1. What, in your opinion, is currently the single largest trend with respect to active pharmaceutical ingredients outsourcing and manufacture?
SW: For biopharmaceutical manufacturing, the greatest current change is the impact of increasing expression levels on the volume of capacity that is required for production. With the increase in expression of each cell and with increased cell densities, the volumes needed by clients are steadily declining. This has resulting in clients being able to select from many more CMOs than was possible in the past.
AM: The relationship between pharma companies and CROs has evolved from being very transactional in nature, through a process of preferred provider relationship, to one of closer strategic collaboration. The drivers have been the desire to reduce cost and cycle times, whilst maintaining quality. This trend has resulted in increased program level outsourcing with closer relationships between the sponsor and a smaller number of CRO partners. We have seen this trend in both full service and Functional Service Provider (FSP) models.
BK: Innovator companies seeking a specialized early phase development provider like Xcelience are most often challenged by limited quantities of active pharmaceutical ingredient (API), or issues associated with challenging physical and chemical properties of their drug substance with poor aqueous solubility, and poor bioavailability. Specifically, we have tackled oral dosage form projects for formulation development of poorly soluble drugs, compounds that require enhanced bioavailability or consistency, compounds with poor blend flow, polymorph or stability challenges, compounds that require targeted delivery to a specific site within the body, development of low strength dosage forms by direct compression, and incorporation of high strengths in tablets or capsules. The formulation development scientists at Xcelience have significant drug development experience (nearly 100 years combined) and technological expertise that enable them to work with clients to create customized development plans to overcome these obstacles.
RS: With respect to non-manufacturing business opportunities, the consolidation of outsourcing providers by large Pharmas to a limited number of larger CROs and the spinning off of entire programs to CROs. Pharmas are no longer vertically integrated and no longer believe that they can do the work better than contractors. There is plenty of talent within all sizes and shapes of CROs, some of that expertise being ex- Pharma staff who have joined the CRO ranks. Some preferred provider arrangements have escalated into development partnerships.
HJ: Using contract organizations to gain a business advantage is not at all new. In the early 90’s, outsourcing started becoming part of life. In those days, pharmaceutical professionals came across contractors in the pharmaceutical companies to perform some functions such as gardening, security, watering indoor plants, changing paintings on walls, etc. The argument was that outsourcing allowed companies to focus on core competencies and let the contractors conduct more routine jobs.
Pharmaceutical product development and commercialization encompasses several functions with the key functions being drug discovery, Phase I toxicological, pharmacokinetic and pharmacological studies, formulation and analytical development of products, Phase II and III clinical trials, Technology Transfer and marketing of products. For generic and over-the-counter products the functions differ slightly. There are two main trends with respect to contract research outsourcing and manufacturing. The first trend is outsourcing of core competencies and the second one is outsourcing to countries like India or China. Outsourcing of core competencies started with an outsourcing of intermediates and soon extended to the final APIs (active pharmaceutical ingredients). The reason was very simple – to cut the cost of production of APIs. The trend of outsourcing core competencies continued with outsourcing of formulations and even producing drug discovery compounds. Big pharmaceutical companies have always acquired active molecules from small companies and focused on marketing the products. Outsourcing the core competencies is an extension of this business model. US has been the main hub for the pharmaceutical industry. But recently, the core competencies have been extended to contract research and manufacturing (CRO’s and CMO’s) organizations abroad.
PG: In the drug discovery arena, I would say that the move toward “integrated services” (the outsourcing of cross-functional drug discovery projects) is probably the most significant trend at the moment. This has required CRO’s to expand the breadth of their capabilities in an attempt to deliver a “one-stop-shop” for their clients, and to increase their expertise in drug design. This trend is driven both by vendors, who see this as a “value-added” activity with the potential for increased revenue (sometimes even involving a “risk-sharing” business model), and by clients, who believe that they can manage some of their activities more efficiently and cost-effectively in this way. I must admit that Millennium has not invested significantly in this approach, so it will be interesting to observe how successful this model is found to be. Given the long drug discovery cycle times, it will probably be a few years before we have that answer.
JB: As the pharmaceutical/biotech industries face increasing regulatory and financial challenges to develop their products, the value of outsourcing is becoming a larger strategic consideration. Pharma and biopharma companies are being forced to consider new ways to operate in a rapidly changing environment, and the pace of that change is causing disruptions to the product development process. While the industry is rethinking outsourcing strategy, contract service providers must adapt to variability in demand for their services, and at the same time, anticipate and proactively address new Sponsor expectations.
