Introduction
In the beginning was the manufacturing—and it reigned supreme. Pharmaceutical companies manufactured what they could and when they could, all at their own pace, and then passed on the finished products to sales for conversion into cash. The process was that simple. No intense competition, no high-powered marketing, no mad race for the discovery of novel molecules. Because our understanding of the vast majority of disease states was low, this process was perfect. This state of affairs coupled with production and sales-oriented companies—rather than marketing-oriented companies—meant that manufacturing could afford the luxury of excess capacity, passivity in developmental projects, and slow adaptability.
Times have since changed. In today’s world, competition is intense and the pharmaceutical industry is no exception to the Darwinian law of “survival of the fittest.” In order to survive and thrive, the industry needs to rely on its inventing power and marketing power rather than producing and selling power. This should in no way mean that production suddenly becomes unimportant, only that it be highly adaptable and cost efficient. Disregarding the importance of production would eliminate security of supply.
The changing world is also facing the globally rising healthcare costs, to offset which countries around the world are trying to cut down on their healthcare expenditures. While this is happening, the research-based pharmaceutical industry is also faced with the unpleasant reality of expiring patents, drying pipelines, and sizeable generic invasion. These overwhelming external marketing variables and the resultant loss of profitability are forcing the industry to critically look at the way it conducts its business and define profit-oriented operational strategies. Hence smarter managers have started thinking laterally, seeking departure from the traditional way of running the business, and promoting replacement of costly and profit-draining operations with cost-efficient and profitoriented alternatives, albeit external. This is critical if they want to be in the costly and intense race for the discovery of blockbuster molecules. Outsourcing thus fits neatly into the business design of today’s and tomorrow’s pharmaceutical industry. In fact, it partially or even totally frees the business of the burden of capital investment and fixed cost issues, and also affords the advantage of reducing the time to market.
Selecting a Contract Manufacturer
Contracting out is not free of hurdles and challenges, and an important issue is selecting the right contractor capable of handling the project. Hence the sponsors or clients must bear in mind that by deciding to outsource they are in fact entering into a partnership that can only thrive when there is enough mutual trust complemented by open communication and a good understanding of each other’s requirements.
Let us try and list some of the valid reasons to outsource manufacturing:
- Product acquisition, while leaving manufacturing with the other party
- Outgrowing capacity
- Not having the capability to manufacture specific dosage forms
- Uneconomical to continue to run a specific unit, and hence the decision to shut it down and outsource that part of the operation
- Virtual company.
Based on one or more of these, and having decided to outsource part or a major portion of the manufacturing operations, the search for an appropriate partnership will commence. Usually Quality Assurance, Manufacturing, Regulatory Affairs, Legal, and Marketing will be involved in the selection and qualification process, while Materials and Logistics will join and provide the required support at a later stage. On the other hand, if the client is considering product acquisition, the client’s Marketing will initiate the process. Once a potential candidate is identified, Marketing will initiate a written notification to involved functional groups within the organization; such a notification normally includes the firm’s name, address, key contact, phone number, and the product or group of products being considered for the purpose. Marketing should also coordinate in obtaining the background information on the other party for the benefit of their own functional groups, and also in scheduling of the initial on-site audit. It is desirable for Product Development and Medical Affairs to also join the earlier listed functional groups with a view to providing their input in the product acquisition process.
If the intent is to merely outsource manufacturing, then the process should commence by identifying preferably more than one contract manufacturer with subsequent gathering of background information on them. Once some basic work has been done, it may be desirable, where possible, to file an FOI (Freedom of Information) request for the potential contractor’s last two EIRs (Establishment Inspection Reports) and FDA-483s or equivalent, as well as any related regulatory correspondence. Satisfactory progress in this area should then lead to seeking a direct contact with the most likely candidate. A preliminary audit may be appropriate at this time, and the team for the purpose should constitute Quality Assurance, Manufacturing, and Regulatory Affairs, with Quality Assurance serving as the lead group for the initial as well as all subsequent audits. The team should be responsible for determining if the contract manufacturer’s facility, systems, and controls are in compliance with CGMPs (Current Good Manufacturing Practices) and that the quality and capability of the contractor’s regulatory organization is appropriate. They should further assess if the contractor has in place essential organization, facilities, procedures, controls, and systems for manufacturing pharmaceuticals, as well as financial resources and stability to support the client’s long-term operational and inventory needs.
