1. What are the key drivers for outsourcing formulation development?
NB: The pharmaceutical development process is a complex and dynamic one, requiring detailed knowledge of API characterization, formulation, process, and analytical development, sound experimental design, and regulatory requirements. Given the breadth and depth of expertise necessary to successfully develop a pharmaceutical product, many companies opt to outsource formulation activities. Some may not have development capabilities in-house, may have expertise limited to a specific area, or may have certain knowledge or capability gaps that influence the need for outsourcing. Others may be seeking novel technology, intellectual property, or unique capabilities offered by an outsource provider. Cost constraints, tight timelines, lack of staffing, competing priorities, or the need to allocate resources for other strategic purposes may also drive a decision to outsource. Lastly, as the landscape of the pharmaceutical market evolves with mergers and acquisitions, the need to outsource may be critical as organizations are disrupted and integration activities are implemented.
LL: The key drivers could vary depending on sponsor’s internal structure: to reduce costs and increase efficiencies, pharmaceutical companies typically outsource routine tests that are not core activities for the company. For instance, although pharmaceutical companies need formulation development expertise to design and implement the stability programs essential to support expiry and regulatory submissions, the execution of the stability program that can be quite lengthy and demanding falls into the category of such routine tests.
Whereas biotech companies, as well as virtual companies, want to focus on internal core competencies and utilize expertise not available in-house. Consequently, these companies outsource formulation development to rapidly and cost-effectively move their molecules from preclinical development to clinic, and eventual commercialization.
PS: There are several reasons why a company might contract out formulation development. It might be due to lack of internal resources, or not enough capacity to handle the peak demand. It might be a particular technology that is needed, such as being able to develop a beaded product or a controlled release formulation. A smaller company might not have internal formulation development capabilities. It is cheaper to contract out than to build up the internal capability, which takes expertise and a significant capital investment in manufacturing equipment, even though the work is done in an experimental environment.
BK: The outsourcing provides variable cost, as opposed to fixed costs. The virtual companies lack the equipments and the facility to develop the one or two probable promising NCE’s. For them, it is a “Do-or-Die” situation meaning there is desperate need for early clinical phase success. The success is more important than any investment in internal formulation development.
Next in the list are mid-size and brand companies who want to restrain from growing fast because of promising internal candidates. Either there is no interest to expand internally with additional staff, or lack of equipment drives the outsourcing aspect. In certain cases there are incidences where the company’s culture is to outsource but not develop internally. Of course, the last main reason is due to stringent timelines. Thus outsourcing work to existing vendors is justified.
Formulation development will continue to be a key area of development. As small companies continued to crop up and the mid/ large size companies continue to expand with NCEs, there will be an emergence of outsourcing formulation development work.
HC: The key drivers for outsourcing formulation development are cost effectiveness and quick development of potential APIs. Companies want to accelerate product development and are usually reluctant to add a specialized expertise/group which takes time to build. Furthermore, for smaller pharmaceutical companies very specialized group/expertise/skill-set/technique can become a liability if needed occasionally or for specific projects/groups. Availability of reputed outsourcing formulation development companies (for both specific short term formulation problems as well as long-term processes) increases the chances of successful candidates and reduces the risk of product failures. Companies are always looking for patentability and outsourcing can help them streamline and quicken their formulation development strategies. Easy access and transfer of data/processes/results through technological advancement has also been a key driver for increased collaborations. Outsourcing also makes a lot of sense as it provides access to proprietary development techniques and several novel technologies which can help in rapid and robust formulation development of several APIs.
KK: Depending on the type of pharmaceutical/biotech company (Big Pharma or Generic, Specialty or Virtual), there is a different mix of factors that drive the outsourcing of formulation development.
Technical expertise – Often companies lack the internal technical expertise in certain types of formulations or processes. They may have strong internal expertise in certain core areas and want to keep their internal resources focus on that while outsourcing the non-core, non-proprietary work to others.