While the shift to strategic outsourcing bodes well for the CRO industry as a whole, meeting the increasing demands of customers whose future outlook is dramatically different than it was a decade ago is forcing service providers to interact with their customers with more sophistication than ever before. Sponsor needs for quality assurance, regulatory compliance, process improvement and timely delivery are being evaluated by the service industry and there is evidence they are responding. Investments in expertise for process improvement, program management and real time communication technology have been common advertisements from the outsourcing industry in the past few years.
The well publicized Eli- Lilly/Covance alliance was a wakeup call for most service providers, signaling that the pharmaceutical industry is willing to approach outsourcing in a dramatically different ways. The focus of large pharmaceutical companies to strategically engage with a small number of preferred providers is a meaningful departure from the procurement-based outsourcing approach that the service industry had become accustomed to. The challenge for the service industry will be to anticipate the needs of their customers and position themselves as true business partners. The most successful CROs will capitalize the inevitable opportunities as a result of the industry viewing outsourcing as a strategic imperative, rather than an operational option.
NM: The largest overall trend in clinical research outsourcing is the growing complexity of trials, which means longer trials with increased number of patients and more interaction with patients – for example more diagnostic tests or more frequent review of progress.
Since the “low-hanging fruit” are gone, drug companies have to move to more difficult targets in order for new drugs to have an effect. This translates into a more complex protocol.
The effect of this general trend is that it is more patients in aggregate will be needed to support this increasing demand. India, China and Latin America therefore have emerged as prime locations to conduct trials where companies can more easily enroll more drug-naïve patients.
As for contract manufacturing, there are two main trends. Drug companies are looking to outsource the combination of formulation, scaleup and clinical trials supplies in order to gain a more substantial cost savings. Outsourcing these services individually just doesn’t give big pharma the aggregate cost savings they need in these areas. However, right now, no single company can offer all three services at a high level of competency, so any selection of an outsourcing partner results in a compromise.
We will see several types of outsource companies beefing up their capabilities to try and fill this need: commercial-level manufacturers will try and move their services back to these earlier stages in the supply chain; CROs will develop the expertise and offer it as an add-on service to trial management; and formulation, scale-up and clinical trials supplies companies will step up their qualifications across all three areas. Discussions on outsourcing these bundled services are ongoing and we will see deals of this nature within two years.
The second trend in the area of manufacturing is the need for biologics expertise, particularly with regard to formulation and scale-up. In fact, if I were to start my career again, I would focus on formulation for biologics! Most large pharma companies have a deep heritage in chemistry, not biology. So companies that are meeting the demand of bundled contract research manufacturing have the opportunity to differentiate themselves by also offering biologics expertise.
2. How, in your mind, has the landscape of contract research outsourcing/ manufacture shifted post-recession?
SW: As the biopharmaceutical industry has moved out of recession, the number of projects being bid to CMOs has increased and CMOs have become busier, with more crowded schedules and longer queues.
AM: Biopharmaceutical companies are attempting to manage costs and get drugs approved. As the hurdles for regulatory approval become more significant (both efficacy and safety), there is increased tendency to do more thorough Phase 2a studies using more sophisticated combinations of imaging and wet biomarkers to establish proof of concept. However this is resulting in increased selectivity for progression of drugs through phase 3. Also related to regulatory pressure includes an increased need for post marketing safety studies for some classes of drug, such as those for type 2 diabetes. Further, the increased trend towards personalized medicine and more targeted therapies means that there are likely going to be fewer blockbuster types of drugs. CROs will need to adapt to this change to meet growth needs, by demonstrating increased ability to plan, design and execute “bundled” programs of studies which will be smaller in nature.
The improved financial landscape has resulted in global increase in biotechnology sponsored outsourced work. This is often in the proof of concept space, and more sophisticated and complex in design. This includes both personalized and regenerative kinds of studies, and seems to be across all therapeutic areas. There is also an increased trend to develop drugs for symptomatic treatment of functional disorders, such as pain and functional bowel disorders. CROs need to have appropriate scientific and academic relationships to appropriately plan, conduct and analyze these kinds of studies.
