The Changing Outsourcing Landscape

Introduction

In its short lifetime, the Biologics Outsourcing landscape has already undergone several seismic changes: each upheaval having been driven by changes in technology, financials, and appetite for risk. Today the industry is again poised for a dynamic shift. The number of companies who have invested in the outsourcing arena has exploded, while at the same time the availability of funding for discovery companies/experimental projects has plummeted. Moreover, increases in productivity has led to a lesser number of bioreactors being needed to supply in-market products. Thus, it is inevitable that we will be facing another overcapacity scenario - offering opportunities for product sponsors, but also creating pitfalls. This article will examine the recent history of outsourcing, identifying key inflection points, and propose a method for efficient outsourcing using a POC (Primary Outsourcing Coordinator) for both today and tomorrow.

Table 1. US Sales Rank (by$)

The Early Years

In many ways, the situation today is reminiscent of the early days of biopharmaceuticals. The mAbs revolution, that has provided so much stability for a long period of time, is playing out. New modalities and new approaches are being brought forward every day, and no one knows which of those will produce the next Enbrel, Epogen, or Neulasta.

In the early days there was little consensus on what constituted the best production technology. With few regulatory guidelines and less analytical technology in existence at the time, product sponsors pursued many divergent production technologies in this quest. With the belief that this “Bio” technology had lots of low-hanging fruits available, and with the upside potential being as large as it was, there were many people willing to make large investments in product development and manufacturing capacity. Since most of the technology approaches being developed were incompatible; much duplicate investment in infrastructure was required. When the reality of attrition during product development caught up with overly enthusiastic expectations, a significant number of these facilities were left sitting idle. Some technologies, such as stainless steel tanks for fed-batch fermentation, however, were more amenable to being used for multiple other products. So, to recoup their investment, these innovator companies started to lease out their manufacturing capacity and the CMO industry was born.

Those early CMO’s also had something else that was very valuable to product sponsors – product development and manufacturing experience. Even though their in-house candidates failed early in development, those CMO’s knew how to run large-scale fermentation and purification processes. Given all successful candidates would eventually require large volumes of material to be produced, new sponsor companies could take two approaches - choose to build the capacity and capability themselves, or just rent it. Many chose the latter option. However, with that choice came a liability – once they selected a CMO, they were essentially locked in with them. Prior to the FDA Modernization Act in 1997 two licenses were required for registration of a biopharmaceutical – the PLA (Product License Application) and ELA (Establishment Licensing Application). Transferring a product to another site would therefore have required submission of a new ELA, so this was rarely done. Given these two factors, a premium was placed on finding solid, competent CMOs early and building long-term relationships with them.

The mAbs Impact

With the leveling of the regulatory playing field in 1997, sponsor companies could more easily move production from one location to another, forcing CMO’s to figure out how to prevent clients from defecting to competitors. Some did this with proprietary technology and contractual incentives for manufacturing at their site, while others achieved it by expanding volumetric capacity, and providing a wider range of services. These client retention techniques were quite effective - and those CMO’s utilizing them thrived.

This was also the dawning of the age of mAbs – the first truly “platform” technology in biotherapeutics. The promise of biotherapeutics again appeared endless since with the advent of humanized or fully human mAbs, attacking new clinical targets with huge potential markets appeared feasible. With low fermentation titers, and platform purification technologies, the era of large-scale, 4- and 6-pack bioreactors began. Early investors in this large-scale manufacturing capacity reaped large rewards, and with predictions of significant capacity shortfalls, money poured into facility construction.

Figure 1. Titer Increase

Today

The anticipated capacity crunch never fully materialized. The clinical success rate for mAbs has turned out to be lower than anticipated, while the development times have been longer. Concurrently, the race to better proprietary expression systems and fermentation technologies improved product titers (see Figure 1). This has meant that successful products need less physical capacity to meet their annual requirements. Moreover, most large-scale facilities at CMOs, even the newer ones, are often incompatible with the process configuration required to prosecute the higher titer fermentations that are becoming the industry norm. Continuing productivity gains have also made it increasingly unlikely that many more of the large facilities will be needed in the future. Additionally, new thinking in facility design coupled with the expanded use of disposables makes it likely that new facilities will be much cheaper to construct and simpler to operate than those constructed even a few years ago.

