Effective Outsourcing of Small Molecule Chemistry R&D and API Manufacturing for Emerging Pharmaceutical Companies – A Stepwise Approach to Risk Management

• SGL Chemistry Consulting

Abstract

The successful establishment of an emerging pharmaceutical company’s clinical drug supply depends on the outcome of work performed by vendors to which the work is outsourced. This article describes the characteristics of emerging organizations that drive their needs from vendors. Key factors in the development of successful technical and business relationships between emerging sponsor companies and vendors are identified and discussed. Issues directly relevant to small molecule API outsourcing are particularly emphasized, though the manuscript is partially applicable to outsourcing of other pharmaceutical discovery and development activities.

Introduction

Outsourcing of manufacturing activities in the pharmaceutical industry has been increasingly prevalent over the last 10-15 years. This trend is expected to continue due to the ongoing divestment of these capabilities by big pharma companies and their increasing dependence on CROs and CMOs [1]. The characteristics/needs of biotechnology and emerging pharmaceutical companies are distinct from those of larger companies leading to unique issues to consider when outsourcing work to prospective vendors:

• Outsourcing is always a given, not a strategic consideration

1. • Emerging companies exist on a continuum of virtuality, from either partly to completely virtual; laboratory capabilities - if they exist – are either mostly or completely devoted to basic research; lab space devoted to chemistry R&D is relatively rare

• Goals and milestones have extremely aggressive timelines

1. •  Funding and survival depend on being first to proof of concept

• Significant budget and resource restrictions exist

1. • In the context of pharmaceutical development, chemistry R&D and manufacturing are constrained in scope and strictly prioritized; the approach for all programs is “fit for purpose”, and most thinking is short to medium-term
   • There may not be an internal individual who has expertise in chemistry, or that individual may be preoccupied with higher priority functions if the company in question has multiple projects to manage and advance

• Decision-making is rapid, coupled with abrupt changes in circumstances and strategic or tactical direction

1. • Timely, effective, and clear communication is crucial and challenging

•  In addition to failures, difficulties or delays within given programs are very high impact events, often reaching beyond company executives to board members and investors
• For all of the above reasons, risk tolerance for drug discovery and development programs for New Chemical Entities (NCEs) undertaken at emerging organizations is very high. Therefore, the requirement for risk management is also at an extreme in a sector of industry (including big pharma) that is, in general, inherently high risk [2].

These issues are daunting. The situation is compounded by the fact that the competitive landscape of CMOs devoted to chemical R&D and API manufacture is perpetually shifting. These shifts are driven by the changing needs of sponsors (particularly big pharma), and by mergers, acquisitions, consolidation, and reorganizations within the CMO sector to remain competitive and sustainable in order to meet the needs of current and prospective sponsors [3].

There is a means to successfully negotiate the challenges facing an emerging company as it enters the development stage after a candidate has been selected. It is based on identification and management of risk, in preparation for work with vendors to which the required work will be outsourced

Stepwise Approach to Effective Outsourcing for Emerging Companies

For the purposes of this article, there are two basic steps in effective outsourcing:

1. Technological Assessment, Preparation of Technology Transfer Package and Request for Proposal (RFP)

2. Vendor Interactions

• Selection
• Engagement
• Relationship Building and Project Management

Each step in the process involves identification, prioritization and mitigation of risks incurred, due to the limitations characteristic of emerging companies outlined above.

Technological Assessment

The degree of complexity of new chemical entity (NCE) small molecule APIs is highly variable. Understanding challenges and limitations of the existing synthesis of a drug candidate API is critical to the success of performing scale-up and GMP manufacturing.

Assessing existing technology (i.e., synthetic route, analytical methods, extent of characterization of product and key intermediates, etc.) for the nominated development candidate is necessary to identify gaps in knowledge related to the synthesis and characterization of the molecule. These gaps need to be bridged in order to successfully scale up and manufacture the API. This assessment also indicates what type of work needs to be done, and whether any specialized equipment, techniques or facilities are required. Furthermore, it gives a preliminary indication of how many CMOs would be a potential “fit” with the required work, which is crucial to selection of the most appropriate vendor.