Capacity – There is inconsistent demand for formulation development services depending on the maturity of products in the clients pipeline. Companies will staff to a certain level internally and when demand exceeds internal resources during the life cycle of a project, they will go outside to subcontract.
Speed to market and “Time is Money” – A contract development company with ready and highly competent resources and the right development experience will be able to deliver faster than what can be done internally.
Other important factors are pricing advantages and proximity to foreign markets and regulatory agencies, and approval processes.
2. What recent improvements/methods have been implemented that make outsourcing of formulation development a viable option?
PS: Contract formulation development companies are constantly expanding capabilities and attracting top talent. The goal is never just to bring a client in-house once, but to bring a client in and keep them long-term. That means being able to deliver on time and on budget. To do that, contract formulation companies have to attract and retain the best staff, and that requires paying highly competitive wages. In addition, contract formulation development companies are constantly upgrading both the abilities of their formulators and the equipment/instrumentation with which they work. Today's formulators have everything they need to be able to develop formulations and to utilize Quality-by-Design concepts.
BK: The presence of a number of companies in the US and other parts of the world has globalized outsourcing of formulation development. Every outsourced company in US has a well-known pioneer to discuss the project challenges and chuck out ideas. Working for a contract organization for more than a decade myself, I have expertise in enhancing solubility and bioavailability.
The eagerness of the virtual, midsize or brand companies to get the NCE to Phase I has resulted in a number of options. The option of API in capsule to solution/suspension is a beginning with every company offering services up to commercialization. If the data in the early phase is not encouraging then there are options within the same floor with experts and much required equipment.
In addition, the presence of almost all of the FD options in different companies makes it safer if one needs to transfer to a different location. Why invest in buying equipment and hiring experts when every contractor has the resources. Ours is a One-Stop Shop with many and almost all of the options.
HC: Availability and access of a reputed company with desired specialization and expertise has now made outsourcing development a viable option. Since outsourcing has become competitive with several companies providing solution to multidisciplinary challenges associated with formulation development, it has become a cost and time effective proposition. Availability and advancement in the field of information technology has further fueled outsourcing due to increased online collaborations. It has reduced time significantly for safe, reliable, and confidential information/technology transfer.
3. What are the challenges of outsourcing formulation work?
LL: Formulation development is critical to the timely success of a drug product’s commercial launch. Those involved in placing formulation work and selecting the outsourcing partners should make judicious choices based on technical competence, experience, turnaround- time, and compliance with international quality standards as opposed to price. Poor performance in formulation development by a partner can result in drug development delays of many months, and prove to be costly to the sponsor.
PS: The biggest challenge is to choose the right contract development organization. Potential clients should choose a company that has both the expertise to develop the project and the capacity to meet required timelines. Always consider reputation. Some organizations are notorious for low bids, then constantly add in costs with change orders after the deal is done. The end result can be considerably more expensive than anticipated. A clear and concise RFP will aid in this process, allowing clients to compare proposals for both cost and content. We encourage clients to be on site if they want to be involved in the development process. This works out well particularly when working with new clients and developing a working relationship.
BK: As mentioned earlier, outsourcing is a viable option for many reasons. At PharmaForm, developing the poorly soluble NCEs to solubility and bioavailability formulations has been a primary area of focus for a long time. Among the many approaches, the amorphous spray-dried dispersions, amorphous drug/polymer melt extrusions, and liquid/semi-solid dispersions are commonly implemented approaches for a variety of dosage forms.
When the need to outsource is identified, the challenge begins with finding an appropriate provider who has the expertise and flexibility to meet timelines without compromising quality. It is important to look at the experts on the company’s website as well as the FDA inspection outcome.
If formulation outsourcing to Europe or Asia is considered, then this opens a different can of worms. Firstly, the cultural practice differences present a challenge and secondly, the time differences pose a greater obstacle than the once upon a time cheaper option. With all this, where is the leverage to control the timeline or quality?
