Pharmaceutical outsourcing used to be a relatively simple affair: Do most of the R&D or scaleup work inhouse, then hand off some limited portion of the development or manufacturing work to a partner. As competitive pressures and consolidation continue to change pharma and the pharma services market (Table 1), this scenario is rapidly becoming the exception rather than the norm, and the old “toll processing” approach is on its way to extinction.
Today a pharmaceutical company is more likely to turn to a contract partner for expertise in challenging technical areas such as bioavailabiity enhancement, customized release, sterile injectable manufacturing and self-administered delivery forms.
In addition, more pharmaceutical sponsor companies are relying on partners to handle much more of the documentation, regulatory compliance and supply chain management that they used to handle themselves. This has driven mergers and acquisitions in the service provider market, as contract companies buy specialized companies to augment their core capabilities (Table 2).
Pharmaceutical sponsors want partners who are global in thinking as well. “It’s no longer acceptable to focus on North America. You need to know regulations in Europe, Japan and the rest of the world,” says Wayne Heminway, director of business development at Cook Pharmica (Bloomington, IN). “Providers who don’t invest in the equipment, people and processes required won’t be around much longer,” he says. “Manufacturers are looking for real consultation, not transactional approaches,” says Justin Schroeder, executive director of marketing, business development and design for Packaging Coordinators, Inc. (PCI) of Rockford, IL.
Clearly, mergers and acquisitions within pharma are driving some of these changes. “Services suppliers will need to stay relevant,” says Tee Noland, Chairman and CEO of Pharma Tech Industries (Royston, GA). In addition, more new drugs are being developed by virtual companies, without traditional manufacturing and R&D services in house.
There is a general drive to vendor consolidation and partnerships, as more sponsors limit most of their contract business to a select “A-list” of service providers. PharmSource Information Services founder and president Jim Miller has estimated that the 30 largest pharmaceutical manufacturing organizations now control 70% of the market.
Tactical outsourcing is still alive and well. “We often see products late in development and think, ‘If only they had come to us earlier,’” says Elliott Berger, vice president of global marketing and strategy for Catalent Pharma Solutions (Somerset, NJ). However, more sponsors now demand strategic partnership approaches, in which risk is shared, providers handle more specialized services, and there is an enhanced sense of collaboration. “It used to be that manufacturers would formulate themselves, and then go to a CMO. Now, their products need specialized development programs, so they tend to work with contract partners and start on the molecule early and then stay on for manufacturing,” he says.
Although CMOs were the first to articulate this change, with many of them (including Cook Pharmica) starting to call themselves contract development and manufacturing organizations (CDMOs) a few years ago, CROs are also moving out of traditional roles and offering new services.
The emphasis for CROs today is “outcomes-based approaches,” says Patrick Jordan, chief administrative officer at Encore, A Quintiles company. “Historically, the finish line for biopharma development came at regulatory approval. The primary concern was to meet Phase III endpoints, and commercial activities occurred sequentially after that,” he says. “Today, the finish line has moved back in the development process, with reimbursement an increasingly important factor, driving the need to demonstrate value.”
“Demand for real-world and late phase research reflects this trend,” Jordan adds, “allowing companies to demonstrate how their products perform outside of the controlled, randomized clinical trial setting. At the same time,” he says, “clinical development is becoming increasingly interconnected and less linear: Decisions are informed by data-driven population insights, market access factors and patient engagement strategies.”
Dealing with complexity
While some consolidation in pharma services reflects the challenge of maintaining quality and compliance, as seen in the sterile injectables sector, most of it reflects increasing complexity of the pharmaceutical pipeline itself. “Products are more complex, for instance, controlled release and dividable tablets, and they demand more sophisticated approaches to development,” says Catalent’s Berger.
It was just this trend that drove Capsugel’s purchase of Oregon-based Bend Research, which specializes in research in different aspects of formulation. “Where possible, companies are buying front-end expertise so they can do development and manufacturing on the back end,” Berger says.
Catalent has responded with targeted acquisitions, collaborations and investment in niche areas, acquiring clinical trials supply capacity from Aptuit, and expertise in soft gel technologies with its purchase of RP Scherer Softgel. The company’s Softgel platform is designed to allow semisolids to be encapsulated at a much higher solids level. Optiform, which was developed with GSK, is an API screening program with a technology guarantee, helps customers identify the most stable crystalline form of a material to speed time to market.
The company partnered with Japan’s Sanwa Kagaku Kenkyusho Co., Ltd. on OptiDose, a one-step dry coating process that allows its customers to manufacture single or multi-cored tablets with different release functionality.