Technology Transfer Package

Often, a technology transfer package in the possession of an emerging company is a written experimental describing the synthesis of the target molecule, with limited characterization information (e.g., NMR, HPLC, MS). The technology transfer package may be more extensive if the asset being advanced into development has been in-licensed from another organization, and especially if it has been acquired subsequent to preclinical or Phase I clinical studies performed by the licensor. An excellent example of the content of a technology transfer package is provided by Anderson, in the most recent edition of his text on process development [4].

If attempts are made to scale up the chemistry without optimization, the likelihood of delays and failures increases significantly, due to unaddressed limitations and challenges of the route provided to the vendor. At a minimum, in addition to a summary of the synthetic and characterization data, an effective technology transfer package that is provided to a vendor includes an assessment and acknowledgement of issues presented by the existing synthetic route, and risks that need to be addressed and mitigated. Such issues may include, but are not limited to:

• Estimated potency category of API and/or its key intermediates: many CMOs have limitations regarding the handling exposure limit of APIs, and APIs that are expected to be classified as potent are relegated to a more limited subset of specialized vendors due to containment requirements
• Use of hazardous or toxic reagents, solvents and reaction conditions, particularly at later stages of the existing synthesis
• Reactions with low yields
• Reactions that are operationally complex (difficult to replicate on scale)
• The need for chromatographic purification or preparative chiral separation of intermediates; if unavoidable, this adds significant time and cost, and narrows the field of potential vendors
• Expensive and/or novel reagents or starting materials; sourcing of sufficient quantities can be time consuming; it is often the case that certain reagents or starting materials need to be custom-produced, and this needs to be factored into cost and timing for project deliverables
• Prognosis that the existing synthesis (probably a medicinal chemistry route) can be adapted for scale-up
• A summary of analytical methods used to monitor reactions in the synthesis and characterize the product, including any obvious limitations of these methods, regarding resolution, sensitivity, reproducibility or practicality

The value of the investment of time, money and effort to create an effective technical package is often underestimated by emerging companies. This type of nominal “up-front” investment pays considerable dividends, including:

• Understanding the synthetic and analytical challenges of the particular API being developed

1. • This allows preparation of a summary of most or all of the risks associated with undertaking chemical development, scale-up and manufacturing, and these risks can be ranked and prioritized when deciding on the scope of work, with direct implications for cost.

• Time-savings, which are always at a premium, by facilitating communication with prospective vendors

1. • Knowledge of what needs to be done prior to talking with vendors increases efficiency in both vendor selection and negotiation of scope of work and cost once the selection has been made (see the Engagement section of Vendor Interactions, to come).

• Means of communicating risks in two directions: to the vendor and, more importantly, to the executive management of the sponsor (and potentially to some key board members or advisors)

1. • Transparency from the outset regarding aspects of an API synthesis, that may add cost and time to delivery, helps manage expectations.
   • This increases the likelihood of adequate budget allocations and realistic delivery timelines to accomplish manufacture and release of the API. It also justifies the selection of a specialized vendor, if that is what the chemistry requires..

•  Significant measure of credibility provided to sponsor

1. • This is important in helping to establish a strong, mutually-respectful relationship. This critically affects the type of experience both the vendor and sponsor have while conducting the work..

Request for Proposal (RFP)

Once in hand, the technical assessment and technology transfer package facilitate the preparation of the RFP. They allow the sponsor to define the scope of work. This prevents vendors from making too many assumptions about what may be needed and from providing proposals for work that may not align with the needs, budget and timeline of the sponsor’s overall development strategy.

The RFP is also a mechanism by which the sponsor can explicitly request that a vendor comply contractually with how they want or need the work to be done. This helps to identify vendors that demonstrate an inclination to accommodate the needs of the sponsor and their development program, which is critical to determining “fit” and making the best selection.

A well-written RFP minimizes the difficulties inherent in arriving at a mutually agreed upon scope of work by reducing the number of iterations required to arrive at a mutually acceptable contract for the work requested. The sponsor must ensure that the prospective vendor has a comprehensive, accurate understanding of most, if not all, of the sponsor’s current needs before they have drafted a proposal. Otherwise, delays to contract finalization and initiation of work are likely to result.