HC: Picking up the right partner with the right expertise and adequate multidisciplinary staff to carry out the desired experiment in a cost effective manner is the biggest challenge for outsourcing formulation work. Process/data transfer can also be a challenge if significant variability is associated with method/assay/process associated with the formulation development work. Communication gaps can also be a major hindrance of outsourcing.
KK: Selecting a contract company with the right technical abilities in the dosage form of interest with good formulation development skills, available capacity, and the ability to meet your timeline can be challenging. Finding someone with 50 or 80% of the solution is relatively easy but is not always sufficient to keep tight timelines. Can one go from Phase I through commercial launch with this company or do you have to plan for costly and time consuming tech transfers from one company to the next – from one phase to the next?
Choosing a CMO that is financially stable and has the intention of being in the contract business for the long term can be challenging: how do you find out beforehand if working with a private equity owned CMO is a good choice or if there is a risk that the owners want to flip the company or start developing their own drugs and become a pharmaceutical company?
Another crucial factor is having an experienced project management assigned to your project by the contract company. Much of the success or failure of any project depends on the project manager’s performance, commitment and dedication – which can easily be distorted by having to manage too many projects simultaneously.
And last but not least, communication and decision making in general is important. Are you working with someone in a different time zone? Are you talking to decision-makers or, at least, influencers of decisions? Do they speak the same language well enough to be understood over the teleconference line? Does a “yes” mean “yes”?
4. Which emerging markets are increasingly turned to for formulation development outsourcing?
LL: Biosimilars, especially monoclonal antibodies, is one area where formulation development outsourcing is sought out. Compared to small molecule drugs, biopharmaceuticals are much more complex in structure and potentially contain mixtures (variants/isomers/ microheterogeneities) from production. Hence, formulation challenges are also much higher. Furthermore, to get a biosimilar on the market, regulatory agencies require side-by-side comparability testing of Innovator (reference product) and the biosimilar in physicochemical characteristics, efficacy and safety. Such requirement essentially doubles the workload for formulation development.
PS: At Xcelience, we are seeing more and more work in specialty formulations such as controlled release products, beaded formulations, fast disintegrating tablets and bi-layer tablets. It can take years to master the in-house expertise required for these types of formulations, making outsourcing a considerably quicker and more cost effective alternative.
BK: Even with the recent expiry of so many patents to generics and the very soon availability of many more, there remains little outsourcing from the generics industry. With so many Asian players entering the US by acquisition of existing US facilities, and the competition to be first-fling Company for an exclusivity, there is justification to develop internally. In cases such as reverse engineering or line extensions, the generic companies increasingly outsource due to lack of expertise, unavailability of the formulation or analytical equipment, and so on. NCEs continue to be outsourced for reasons mentioned earlier.
HC: India and China are emerging markets due to low cost, availability of highly educated and specialized professionals. Companies having expertise in novel drug development processes, patented tools etc. are increasingly turned to for outsourcing formulation development. Development of technologies for drug solubility enhancement, new techniques for physicchemical characterizations, in vitro and PK modeling techniques, QbD (Quality-by-design), DOE (Design of experiments), novel formulation development strategies (Solid dispersions, supersaturated drug delivery systems, self-emulsifying drug delivery systems), and cGMP facilities are all gaining focus in outsourcing and becoming an integral part of drug development program.
KK: While Asian CDMOs have attracted a lot of attention because of their low labor cost per hour and expertise, many companies have learned that there are hidden cost and problems dealing with outsourcing to emerging markets. The hourly rate may be lower, but the productivity may not be as high as in Europe thus more hours are needed and the expected savings do not materialize. Concerns about communication culture, quality, timelines, regulatory compliance, the high cost of visiting distant geography, extreme time zone differences, and Intellectual property protection are causing many companies to come back to western contract service companies.