“In biopharmaceuticals, oral delivery is a growth area,” Berger says, but the entire business is growing. Among Catalent’s newer offerings to biopharm are GPEx, a high-titer stable mammalian cell line that is said to reduce drug development time to one-third what is traditionally required, and SMARTTag, developed by and licensed from Redwood Bioscience (in which Catalent has a stake) to establish uniform drug-to-antibody ratios in the manufacturer of antibody-drug conjugates (ADCs).
Once synonymous with oral solid dosage forms, Catalent has also moved into parenterals and advanced aseptic filling, an area where capacity is especially strained today, with Advasept, an automated BFS filling solution that minimizes operator contact and uses a glass-free container, eliminating the chance of delamination and particle contamination, a problem that bedeviled not only Ranbaxy but other manufacturers last year.
“West Pharmaceutical Services, Inc., a contract drug delivery services specialist also sees a need for increased emphasis on dosing accuracy and ease of patient use,” says Graham Reynolds, VP of marketing and innovation. The company has built up its own portfolio of proprietary technologies designed to meet these needs, including Mix2Vial, a diluent transfer system, and Crystal Zenith, an alternative to glass.
Reynolds sees self-administered delivery forms such as autoinjectors, wearable and pen injectors as an extremely important new trend. In addition, he says, biopharmaceutical formulations are both more complex and more sensitive to interaction with container materials than traditional drugs were, and the company has responded with new solutions such as SmartDose, an electronic wearable injector that incorporates a polymer drug container to facilitate less frequent injections, as well as Crystal Zenith and other non-glass materials.
Extending Throughout the Product Life Cycle
Where possible, today’s contract services players aim to be in demand throughout the pharmaceutical product life cycle. This has resulted in new focus and, for some companies, outright transformation.
Packaging Coordinators, Inc. (PCI), for instance, started out in specialty packaging and logistics, as its name implies, after acquiring a Catalent business. The company added clinical services when it bought AndersonBrecon from AmerisourceBergen last year, expanding its cold chain and distribution capacity. This year, it bought two UK-based companies: Penn Pharma, adding drug development and manufacturing services, and expanding its clinical services, and Biotec Services International, which brought more clinical trial and cold chain services. “We intend to be a provider of services from preclinical through drug development and during all phases of commercialization,” says PCI’s Schroeder. A special strength for the new PCI is now cold-chain services for specialty biotech products, where 2-8˚C isn’t quite cold enough. “Now we can offer the lower temperatures needed, from -80 to -196˚C.”
Partnering and Risk-Sharing
Although spot outsourcing is not going to disappear anytime soon, service providers see their customers moving to strategic partnerships. On the R&D side, Quintiles is definitely seeing an increasing appetite for strategic relationships leveraging its experience, says Jordan. “These strategic partnerships leverage the collective insights we have generated over the years. For example, Quintiles helped develop or commercialize all of 2013’s top 100 drugs, has worked with customers to gain market access for more than 135 products in the US since 2003, and is currently engaged with more than 2,500 hospitals in the AHA Get with the Guidelines program,” he says.
In the contract manufacturing world, we saw this type of partnering play out with DpX and its customer, Pacira Pharma, at a former Patheon sterile manufacturing facility in Swindon, UK. Both partners have invested in the facility, which had been scheduled for closure, and shown commitment to selecting and developing the best technology solutions.
PTI’s CEO Noland says his company has four or five strategic relationships that account for about 75% of its sales. “Most of our focus is on strategic relationships and expanding them,” he says, and such relationships have driven recent expansions at the company’s sites in Georgia and Missouri, where it recently added 80,000 square feet of production capacity.
Cook Pharmica is also seeing a demand for more strategic partnerships, says business development director Heminway. “80% of our business is now strategic, and involves 15 out of the top 20 pharma companies,” he says.
Catalent is also moving in this direction, says Berger, and PCI is seeing more demand for strategic business, says Schroeder. “We are now in a situation where some of our largest clients are taking a ‘win together or lose together’ approach to contracts,” he says. “The business is becoming more metrics-oriented that way.”
However, Catalent’s Berger notes some resistance at some pharma companies. “Many companies talk about being strategic, but that’s not always easy to do in a traditional pharma company, and it can be hard to move things around,” he says. “There is still a fear within some companies of people losing jobs, or the company becoming too dependent on contract suppliers. As a result, there’s still too much procurement going on in the industry.”
PTI’s Noland says risk sharing does figure in contracts, in terms of process-specific approaches, development efforts, and time and human capital use. Generally, he says contract services companies are taking on more risk when their customers are developing a new dosage form or product. The trend should continue, he says, as more companies develop personalized therapies.
New Service Packages
Market changes are clearly reflected in the service packages that contract R&D and manufacturing companies now offer their customers.
“With the convergence of healthcare stakeholders, we are seeing an increased demand for health information analytics and technology services to enable customers to leverage electronic health records and real-world information,” says Encore’s Jordan, whose company, a specialist in health information analytics and technology consulting services, was recently acquired by Quintiles.