Vendor Interactions

Selection

Early development-stage API vendor selection tends to be a tactical, as opposed to a strategic, activity for many emerging pharmaceutical companies for reasons outlined in the Introduction. From a strategic point of view, early-phase vendor selection affects flexibility and efficiency at later stages of development. At issue is accumulation and capture of data during early development, especially if it is anticipated that technology transfer to another vendor will occur at a later stage. The manner in which a given vendor does this has consequences for the acceptability of early process information as supporting data for later development efforts focused on preparation for New Drug Application (NDA) submissions [5].

There are many aspects, tangible and intangible, to selection of the most appropriate vendor for a given API. The well-established criteria of technical competence, capacity and facilities, quality and regulatory compliance and reputation have been widely discussed elsewhere [6]. Other fairly obvious factors are experience with particular techniques and technologies that are deemed essential to performance of the work to be done, e.g., the need for preparative chiral and achiral chromatographic separations, screening and optimization of chemo-catalytic or biocatalytic reactions, potent compound handling and containment. The above tangible selection criteria relate directly to the sponsor’s understanding of their needs, which in turn depends on the technical assessment, technology transfer package and RFP, as described above.

One issue that also needs to be considered is the likelihood that certain ancillary yet critical activities, e.g., salt selection and polymorph screening and specialized or particularly demanding analytical work, may need to be placed at an additional vendor to support the main API vendor chosen [5]. In the event that a preparative chromatographic separation (particularly a chiral separation) is required on a multigram to multi-kg scale, this work may require an additional vendor, unless the main vendor selected has the equipment and proven competence to perform this type of operation. The same criteria and processes described in this section apply to selection of these ancillary vendors.

Once a sponsor has compiled a list of prospective vendors, based on the criteria mentioned above, as well as perhaps receiving recommendations from colleagues or advisors, the RFP is sent. It is typical to send an RFP to 3-6 vendors. There will be at least some variability in the proposals returned by the vendors, regarding estimated cost, duration and scope of work, despite the fact that vendors received identical RFPs. Do the timelines and the resources proposed to meet them line up? This can go in either direction, i.e., too many resources are proposed, resulting in unnecessarily high costs, or too few resources are proposed, in the interest of meeting the sponsor’s budget needs and cost expectations. Neither situation is desirable. Evaluation and comparison of the proposals provided can reveal issues that were not previously considered.

The list of vendors under serious consideration can be narrowed on the basis of the quality of the proposals provided, which includes:

• How well the proposal corresponds to what was requested
• Level of understanding of the issues demonstrated by the proposal
• Whether resources allotted, timeline and cost provided in the proposal are consistent with each other.

At this point, some of the more intangible factors need to be taken into consideration. How were the interactions with the vendors’ business development people? Were there noticeable delays and difficulties in execution of the confidential disclosure agreement (CDA), or getting turnaround of the proposals solicited? If teleconferences were held to discuss the project prior to drafting of the initial proposal, were they cordial, respectful and productive? Initial interactions provide an indication of what it will be like to work with a given vendor.

Visits to the final vendors being considered for the project are absolutely necessary. The condition and layout of the facility and the sponsor’s interactions with the staff and management during this visit are key factors in determining “fit”, or the feeling that a productive relationship can be established with the organization.

The period before the contract is signed is when the vendor is on their best behavior, and the time during which the sponsor has the most leverage. If there is a gut feeling that something is not quite right, this needs to be questioned and addressed. Whether/how questions are answered are key indicators. Unaddressed concerns at early stages of a relationship with a vendor tend to be more difficult to resolve once a business relationship is established.

The site visit is also the opportunity to assess the potential to develop a rapport with as many relevant employees at the vendor organization as possible. Problems are inevitably encountered in the course of work on even the most successful projects, and having pre-existing relationships with key personnel is indispensable in negotiating difficult situations. Gauging the potential to interact productively with a given vendor is essential to selecting the organization that has the best “fit” for the project.

Engagement

All of the aforementioned activities described in this article provide the sponsor with leverage in finalizing and negotiating the contract that defines the business relationship with the vendor. Sufficient preparation prior to this stage allows the sponsor to take initiative in defining the scope and performance of the work needed to support its needs for preclinical and clinical API supply. The sponsor’s ability to do this has a direct impact on the cost, duration and quality of the work done. Careful definition of the work to be done limits resources devoted to certain activities, and is a means of controlling costs, even if unanticipated out-of-scope activities become necessary. The more efficiently sponsor and vendor can align on initial scope and cost, the sooner a final contract can be produced, and the sooner work can be initiated.