BK: Xcelience is committed to expanding capabilities in direct response to client needs and in order to improve the probability of compound success. Our recently expanded capabilities supported clients build towards improved manufacturing outcomes in a manner consistent with QbD by making investments in technology and ensuring a smooth transition from the experimental area to the cGMP environment. Our recent addition of the Vector® roller compactor complements the Vector® Mini in the experimental area, and enables a smooth progression in dry granulation capabilities. Additional capital investments include an IN-CAP® Capsule Filling Machine, a Piccola® Rotary Tablet Press, and dedicated Xcelodose® Precision Powder Micro-dosing Systems. Future areas for capabilities expansion may include bi-layer tabletting, hot melt extrusion, extrusion and spheronization technology.
RS: There is intense pressure to bring new drugs to market and the focus has been on late phase development, but the pendulum is swinging back to preclinical development and Phase I as new compounds enter the development pipeline, in discovery activities at both startups and established firms. Biotech companies have been on the ropes due to funding cutbacks from venture capital and have been more careful than ever before to choose the best options for program success and continued funding.
The migration of CRO activities to China and India is ongoing but there have been some hiccups. Some Pharmas will outsource there to satisfy governmental regulatory dictates but stop short of outsourcing more critical phases due to concerns about strict execution to GxP, protection of IP, increasingly evident staff turnover, and communications difficulties. CROs based in these countries are getting better at meeting client and regulatory expectations, but I suspect their operating costs will also increase along the way to soften the business drivers to use these labs. Obviously, both China and India have strong bases of well-educated scientists in the chemical and pharmaceutical sciences, many of whom were trained in western universities and companies.
HJ: Top big pharmaceutical companies have a lion’s share in the overall pharmaceutical revenues and therefore, attention is focused on those companies. Big pharmas outsource a lot of work to CRO’s and CMO’s. If you compare the growth of big pharmas – Pfizer, Merck, Bristol-Myers Squibb, Glaxo, Novartis and J&J - during the last 30 years, you can find two distinct trends. Between 1980 and 2000, all companies showed phenomenal growth. During the next 10 years, the stock prices slightly declined or remained flat. In 2008, the stock prices of these companies declined by 20% to 60% and stock prices reverted back in 2009. Last year, the stock prices were flat. One can see that all these companies survived the recession pretty well and so also their outsourcing contributions. However, different companies adopted different strategies. For instance, in 2003, Novartis created a subsidiary for its generic products reusing the predecessor brand name Sandoz. They acquired Chiron and Alcon in 2006 and 2010, respectively. In November 2009, Novartis acquired 85% stake in the Chinese vaccines company Zhejiang Tianyuan Bio-Pharmaceutical Co. Ltd. to enter the vaccines industry. The mergers of Warner-Lambert (2000), Pharmacia (2003) and Wyeth (2009) with Pfizer are very well known. In February 2011, Pfizer announced to close its R&D facility in Kent, UK which employed 2400 people. Bristol- Myers Squibb (BMS) announced several collaborative agreements in recent years. In September 2010, BMS signed an agreement to acquire a biopharmaceutical company ZymoGenetics for $885 million. One of the main products of ZymoGenetics is pegylated-interferon lambda, a novel interferon drug candidate for the treatment of hepatitis C. In December 2010, BMS acquired the worldwide rights from Oncolys BioPharma Inc. to manufacture, develop and commercialize Festinavir, a once-aday, orally available nucleoside reverse transcriptase inhibitor in Phase II development for HIV. Apart from the acquisitions of competitors, big pharmas also acquired CRO’s and CMO’s.
These companies announced significant headcount reductions during 2006-2010. At the same time, these companies announced strategic alliances with companies abroad. One of the target countries was India, as evident from the following table.
Overall, each of the big pharmaceutical companies positioned themselves before and during recession in such a way as to stabilize the business. The result of the above strategies is good for companies, but is not good for American economy. Sarah Portlock wrote a very good article in the Business section of The Star Ledger (February 20, 2011) titled, “Wide Open Spaces”. Mergers and acquisitions created empty labs and office spaces. It was proposed to utilize these empty spaces by creating in-house CROs and CMOs (Pharmaceutical Outsourcing 12: 46, 48, and 50, 2011). On the other side, pharmaceutical CRO’s and CMO’s in China and India showed a healthy growth during and post-recession. They will enjoy continued growth during next five years.
PG: The trend toward increased drug discovery outsourcing has continued unabated over the last several years, and that this trend has continued during the recession. The Pharma industry has strong incentive to cut costs, due in large part to weak pipelines and patent expiries, and this will continue be the case regardless of overall state of the economy. Certainly, outsourcing will play a larger and larger part in these cost-cutting efforts.
