (see Figure 1). Seventy-three of survey respondents said they are focusing on productivity to a "much greater" or "somewhat greater" extent compared with only 46% of respondents that say they are focusing on production quality to a greater extent (see Figure 1).
The focus on productivity and performance is further shown in the study's budget data. Overall budgets in 2010 compared with those of 2009 are increasing, although budgets for outsourcing in operations are down slightly (–1.2%). Budgets are increasing in areas involving productivity. For example, 2010 budgets are favoring staffing for internal process optimization and new technology investments. Budget data show that new hiring for operations and scientific staff is down slightly this year, but hiring for operational training to improve efficiency is up (+ 3.7%) from last year.
Internal resources strategies
The study shows a focus on improving process efficiencies through retraining and hiring for value-added activities rather than just for short-term cost savings. Process-development budgets are up nearly 3% in 2010, and the largest growth is in technologies to improve downstream operations, which is also one of the few areas in which hiring is increasing in 2010.
This trend was expressed in comments made by Paul Mehelic, principal scientist and group leader of global biologics at Pfizer (New York), who spoke at an IBC conference on biopharmaceutical manufacturing in Carlsbad, California, in early March. He noted that Pfizer's outsourcing approach involves determining "what strategically we can outsource [to] reduce costs, optimize speed, increase flexibility of our internal operations...redeploy internal FTEs [full-time equivalents] on more challenging and more value-added activities."
Large companies have a breadth of resources and needs and therefore can sometimes more easily revise their internal resource strategies and capacity models. Mark O'Neill, director of business development of contract manufacturing at Amgen (Thousand Oaks, CA) said in an interview with BioPlan Associates that biopharmaceutical companies are working hard to balance their resources and costs, which includes excess capacity in their manufacturing networks. "Viable manufacturing options exist outside [an organization's] own network and are opening the door to considering mixed-capacity models where a company can use internal network capacity for both captive programs and external programs if the arrangement makes sense," he said.
The biopharmaceutical industry's outsourcing segment is not all that old compared with small-molecule contract manufacturing and other areas for pharmaceutical outsourcing such as testing and product characterization. The current financial situation, however, has caused many to do some soul searching. Some contract manufacturing organizations (CMOs) are experiencing greater competitive and operational pressures due to the general industry slump. Other CMOs, such as Xcellerex (Marlborough, MA), have emphasized their enabling disposables technologies as part of their business model. This focus has had the effect of moving their business model away from a services-oriented one to more of a technology/device model.
As the industry focuses more intensely on productivity and performance, many biologics CMOs are changing from a full-project approach to a milestone-oriented approach in the way they are structuring their proposals. Dan Leone, vice-president of business development at the biologics CMO Laureate Pharma (Princeton, NJ) observed that the industry's recent financial problems will ultimately benefit the more flexible and efficient CMOs. "Biopharmaceutical companies are managing their risks more carefully today," he said in an interview with BioPlan Associates. "They fund projects in stages and make project go–no–go decisions at specific milestones. This results in less exposure and risk for our clients. But to CMOs, this means doing step-wise work rather than full-project contracts." He says this approach requires CMOs to continually demonstrate reliability and value and prove themselves at each milestone before being awarded the next step. "This is good for the industry, and good for us, competitively," he said.
Many biomanufacturers are still in a state of transition as they define their core capabilities. As this occurs, companies will outsource more low-value activities and move away from what they don't do efficiently. Companies will establish alliances and form relationships to complement their capabilities. The focus will be on productivity and getting more out of existing internal resources and maximizing performance from their provider relationships. A recent analysis by the Tufts Center for the Study of Drug Development showed that transactional relationships, which are about cutting costs, will be replaced by alliances. This change will likely be more expensive initially, but in the long term, such alliances will reduce redundancy, improve efficiency increase reliability, and become more common in biomanufacturing outsourcing.
Eric Langer is president of BioPlan Associates, tel. 301.921.5979, email@example.com, and a periodic contributor to Outsourcing Outlook.
1. BioPlan Associates, 7th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production (Rockville, MD, Apr. 2010).
2. R. Zuckerman, Impact of Outsourcing on Drug Development Performance and Economics, Tufts Center for Study of Drug Development (Boston, Sept. 2009).