Identifying potential risks and challenges and coming to consensus with the vendor on this in advance of initiation of work allows subsequent problem-solving and troubleshooting to focus on what is truly unanticipated. This is preferable to having a layer of issues, which could have been avoided with more consideration, superimposed on what truly could not have been predicted. Successful chemical process R&D and early production and manufacturing are dependent on anticipating and avoiding problems.

Although another article should be devoted to contractual aspects of vendor engagement, several are mentioned here:

• Vendor Performance - It needs to be clear to the sponsor that, although best efforts are promised by the vendor using the information provided in the technology transfer package and additional approaches agreed to in the scope of work, it is not a guarantee that this chemistry will work as reported, or be applicable to scale-up and production. The sponsor must remain aware that the work to be performed is science. What is ultimately done to achieve a successful outcome will be data-driven. Contractually, the work must be defined in such a way that it is clear when it has gone “out-of-scope”. The vendor needs to include in the contract how promptly notice to the sponsor is required in anticipation of that event, along with how additional costs will be accrued and tracked under such circumstances. It is not unreasonable to assume that approximately 30% additional cost may be incurred as a result of unforeseen issues that arise.
• Intellectual Property (IP) – While it is customary and industry standard for any IP developed in the course of the performance of the work to belong to the sponsor (and this should be explicitly stated in the contract’s terms and conditions), another aspect concerns technology that is proprietary to the vendor. This is particularly concerning when specialized technology (e.g., chiral chromatographic stationary phases, enzymes, catalysts or ligands) is necessary to affect key transformations or operations in the API synthesis. Important questions are cost of licensing, materials and implementation, whether use of one vendor’s proprietary technology is transferable to other vendors’ facilities, and under what conditions (if any) this is permitted.
• Exit/Termination Clauses of Contract - As mentioned earlier, pharmaceutical development is a high risk endeavor. Projects are terminated more often than they proceed to the next stage of development, and sometimes, the need to stop work is urgent, particularly at emerging organizations. How much notice from the sponsor is necessary for ramp-down of work and ceasing of billing, in advance of formal termination? Different vendors have different policies for this process, and it is important to be aware of them before signing a mutually binding contract.

One issue that is pertinent to the first and third bullet points above is that it is typical for vendors and sponsors to share risk, particularly for projects placed by emerging companies and for APIs at an early stage of development. The sponsor is tolerating and bearing the majority of the risk in such collaborations. Vendors that engage successfully with entrepreneurial companies understand the risks they are incurring, and the limits to attempting to mitigate these risks by adjusting costs upwards.

Alignment between sponsor and vendor is usually formalized in a “kick-off” meeting, preferably face to face on site at the vendor. This is the point at which consensus is achieved on expectations, with regard to:

• Strategy and approach to defined work
• Formal identification of points of contact for each organization
• Frequency and nature of communication

1. • It is important to establish informal lines of communication, in addition to the scheduled weekly or biweekly teleconferences and written updates, so that attention to urgent matters is timely

• Tracking of progress – updates, reports, Gantt charts
• Relationship Building and Project Management

The ideal relationship between vendors and their sponsors is collaborative. The degree or nature of the collaboration may be limited to some extent by the sponsor’s resources and expertise. If the previous steps as outlined above are followed by a sponsor, a solid basis for a productive relationship has been established by demonstrating transparency, investment of time and consideration in preparation for interactions with vendors, and openly and respectfully addressing any concerns or issues related to the project or the vendor. The kick-off meeting serves to further solidify the relationship between sponsor and vendor.

Management of the project and the relationship go hand-in-hand. One goal is that, after a certain period of interaction, the parties involved have an increased level of comfort with each other. This fosters openness and trust, which leads to more effective communication. The rapport developed between sponsor and vendor can and will be leveraged when difficulties in the project arise. Strong relationships are needed when projects under high pressure and scrutiny encounter obstacles and delays. Even if the sponsor does not have significant expertise in chemistry or API manufacture, being involved and available to discuss issues as they arise is what matters most. Relationships based on trust and respect also allow the sponsor to constructively raise concerns about and objections to aspects of the work being performed at the vendor. All sponsors want and need to be able to exert infl uence over the work their vendors are doing to advance their precious assets. Consistent participation in interactions with the vendor as the project progresses puts the sponsor in the best position to be infl uential in a way that is impactful and not reactive.