On the other hand, since many large Pharma companies are seeing their overall R+D budgets slashed, the net effect is likely that CRO’s are getting a larger portion of a smaller pie. Also, there is tremendous competition in the outsourcing industry and very strong downward pressure on pricing (while costs for things such as salaries have significant upward pressure). The economic downturn has intensified the focus on price on the part of the clients. So, while outsourcing is becoming more and more central to pharmaceutical research, I don’t think it’s getting any easier to run a successful outsourcing operation.
JB: Disruptive market conditions can create opportunities for companies that recognize and act on them. CROs/CMOs who find ways to create value for their customers through innovation and process improvement, while continuing to maintain quality and reducing risk, are most likely to come out ahead. The shift toward preferred vendors and strategic outsourcing relationships also offers opportunities to CROs/ CMOs, including the ability to focus on serving their “best” clients and offer long-term agreements to reduce variability and help solidify future revenue. On the other hand, CROs/CMOs who aren’t able to achieve preferred vendor status risk of losing large volume clients to competitors, and, as a result, may feel compelled to compete on price to fill capacity. Quality and regulatory compliance are absolutely essential to drug development, regardless of who carries out the activities and as many Sponsors have learned, deep cost-cutting at CROs/CMOs can lead to compromises in quality, missed timelines and inadequate service.
NM: The landscape is moving aggressively to consolidation and we will see the number of mid-size clinical trial outsourcing companies reduce continually. The large and mid-size companies will continue to grow strategically by adding capabilities through acquisitions of companies that are at least $100M. At the same time, smaller companies – under $100M – will emerge to provide niche or specialized services.
From a manufacturing point of view, it is again an issue of pharma companies looking to reduce costs. During the economic downturn, investment dollars moved away from drug companies. This dynamic forced the companies to reduce operating costs through outsourcing in order to make their profitability targets.
Typically outsourced activities involved “big ticket” items like monitoring. Now they are looking at secondary activities to maintain their margins, for example, through the outsourcing of formulation, scale-up and clinical research supply manufacturing. Again, outsourcing these services only makes sense for large pharma when they can be bundled effectively.
So the trend towards outsourcing is largely driven by economic pressures, excluding the need for biologics expertise.
3. What country/region, in your opinion, is currently leading the way in contract research/manufacturing and why?
SW: For several years Europe has had more CMOs for biopharmaceutical manufacturing than other countries. Some consolidation has occurred with Diosynth and Avecia coming under control of Merck. There are several CMOs expanding in Asia, but we have yet to see real projects move into these plants. As capacity fills up elsewhere in the world we may see more projects move into India, Malaysia and China.
AM: The majority of originating work continues to come from the US and EU based pharmaceutical companies. However, we see an increased trend for originating work, particularly in the Biosimilar space, coming from Korea and Taiwan, and both biotechnology and pharma work originating from China. The latter are generally smaller studies intended for the local market. There is also a shift in participating regions, with increased numbers of patients being placed in the BRIC countries of Brazil, Russia, India and China. We think that the limiting factor will be identification of appropriately trained and resourced local investigators able to comply with GCP, and CROs are likely to play an important role in developing this investigator pool.
An additional factor is the change in regulation in Japan that now allows the use of ex-Japan data for local approval, which increases the opportunity for global CROs in that market.
RS: For manufacturing APIs, India is gaining, particularly for small molecule organic production. North America and Europe hold a strong grip in biotechnology products, where conservative estimates state that 30-40% of the new drugs will be new biologics, generics, or biosimilars. The barriers to entry are not inexpensive.
HJ: India and China are the two leading countries when it comes to contract research and manufacturing. The SWOT analysis of the Indian Pharma industry (Analysis of Indian Pharmaceutical Industry with emphasis on Opportunities in 2005. Hemant N. Joshi, Pharm. Tech. 27: 74- 94, 2003) discussed various aspects of Indian pharma industry. Indian contract research and manufacturing organizations have enjoyed a strong leadership due to the fact that they have an English-speaking and highly educated staff, advanced IT industry, government support. India is an attractive and strong market in itself due to a large middle-class with good buying power. Lack of English-speaking people was a key disadvantage to China in the past, which was compensated by lower labor cost. In recent times, China has produced a large population of English-speaking young graduates to nullify its former disadvantage. In October 2008, Eli Lilly announced to open a R&D center in China. Many big pharmas have noticed this shift. In the following excerpt, Lilly’s Vice President of Global External Research & Development, Robert Armstrong, describes the company’s efforts:
“Lilly is pursuing a network strategy model. Establishing the China office provides an important portal for the innovation network. Drug R&D is a long and complicated process full of unforeseen risks. The existing model of drug discovery where the internal organizations deliver all components of the package is being seriously challenged as productivity is dropping across the industry. Traditional outsourcing offers certain cost advantages but does little to address the fundamental problem with regard to risk profiles and resource efficiency. China, with its vast supply of scientific talents, vibrant entrepreneurs, and superb infrastructures, will become a fertile ground to define the winning model of future drug R&D."