5. What factors allow for a lasting partnership between client companies and outsource providers?
NB: There are a number of elements that form and solidify a long-lasting partnership between client companies and outsource providers. Aside from the obvious requirements, such as integrity, commitment to high quality, GMP compliance, reliability, and affordability, open communication is essential to maintaining a successful relationship. The scientific process is intricate, demanding, and unpredictable, and, as such, it is not uncommon for projects to encounter road blocks during development. Clear communication and transparency with the customer around realistic timing, challenges, knowledge gaps, and errors can strengthen the client-outsource provider bond, as well as illustrate the complexity of the pharmaceutical development process. This level of accessibility will also promote confidence in the outsource provider. A second way to impact the partnership is by encouraging a collaborative rapport and open exchange of ideas. This approach fosters a teamwork atmosphere, provides a sense of involvement, and emphasizes that both parties are working towards a common goal. Offering turnkey services from the early stages of development through commercialization, including such areas as packaging development, regulatory guidance, and full release testing, can also reinforce customer relationships. In addition to full turnkey services, bringing novel technologies, intellectual property, and unique capabilities to customers communicates a high level of commitment and further solidifies an alliance. Due to high competition, the vast majority of pharmaceutical projects follow a tight timeline. Outsource providers that demonstrate agility and a sense of urgency underscore their dedication to a customer and project. A final way to ensure a long lasting partnership is by demonstrating a commitment to brand protection. While Ei Inc. strives to fulfill each of the aspects listed above, strengthening and protecting our customers’ brands is regarded as the utmost priority companywide.
SP: It is very important to recognize that each partnership is different and understanding the unique needs of each partnership is very critical. As an outsourcing laboratory, working with multiple clients from different segments in the industry – from virtual companies, small/midsize pharma to big pharmaceuticals giants – we see that partnership needs in each segment are different and thrive on different criteria.
For example, virtual and small companies tend to have limited in-house expertise in product development and are looking for outsourcing partners that not only provide contracted work, but also provide scientific and regulatory guidance to the client. Companies in this segment are normally run on venture capital or grant-funded projects and tend to be very cost- and time sensitive. They prefer a phased approach with constant updates about the projects.
By contrast, mid-size pharmaceutical companies are looking for outsourcing partners to provide One-Stop Shop solutions. As their programs are typically advanced into clinical phases, they require more work to be completed and need partners who can perform development and validation activities for formulation, analytical, product characterization, and microbiology. These companies are also looking for partners with good project management.
Finally, big pharmaceutical companies tend to have global projects and are interested in cultivating long term partnerships. They prefer working with outsourcing provider with global presence and who have the experience and expertise in running projects across several continents. They tend to work with partners that have global quality agreements, and have demonstrated excellent track records with regulatory bodies.
PS: Like any good match, client and contract formulation organization must share similar philosophies about the approach to development. There must be some chemistry, if you'll excuse the pun. But chemistry alone isn't enough. I strongly recommend that clients check references on any potential provider. This is a small industry and it is easy to find out a given contractor's reputation. Ask questions about the scientists' capabilities, experience and how much work they have done in your area of interest. What is the contractor’s ability to retain employees? How much hands-on do they want in the development process? Some clients want to have prior approval for every batch and some just want to know when the milestones are met. For the relationship to last, a trust factor must be developed between the two companies. That trust factor works both ways–clients should respect the fact that the contractor also has to make a profit and not squeeze too hard on price. Trust develops through the meeting of clearly understood expectations, so set out expectations about deliverables in advance. That includes an agreed upon timeline and a clear picture of how the flow of information should be handled. Expect budgets to be adhered to. A client who is unhappy with something should speak up immediately. Miscommunication or lack of communication is the root of many problems between client and provider.
BK: In my years of experience, managing timeline, communication, quality, and cost expectations are critical. Honestly, if the stringent timelines and communication expectations are met early in the project, then the successful partnership between the client company and outsource provider has begun.
HC: Science aside, transparency and honesty play pivotal roles in a beneficial relationship between client companies and outsource providers. Clarity of expectations from joint collaboration and confidence in each other help in establishing a long-lasting and successful partnership.