Assessing the Compliance Status
In order to assess the compliance status of the prospective contractor and its management’s commitment to principles of quality, the sponsor’s Quality Assurance should focus on the following:
- Highlight to key personnel of the prospective contractor the purpose of the audit and client’s expectations
- Current compliance status and past history with FDA, including recall history
- A detailed tour of the facility accompanied by contractor’s production and quality assurance key personnel, paying special attention to the production, labeling, packaging, and laboratory areas
- Validation reports for critical manufacturing processes in order to assess the adequacy of the contractor’s validation program
- Recent monitoring data for critical processes
- Finished product test data, in particular sterility tests and assays to watch for any trends in product test failures
- Contractor’s stability program and use of appropriate stability indicating methods. How are out-of-specification stability results handled?
- Annual product reviews (trend analysis). How does the management respond to such reports?
- Batch records review looking for conformance to procedures and completeness
- Material storage, control, and release procedures
- Labels and labeling control procedures
- Complaint file and complaint trend analysis data
- Contractor’s internal audit, as well as suppliers’ audit program.
The manufacturing representative of the audit team should focus on the following:
- During interviews with key financial and manufacturing personnel of the prospective contractor, explore if ability exists to supply products as per the client’s procurement plan
- Does the contractor have adequate capacity to handle current estimated volume, as well as growth over the life of the proposed contract?
- Seek references and evaluate contractor’s reputation with its suppliers and customers
- Does the contractor have appropriate waste control and waste recovery procedures in place?
- Ensure that there are no issues relevant to raw material or component supply that might impact on the client’s timely procurement of the products
- Review pallet load configurations and pallet types in relation to the client’s requirements, and the adequacy of the distribution and transportation procedures.
The preliminary audit results should then be reviewed by the sponsor’s team and a decision made either to terminate or to proceed with a second audit. Should the team be in favor of continuity of the process, a preliminary audit report should be generated by the client’s Quality Assurance and sent to the prospective contractor requesting a written response. Once the contractor’s response is to hand, after allowing adequate time for short-term corrective actions, intent of a second audit on a specified future date could be given. Prior to commencing the second audit, corrective actions based on the preliminary audit report should be reviewed and their implementation verified by Quality Assurance.
Client’s Manufacturing should then determine the optimal lead time requirement for manufacture of the proposed product range on an individual product basis, and should also familiarize themselves with the department or the individual responsible for production scheduling. It is also important to be aware of the contractor’s labeling and packaging components ordering patterns, since this information could be helpful in minimizing write-offs, should the client be required to change any label of necessity.
If the intent is product acquisition, the audit team will have to be expanded to include Product Development and Medical Affairs. The purpose of inclusion of Product Development is to help assess the quality and capability of the contractor’s Development organization with a view to ensuring that the submissions prepared, the products manufactured, and their testing procedures meet the client’s, as well as the regulatory, requirements. Some of the specifics to deal with will include:
- Finding out if the contractor has an appropriate system in place for review and implementation of USP updates and the FDA policy decisions
- Review of manufacturing and testing procedures for the batches used to support regulatory submissions
- Review of the contractor’s stability program for the demonstration batches
- Review of analytical and stability indicating methods while also making sure that those are validated
- Evaluation of API supplier qualification procedures as well as procedures for qualifying alternate suppliers.
Medical Affairs will have the responsibility of reviewing formulations and determining if the excipients pose any potential for harm, and evaluating the medical risks associated with known chemical residues in the product. This will include, if applicable, a review of clinical study design and analysis. Relevant documentation from the contract manufacturer and FDA will have to be requested.
Contract Review
Marketing, in coordination with Legal and Materials & Logistics, should circulate a draft of the proposed contract between the client and the contract manufacturer to each functional group, and there is no harm in reviewing the draft concurrently during the qualification process. The functional groups should provide their comments to Marketing, who in turn should forward it to Legal and M&L. Subsequent drafts should also be routed to the functional groups for comments. The technical contract is an extremely important tool for controlling the contractor, and hence a great deal of attention will be required in its preparation.
Quality Assurance will have the authority for approving the contract manufacturer, or for communicating non-approval to other functional groups.