In 2009, Eli Lilly announced to double its workforce in China to 2,000 and reduce its workforce worldwide by 5,500. In March 2010, the CEO of Eli Lilly, John Lechleiter, announced the launch of 15 new products in China, but also urged China to be more vigilant on intellectual property rights. The World Intellectual Property Organization (WIPO), a part of the United Nations, is responsible for promoting the protection of intellectual property as well as administering various multilateral treaties. India and China have taken measures to implement intellectual property rights and thus, companies are less hesitant to enter these markets and transfer the knowledge base. Despite all of the treaties and rules, policing patent infringement and piracy has become the monumental task. These two countries are showing nearly 10% growth in recent years and thus, there is a significant growth of the middle class. The pharmaceutical companies are not only looking at these countries for outsourcing, but want to sell their medicines to the middle class. In doing so, they can produce the drugs at a lower cost by outsourcing to these countries and generate significant revenues while generating hefty profits.
PG: No doubt China has the upper hand in drug discovery outsourcing at the moment. The quality of infrastructure in the major cities, combined with access to a tremendous talent pool, gives them a leg up on all other countries. It is certainly possible that cost may become a serious issue for China, though. Beijing and and Shanghai are as expensive as any American city, and any strengthening of the Renminbi will make it much harder for Chinese CRO’s to eke out a profit while maintaining the highly competitive pricing that has made them so successful thus far. We’re already seeing some of the larger Chinese CRO’s moving a portion of their activities to lower cost-of-living regions, in an attempt to keep costs under control.
JB: The US is the world leader in contract research/manufacturing, as it is the birthplace of the pharmaceutical innovation and regulatory oversight—and still the largest market for pharmaceutical sales. That said, one can’t deny that the growth and market potential have been and will continue to be centered on China and India. Each of these countries has a growing economy, demands for improved health care and a potential drug product market size that is very attractive to the pharmaceutical industry. With service providers anticipating meeting demands of their Sponsors, the requirement to be “on the ground” in China and India has become almost a necessity for service providers supporting global pharmaceutical companies. China and India are adapting to the pharmaceutical industry standards and because of the outsourcing demand primarily from the U.S., are quickly coming up to speed on processes and systems that took innovators decades to develop.
The presence of the outsourcing industry in these geographical regions will provide the platform for developing the necessary resources and understanding to meet the future demand for pharmaceutical products in their respective markets. While there are options for cost reduction and access to capacity in China and India that allow for more available options for the pharmaceutical and biotech industries, decision makers are met with the realization that logistical challenges, supply chain quality and counterfeit products are areas of increased risk.
NM: India, China and Latin America are critical to current and future trials. The combination of naïve patients and economics of conducting trials in these regions is an undeniable advantage for drug developers.
It is generally the same for clinical manufacturing, but the twist is in the case of biologics. These emerging markets are moving into a dominant position of generics manufacturing, but this is focused in small molecules, meaning a focus in chemistry. Now they have a tremendous opportunity to establish their expertise in the manufacturing of biologics and are doing just that. In fact, the Chinese government has decided invest $100M for biologics production facility in Beijing.
With the chemical heritage of most drug companies creating a lack of this type of in-house expertise, these generic manufacturers can leverage biologics know-how as the next evolution in their growth, rather than solely competing on price. Currently, this means a focus on biosimilars.
4. If things progress as they have the past five years, what can we expect in the next five years, with respect to contract research outsourcing/ manufacture?
SW: We can expect to see more development and manufacturing activities move to lower cost organizations in Asia. There are several well-qualified organizations that have demonstrated their capabilities to delivery good service and to respect intellectual property.
AM: I think we will see many more strategic relationships between large CROs and pharma companies. While there will still be a place in the market for niche players, the market share from full-service global CROs will grow. There may be some consolidation amongst midtier CROs for this reason.
I think the importance of Proof of Concept in Early Phase development will increase as will Late Phase and Post-marketing studies, as pharma companies have realized that factors such as health economics, outcomes research, epidemiology and observational research will now play larger roles in determining which new medicines are ultimately reimbursed.