Summary

Outsourcing of API development and manufacture by emerging pharmaceutical companies is fraught with challenges that have the potential to exceed allotted budgets and incur errors, delays, and failures, thereby delaying their development programs. Effective outsourcing is the result of adequate preparation and follow-through. Risks that are particular to the API being developed should be identifi ed and mitigated as early as possible. Therefore, it is recommended that:

• Sufficient time, effort, and money is invested in performing a thorough technical assessment and preparing a strong technology transfer package, leading to a well-defi ned RFP that is provided to prospective vendors with capabilities of the highest relevance to the chemistry described.
• Vendor selection is conducted deliberately, relying on review and ranking of proposals received and site visits for top vendor candidates. Attention is paid to the nature and quality of interactions with prospective vendors at every \stage of the process, from CDA execution to proposal review to engagement.
• Interactions with prospective vendors are undertaken to build a mutually respectful, productive relationship. The potential to create such a relationship is a key intangible factor in the decision to engage a vendor. Building and strengthening this relationship is continued as the vendor is engaged and managed as work on the project proceeds.

References

1. P. van Arnum, A Shifting Landscape for the Global API Market, Pharmaceutical Technology, August 1, 2013, pp s16-s20.
2. F. Pammoli, L. Magazzin, M. Riccaboni, The Productivity Crisis in Pharmaceutical R&D, Nature Drug Discovery, 2011, 10(6) 428-438.
3. a) C. Tso, J. Jacob, Consolidation and Diff erentiation: Key Drivers of Change in the Global Pharmaceutical Manufacturing Industry, Pharma Deals Review, 2012, 6, 82. b) B Connell, PharmaManufacturing.com Pharma Manufacturing on the Move: Global supply needs are dictating facility locations and CMO selection, posted May 24, 2012; http://www.pharmamanufacturing.com/ articles/2012/091/.
4. N.G. Anderson, Practical Process Research & Development, Academic Press (Elsevier), 2012, p 421, Table 15.4.
5. J. Lepore, K.D. Seibert, T. Watson, S. Wollowitz, Performance Expectations for Suppliers in the QbD Era: Leveraging Suppliers to Support an Enhanced Submission for an API, Pharmaceutical Outsourcing, posted September 30, 2013; https://www.pharmoutsourcing.com/Featured- Articles/147058-Performance-Expectations-for-Suppliers-in-the-QbD-Era- Leveraging-Suppliers-to-Support-an-Enhanced-Submission-for-an-API/
6. a) Active Pharmaceutical Ingredients Committee (APIC), European Chemical Industry Council (Cefi c), Supplier Qualification & Management Guideline, December, 2009. b) N. Cafmeyer, J.M. Lewis, How to Develop a Practical (and Compliant) Vendor Qualifi cation Program, Pharmaceutical Technology, 2009, 33(10), http://www.pharmtech.com/pharmtech/article/How-to- Develop-a-Practical-and-Compliant-Vendor-Qu/ArticleStandard/article/ detail/632990. c) S. Babu, Criteria for CMO Selection, Pharmaceutical Outsourcing, posted September 1, 2009; https://www.pharmoutsourcing.com/Featured- Articles/37489-Criteria-for-CMO-Selection/.

Stuart G. Levy, Ph.D., is Principal Consultant, SGL Chemistry Consulting, LLC. Dr. Levy provides expertise in synthetic organic chemistry, chemistry R&D, API manufacturing and other aspects of CMC development to emerging pharmaceutical companies. Dr. Levy is an expert in outsourcing, and has managed outsourced chemistry R&D and API manufacturing for 15 years. Dr. Levy obtained his Ph.D. in Chemistry from the University of Illinois at Chicago, and did postdoctoral work in the School of Medicine at the University of California, San Diego.

Author Disclaimer: I am an advocate for my clients (the sponsors). However, the vendors we select are our valued colleagues and collaborators. I understand and vigorously endorse the importance of creating the most productive relationship possible between sponsor and vendor, which results in efficient delivery of results of the highest quality.