Thus, concurrently with the adoption of improved production technologies, the capital cost barrier for investment in manufacturing facilities is also being lowered. When quality systems around the world finally are aligned, the playing field will be completely leveled. Determining the best way to operate in this flatter world is a challenge - but if done well, can be extremely rewarding.

Outsourcing Organizational Flexibility

For today’s large Biotherapeutics companies, it is a given that mAbs will comprise a significant portion of any portfolio and must be supported. But an organization that is grounded in just this technology platform is unlikely to be able to cope with the rapid evolution of the other modalities. A flexible, dual-arm, approach is called for. “Classic” outsourcing for mAbs with a focus on extracting cost efficiency will need to co-exist with outsourcing being done for the “exploratory” technologies. While each could be handled by different groups, the systematic approaches of “classic” outsourcing can have significant benefits for “exploratory,” while the innovative thinking required of “exploratory” outsourcing may have benefits for the “classic” outsourcing model as well. Moreover, as project needs fluctuate, having a combined group proficient in both methodologies will allow more efficient utilization of resources.

Diagram 1. Responsibility Matrix

Effective Outsourcing Systems

Having a clearly identified “Accountable” person from the sponsor company owning the relationship with the outsourcing partner is critical to effective outsourcing of a project. Without this and the commensurate authority to negotiate the terms of the activity, the outsourcing activity will likely end in confusion and disaster. This is not to say that the POC (Primary Outsourcing Coordinator) is responsible for all interactions with the CMO (in most instances it is advisable to keep the set-up and business management pieces separate from the technical transfer and management pieces – see diagram #1), but this person owns the long-term relationship with the CMO and therefore is invested in their mutual success. This person, though, should not just work with one company or there could be a tendency to become too comfortable with them – but instead be responsible for a technology type and developing a range of contacts across that technology type. Active competitive bidding is crucial in maintaining healthy relationships with CMOs.

The POC has the responsibility for working with his technology counterparts to understand the requirements. What are the “must-haves” for the projects – versus the “nice-to-haves?” What are the capabilities of the technology – what is known and what might be possible? What are the watch-outs? What are the material requirements – and most importantly – what is the timeline? Based on this the POC can craft an outsourcing strategy. Who are the candidates? How many “preferred” vendors could do this – and is there any chance a “new” candidate could fulfill the requirements? That is where having someone expert in the technology type – with understanding of the global marketplace – brings real value. This strategy is reviewed with the project team to ensure everyone is on board with the approach – as well as the evaluation criteria.

The POC should have responsibility for creating the initial RFP’s, performing the bid comparison, and clarifying the actual bid with the candidates. Once this phase is completed, the POC reviews results with the project team and the top candidates are selected (see Table 1). Key “second round” questions – based on detailed review of the initial bid packages should also be developed. If the candidate is not already a preferred vendor, technical visits including project team members, Quality audits, and Master Service Agreement discussions should take place. Each final candidate should get a chance to revise their bid package, but once analysis of the second package is completed by the project team, the results are final. The POC should write the agreements and when business/technical interface issues come up – help resolve them.

Table 2 - Vendor Selection Criteria

Finally – in the spirit of collaboration, at the end of the project (or at appropriately defined intermediate milestones if the project is a long one), a more formal “lessons learned” sessions should be held. This should cover both technical execution and business considerations. While ongoing open, direct discussion is a hallmark of successful project execution, a review over the entire span of the project often opens up different thought paths. Reflections on how things could and should have gone better are valuable for both CMO and sponsor company. This ultimately will influence whether the companies choose to work together in the future.

This article was printed in the March/April 2010 issue of Pharmaceutical Outsourcing, Volume 11, Issue 2. Copyright rests with the publisher. For more information about Pharmaceutical Outsourcing and to read similar articles, visit www.pharmoutsourcing.com and subscribe for free.