Biosimilar drug development will be another growth area over the next five years, which will be driven by patent expiries and the demand for cost-effective biologic drugs. Similarly the kinds of studies will evolve to become smaller and complex, reflecting the trend towards personalized and regenerative medicine.
BK: The global pharmaceutical industry is undergoing rapid change, but the outlook for contract formulation development and manufacturing services is favorable, with outsourcing levels expected to increase. While we see signs of industry consolidation and a more competitive landscape, Xcelience continues to exhibit strong performance thanks to our loyal customer base, strong quality record, and drug development expertise.
RS: We have been talking for years about personalized medicine, and there is general acceptance that new drugs will likely be marketed to patients matched to these products using companion diagnostics. Pharmacodynamic indicators may be more telling than clinical observations or pharmacokinetic data if we have a set of biomarkers that track closely to disease progression or cure. Laboratories that can provide this type of data will save precious development funds from being wasted on less focused clinical trials and move new drugs to market sooner.
HJ: It’s a common knowledge that the cost of development of a generic product is significantly lower than the cost involved in discovering a new marketable drug molecule. Pharmaceutical companies looked at countries like China and India to manufacture generic products. The US-based Perrigo Company, having USD 2 billion in sales, acquired 85% of the stake in Mumbai-based Vedants Drug and Fine Chemicals. Vedant’s strength is in complex synthetic chemistry to produce drug intermediates and API’s. Mid-tier global pharmaceutical drug-makers such as Teva Pharmaceuticals, Watson Pharma etc. are gradually making inroads in India to manufacture drugs. In my opinion, the trend will continue in the next five years with respect to contract research outsourcing and manufacturing. Many mid-level to large Indian companies are rejoicing the growth of the CRAMS (Contract Research and Manufacturing Services) segment. The segment has been and will grow at 20%-40% and is expected to capture a significant CRAMS market. Indian companies such as Piramal Healthcare, Ranbaxy, Cipla, Lupin and Sun Pharma are leaders in CRAMS sector. India and China have also started with dealing with “biosimilars” – a new field entering the drug arena. Biosimilars or Follow-on biologics are terms used to describe officially approved versions of innovator biopharmaceutical products, following patent expiry. However, the growth of contract research and manufacturing organizations would plateau in 5-10 years due to several factors. Some of these are increased salary structure, increased awareness of the detrimental effect on environment due to manufacturing operations and application of restrictions, and competition from new entrants such as South American and Africa countries etc.
PG: This is very hard to predict. As more companies move toward “virtualization” of their drug discovery activities, we may start to see situations where even large pharma companies have only skeleton crews of in-house scientists who oversee lab work that occurs almost exclusively externally. On the other hand, it is not at all clear that this approach will ultimately be successful on the scale that it is being deployed (in terms of increasing the efficiency of drug discovery). Furthermore, upward pricing pressure may start to make outsourcing look less attractive to the bottom line than it is today. If CRO’s can keep their costs down, and prove proficient at executing on drug discovery projects in an efficient manner, then they will be well-positioned to play a more and more central role in drug discovery activities.
JB: From a service provider’s perspective, significant changes in the landscape of the contract industry will continue. Consolidation in the outsourcing industry will create larger organizations, capable of providing solutions to the pharmaceutical/biotech industry to compete on a global scale. As the industry demand for capabilities and scope of services increase, opportunities for consolidation and strategic acquisitions will be on the forefront of companies willing to meet the demands of tomorrow’s pharmaceutical and biotech industry. If the size and scope can be achieved, there will be significant opportunities for larger and more diverse CMOs capable of meeting global supply chain demands. Their challenge will be to maintain the lean, efficient operations that have made them a viable alternative for development activities.
NM: In general, we will continue to see a gradual progression in the trends we’ve discussed – more complex studies, emerging markets, the bundling of contract research manufacturing services and biologics expertise. Adaptive trials will also continue to improve the way we conduct trials.
The only disruptive dimension in the short term that could have a significant effect would be FDA guidance on constructing clinical trials for biosimilars. The entire industry is anxiously waiting for this to be defined.
5. In your opinion, what specific field currently benefits the most from contract research outsourcing/ manufacture and why?
SW: In the case of biopharmaceuticals, we have not seen much movement of manufacturing outside of the US and Europe. However, there are a few organizations in Asia that have attracted work from US and European firms, particularly for development activities. I expect to see more of these projects in the future as companies build trust and see the benefits of getting twice the work done for the same price.