Time to Sign the Contract
Should the post-audit assessment be favorable, it is perhaps time to finalize the contract provided there are no other issues to deal with. At this time the sponsor would have to seek the quotes from the prospective contractor, which would require signing of a Confidentiality Agreement and then providing confidential documents such as the Production Work Formulae and Procedures, Analytical Procedures, and the like to the contractor to work with. The quotes turning out acceptable and the contract having been signed, the cumbersome task of transfer of technology begins. Although different functional groups on either side will have to interact on an ongoing basis during the life of the contract, it is most desirable to have a team leader at both ends to manage the communication process, with Manufacturing in charge. This will translate into unity of command and help minimize any misunderstandings, while also giving the individuals a sense of ownership of the project. Early development of body chemistry between those in charge is essential for the partnership to flourish. This requires, as stated elsewhere earlier, mutual trust, open communication, and a good understanding of each other’s needs. Conversely, personality clashes are unfortunate and a recipe for disaster, and may warrant replacing the team leader at one or the other end.
Partnership in Action
Transfer of technology having been successfully completed, and with due regulatory approvals, batches of course start rolling out. The burden of responsibility for the quality of the product being on the marketing authorization holder, the client must develop an efficient system to ensure that the contractor is in a state of ongoing compliance. A detailed quality assurance audit at least once a year is highly desirable. The client should also arrange to have certified copies of all approved and current master production and packaging documents, analytical procedures, stability indicating procedures, and standard operating procedures on its site, while any required changes to these documents should only be made in consultation with, and by documented approval of, the client. During the early partnership period the client might elect to have his/ her manufacturing representative monitor production and packaging of every product batch, but such a practice may change once the client has earned enough respect of the contractor with regard to quality assurance. However, based on the contractual agreement, the client should ensure that every incoming product lot is accompanied with a complete set of batch records, including release documents, which should be reviewed by the client’s Quality Assurance for completeness as well as adherence to CGMP prior to release for sale. Reworks or any required changes should only be affected with prior written approvals from the client.
Inventory Management
Because of its effect on the bottom line, a profit-conscious client always prefers to keep his/her finished product inventory as low as possible, but without having to face a stock-out or back order situation. Under ideal conditions this should always be possible. All it takes is an accurate and timely sales forecast, an equally accurate manufacturing forecast, adherence to lead time by the contractor, and adequate safety stock levels. With a good blend of these elements five to six Inventory Turns may be within reach.
Most critical of these elements is the sales forecast, which in real life is seldom accurate. One of the reasons for lack of accuracy is the trickling down of the financial objectives from the top and the helplessness of the Product Manager in coming up with more realistic forecast figures. A smart Inventory Manager or Materials Manager may prefer to review the rolling five-year sales history in conjunction with the current sales forecast. If the individual is on the business team (if the individual is working for a progressive pharmaceutical business, he or she should be), then the individual should also be aware of the marketing thrust behind each product. By factoring this in the sales trend a more realistic sales forecast could be generated and this could perhaps form the basis for a relatively accurate manufacturing forecast. The sales as well as the manufacturing forecast should be promptly updated as required, but should not adversely affect the established lead time. With an established lead time of three or four months and a six-week safety stock level (going any lower might increase the probability of stock-out), five to six Inventory Turns may be a reality. Developing and maintaining a good working relationship with the contractor’s project leader may possibly help avoid an occasional impending stock-out situation.
In essence, information flow is vital to maintaining an efficient supply chain. Progressive contract organizations are using highly efficient vendor-managed inventory systems for exchange of supply and demand information with their clients. These systems are believed to be able to track daily sales as well as changes in monthly forecasts, and also the ability to track the SKUs and subsequently process the data into a MRP (Manufacturing Resource Planning) system thereby generating production plans.
Conclusion
Contract manufacturing has changed over the years. It is now apparent that it is not just a trend, but is here to stay and will play an important role in the future of the pharmaceutical industry. The ongoing mega-mergers will continue to provide growth environment to this sector of the business. If due attention has been given to the homework prior to selecting a contract manufacturer, the resultant partnership will have a greater chance of success.
Mohammed R. Khan is a Quality Management Consultant and Principal, Synergex Consulting, Canada. He has earlier directed the QA/QC and Regulatory Compliance operations at DuPont Pharmaceuticals Canada, and served on the Board of Directors at the Pharmaceutical Manufacturers Association of Canada/Plant Operations Section. As an active member of the Drug Information Association, he has served on the DIA Advisory Council of North America, Chaired the DIA Canadian Programming Steering Committee, and is a recipient of the DIA Outstanding Service Award. He has served as a Presenter nationally and internationally for the DIA, PDA, IQPC, OMICS Group, PSG Canada, International Society of Ethnopharmacology, and the Indian Pharmaceutical Congresses