KK: There are several factors that allow for a long-term partnership between companies and outsource providers. The most important is a mutually beneficial arrangement between the two parties. If one party is making profits and the other is being squeezed to where they cannot earn a reasonable margin to be able to reinvest in the business or provide a return to the shareholders, then the relationship is not likely to last long. Therefore good communications between the parties at both the project management level and the senior management level is an important factor. Congruent goals and good communications create an atmosphere of mutual trust and respect, which then leads to resilient, multi-level, long-term partnerships.
6. How do you foresee formulation development outsourcing shifting over the next 5-10 years?
SP: Over the next 5 to 10 years, the pharmaceutical industry will see increased pressures from: regulatory demands from government agencies, generic competition as more blockbusters come off patent, and the emergence of biosimilars. At the same time, there has been a big push for lean enterprise model in the industry and therefore foresee a solid growth in formulation outsourcing business amidst fierce competition. More and more, clients are looking for true One-Stop Shop service providers who have experience and expertise starting from preformulation development through to technology transfer for commercial manufacturing. Incidentally, we observe that as more providers, including companies from emerging markets, begin to offer formulation outsourcing services, the emphasis on quality and regulatory compliance, scientific expertise, specialized service, and program management takes higher priority. Additionally, other areas that will emerge over the next decade include development of biologics at higher concentration, special delivery systems like pre-filled syringes, and lyophilized formulations in specialty container closure systems.
PS: I fully expect this type of outsourcing to rapidly increase in popularity. Contract scientists naturally gain experience faster because they work on a number of formulations in a short time, whereas a pharmaceutical scientist may work on a single compound for years. As a result, contract scientists are continually expanding their capabilities and expertise, making them better, quicker and cheaper than most individual pharmaceutical companies.
BK: With one-third of drugs out of the pipeline being poorly soluble and the absence of strong pipelines contributing to the rising generics industry, there will be a greater emphasis on screening of drugs and formulation development. I am certain every available processing option will be evaluated. Who knew that the hot-melt extrusion process, most commonly-used in the polymer/plastic industry, would be employed in the pharmaceutical industry?
Poor solubility leading to poor bioavailability will necessitate a broader range of technologies to be considered. The providers, some having platforms capable of improving bioavailability by changing to amorphous nature, are prone to a long-term existence.
HC: There will be a significant increase in outsourcing for small pharmaceutical and biopharmaceutical companies. Rapid growth of companies providing highly specialized expertise in various areas of formulation development such as physico-chemical characterization, preformulations, analytical assays, stability studies, molecular modeling and solubility enhancement. A long association from the beginning to the end of the product development cycle between client companies and outsourcing providers is expected. Disintegration of bigger companies into smaller companies, with increased emphasis on outsourcing instead of developing in-house expertise will also be a strong possibility.
Pharmaceutical outsourcing will be a fast growing field in the near future, catering to the needs of both small and large pharmaceutical companies. It will play an important role in the success of formulation development.
KK: Much will depend on the overall economic health of the pharmaceutical/biotech industry and how the increasing role of government in healthcare will impact innovation and investment. Cost pressure from public health systems who are not only the regulator and drug approver, but at some times also the customer, will likely force consolidation not only of pharmaceutical companies, but also of the CDMO companies in the future. A larger piece of formulation outsourcing will go to the large and financially strong CDMOs with integrated services as well as to a few smaller companies that offer specialized technologies. There is an increasing trend to reduce complexity in pharmaceutical supply chains. For big pharmaceutical companies, it is becoming more important to concentrate their sourcing at fewer CDMOs with the right capabilities and reduce supply chain and project management challenges. Both trends make it more difficult to select the right CDMO partner. Larger pharmaceutical companies have started looking for CDMOs as preferred partners that are listed on the stock exchange and not just private equity owned in order to limit consolidation risks.