AM: Patient enrollment is particularly important in large global trials. Critical to this effort is high quality feasibility for protocol viability and site and country selection. The global CRO possesses investigator networks, large databases and prior investigator enrollment performance and start up timelines. The global CRO also has the reach to support and execute such studies. The larger trials tend to be in the cardiovascular, and oncology areas. This approach is more cost effective.
RS: Pharmas and biotechs are still best at discovery. CROs really understand the regulatory landscape with respect to development as a program moves into its preclinical, CMC, and clinical phases. CROs also generally have a wider range of experiences with regulators and see many different interpretations of the GxPs by their sponsors. In fact, many Pharmas just send out any studies with regulatory implications to avoid the costs of running formal GxP studies in-house.
As mentioned earlier, the key fields in the drug development process are drug discovery, animal studies (toxicological/pharmacokinetica/ pharmacological), large-scale API manufacture, formulation R&D, manufacturing of drug products and clinical research. So far in this article, we have only discussed the formulation aspects in drug development. On average, it costs about USD $800 million to develop a new drug molecule, which can result in a drug product. A study published in 2006 estimated that the costs vary from around $500 million to $2 billion depending on the therapy or the developing firm. The proportion of cost of pharmaceutical aspects (formulation/preformulation, analysis, process development and technology transfer) in drug development is smaller when compared to the cost of clinical studies. In the drug discovery phase, several drug molecules are synthesized, which need to be tested in animal models for short-term and long-term toxicities. The effects on various bodily functions such as fertility, reproduction, and the immune system need to be understood. The pharmacokinetic profile and study the effect of food, other drugs, disease state on the PK profile need to be evaluated and need to assess mainly the pharmacological effectiveness. Very few molecules are selected to be tested in human subjects. As a result, only 25 to 50 new drug entities are discovered per year. Many studies are laborious and in my opinion, this sector will benefit most in contract research outsourcing. Clinical research is certainly very expensive and conducting clinical trials in Asian and African countries have many benefits. China and India having populations of 1.3 and 1.0 billion, respectively, are attractive sites to conduct clinical trials due to the easy availability of patient population. More and more clinical trials are being conducted in these countries. Thus, investment in this area in these countries will be a great value addition to pharma companies engaged in drug discovery programs. There are already many CRO’s and CMO’s available and one can select the right one meeting all the needs.
PG: While the outsourcing industry focuses more and more on offering complex capabilities for their drug discovery customers (such as integrated services), I personally still find that we at Millennium get the biggest “bang for the buck” from the basics: straightforward activities which need minimal troubleshooting. For instance, we spend most of our medicinal chemistry outsourcing dollars on synthetic services, which are relatively easy to plan and monitor. In biology, routine activities such as biochemical screening have been successfully outsourced. I think that the answer to this question is very much in the eye of the beholder, though. The most important thing is to understand your own organization’s needs, the level of risk you’re willing to take with respect to turning over critical activities to outsiders, and the level of internal investment you’re willing to make to insure success.
JB: The benefits of outsourcing CMC development activities have to be considered among the top areas of realized opportunity. Due to the expense required to build production plants for APIs and drug products that have a limited patent life, outsourcing CMC development activities is a very attractive option for the pharmaceutical and biotech industries. Most sponsors have realized that the variable costs of their own supply chain, plus fixed costs of maintaining facilities, operational staff and support services are difficult to justify unless they have a sufficient pipeline of successful drug candidates that are in late stage and commercial development.
From a service provider’s perspective, we’ve seen many virtual organizations successfully get products to market with limited capital invested in facilities, equipment and labor. These have been the clear winners in overcoming barriers of entry that were once perceived by the industry as insurmountable.
NM: Broadly defined, there are two reasons to outsource 1) to save money and 2) to access capabilities you don’t have within your organization. The technology innovations within systems biology and predictive modeling are really quite impressive and will greatly impact pre-clinical phases as a feed for accelerated proof of concept and adaptive techniques. We will see more money invested in these early stages along with niche companies that are on the forefront of these advancements.
6. What recent improvements/methods have been implemented to make contract research outsourcing/ manufacture a viable option?
SW: Economic growth in Asia has made life there more attractive for residents who moved to the US and Europe for school and then stayed to work. As these professionals return to their native countries they are bringing work practices with them that reflect best practice in the US and Europe and thus enable and facilitate more crosscontinent activity.