On the development and manufacturing services side, a few years ago, there was a lot of focus on traditional oral solid dosage forms, on tablets and capsules, PCI’s Schroeder says. Then it shifted to quick dissolve and soft gel. Today, in parenterals, the industry’s move to auto injection and infusion, as well as transdermal forms has added considerable complexity, he says.
Autoinjectors involve multiple pieces, their development is engineering intense, they offer high value, and require special cold chain and logistical management. “We’re reaching a turning point,” Schroeder says, “with very customized forms for very high value. Low scrap percentages are essential.”
To help ensure quality on the manufacturing floor, the company has been using Lean Six Sigma for more than 10 years now, he says, so that there is line-level ownership and an understanding of metrics and performance goals. “It’s a bottom-up approach to manufacturing,” he says. DPx is another service provider that has focused in this area, and DSM and Patheon merged their operational excellence cultures earlier this year in a program called Driving Performance eXponentially, which focuses on Right First Time and on-time delivery metrics.
In terms of changing service packages, PTI’s Noland has seen a marked demand for more technical writing and documentation from clients, and the company has responded by combining engineering and quality tech staff. “We find that we’re handling much more of this type of work that our clients used to do themselves,” he says.
The company just launched a new tech transfer organization in June, to onboard new larger scale projects that demand weekly collaboration with customers. Specialists offer statistical and support for pharmaceutical quality by design (QbD) approaches, since, Noland says, more customers are expecting it.
The new division was a strategic investment to meet client needs and grow the company’s business, he says, but it also solved a practical problem. “As business grew, some of our technical sales people were turning into project managers. This has allowed for separation of roles.” The company recruited some new people and transferred a top engineer and project manager to lead the effort.
For drug delivery specialists, service packages are also changing, says West Pharma’s Reynolds. “At an early stage, we are becoming more involved with user needs analysis and human factors testing. This helps to ensure that the most appropriate technology meets user and regulatory requirements, “he says. “We have also become involved further in the production process with the handling and assembly of drug products. Many products are a combination of a drug and a delivery device (such as a prefilled syringe in an autoinjector, or a drug capsule in an inhalation device), and we can help by assembling these elements to create the final system.” He notes that this was made possible because of additional capabilities and registration of their facilities with the FDA. “In addition to providing our customers with filled drug containers, we are working closely with CMOs that have expertise in drug filling,” he says. Earlier this year, we saw this type of relationship play out with DPx and its customer, Pacira Pharmaceuticals, at a former Patheon sterile manufacturing facility in Swindon, UK. Both partners have invested in the facility and shown commitment to selecting and developing the best technology solutions.
Supply Chain Management
PTI’s Noland sees more customers turning to contract suppliers for expertise in supply chain management. “The biggest focus for us, especially since we focus on the over-the-counter (OTC) space, is managing third-party suppliers,” he says. “In the past, customers directed which suppliers we could buy materials from. We could only rely on customers to audit and to have supplier audit programs in place. Now, regulators, notably FDA, expect us to have our own vendor audit programs in place, and customers expect this as part of the overall turnkey fee,” he says.
Larger companies still tend to dictate which suppliers can be used, he adds, but increased expectations have been a challenge for many service providers. “We have to be relentless about costs and overhead and committed to giving all we can to work as efficiently as possible, to leverage our strong suppliers and rationalize use of suppliers as we can,” he says.
Globalization has been another major trend in contract services, and many service providers note that their customers, especially small-to-medium-sized companies, want service locally.
Cook Pharmica serves global customers, yet has bucked this trend with the strategy of being a “one source and one location provider,” Heminway says, to eliminate logistics and supply chain issues. “We handle everything from drug substance manufacturing to drug product, secondary packaging, and process development, all in one facility so that a company needn’t worry about shipping product,” he says, anticipating that more companies may move toward this model over the next five years.
Some companies have even seen some business come back to the US, after being handled offshore. This may reflect the fact that there were some quality and compliance problems at offshore facilities, but it also shows the overall difficulty of managing global supply chains. “A lot of OTC product features a longer and more complex supply chain, which can present huge challenges,” says PTI’s Noland. “A single disruption can be catastrophic and it can be easier to bring services closer to home base,” he says.
Distance can also be particularly difficult for clinical development projects which involve a lot of collaboration and teamwork. “Communication can be extremely challenging when it requires extensive travel,” Noland says.
Traditionally, clinical services providers have tended to operate independently of CRO’s and CMO’s but that might change in the future. PCI’s Schroeder expects to see more integration among the three types of service providers in the future. “Pharma companies are squeezed and don’t want to deal with multiple vendors,” he says. “And they’re not keen about working with one service provider and then switching.”