AM: The CRO industry has evolved in several areas including people, processes, technologies, quality and cost strategy. Certainly as drug development has resulted in more complex clinical trials, CROs have hired physicians, scientists, operational experts and regulatory specialists with specific therapeutic and drug class expertise. The advent of novel research technologies such as electronic data capture, data warehousing, electronic endpoint adjudication and centralized imaging has required more targeted IT, software development and data management staffing.
Clinical trial processes have become more sophisticated, requiring newer approaches to feasibility and site selection. Cross-functional project planning has become more structured and has become associated with a suite of performance related and quality driven metrics. As trials become more complex and difficult to enroll, CROs are taking a more active role in patient recruitment and retention.
Of course, tools and technology have been the most rapidly advancing area. We see enormous potential for the data warehouse as the repository of data from multiple sources. There are many benefits from a single aggregated target for all study data. Amongst these is the real time access to safety and performance data rather than ad hoc programmed output. The site performance data is of course critical as a tool to allow increased enrolment effort or switch in sites. Review of safety data will increasingly reflect modern medical practice where the electronic medical record has replaced the paper system; similarly electronic methods will be used to store clinical data for endpoint adjudication. Furthermore, as more trials use imaging as an endpoint, centralized imaging, either as a repository or for a central read (or both), will become a “must-have”.
Finally, the approach to costing has evolved together with the transition from transactional through preferred partnerships to strategic relationships. Sponsors are looking for cost reductions with maintained quality. Reduced costs cannot come purely from discounting, but need to result from increased efficiency. This can come from several sources, such as off-shoring, input into planning and design, innovative technologies and use of CRO rather than sponsor quality system.
RS: It takes a lot of work to keep a CRO/sponsor relationship viable and strong. Sponsors naturally face apprehension when they pass a critical study to a CRO. However, most sponsors realize that communication of project events, including the inevitable readjustments and setbacks, must be accomplished on a frequent basis to guarantee access to contracted CRO services with as little delay as possible. CROs appreciate frequent updates so that they can slot studies efficiently and keep their clients happy. Electronic web-based reporting tools are popular for sharing information and reducing adverse surprises and outcomes.
HJ: Trust between the sponsor and the contract research and manufacturing organization is mandatory for a strong relationship that will produce long-term benefits. The sponsor has to respect the CRO’s and CMO’s for their strengths which will result in a win-win situation. Many US and European companies are skeptical to share know-hows with foreign entities. With the acceptance of intellectual property rights by India and China, many US companies have shared their “knowledge” with companies outside the US. For example, as a part of Lilly’s multidrugresistant tuberculosis (MDR-TB) project, the company has transferred technologies to produce capreomycin and cycloserine to seven partners around the world. These partners include Akorn and Chao Center in the US, Aspen Pharmacare in South Africa, Shasun Chemicals and Drugs in India, SIA International/Biocom in Russia, Vianex S.A in Greece and Hisun in China. Pfizer recently announced a network of partners naming them as Centers for Therapeutic Innovation. The company has partnered with seven of the New York city’s hospitals — Rockefeller University, NYU’s Langone Medical Center, Memorial Sloan-Kettering Cancer Center, Mount Sinai Medical Center, Columbia University Medical Center, Albert Einstein College of Medicine of Yeshiva University, and Weill Cornell Medical College. On the same lines, Pfizer’s is deviating from the “opportunistic” business model to a long-term strategic initiative in emerging markets. It opened an R&D center in Shanghai staffed by well-trained and qualified scientists. Moreover, these scientists will be working on projects with “local” clinical significance. Thus, the drugs will be developed to treat diseases found locally in the emerging markets. The FDA has also opened offices in emerging countries. This way, they can inspect/audit facilities very easily. Additionally, many local companies have established new plants in recent years and acquired equipment with latest technology. They also have purchased latest analytical instruments. They have a thorough knowledge of FDA rules and regulations and implement current good manufacturing practices (cGMP). The FDA can routinely inspect these new sites. Availability of such modern contract manufacturing sites is a reality and is a viable option to companies in the US, Europe and Japan.
PG: For us, it’s all about oversight and project management. We have found that our outsourcing endeavors are only successful if we expend sufficient internal resources to plan these activities carefully, monitor progress, and identify shortcomings. Even for relatively small outsourcing enterprises, it is far too easy to underestimate the effort needed to make them successful.
JB: One of the most important changes has been the shift in the way pharmaceutical companies view outsourcing service providers in general. Not too long ago, CROs were often considered an overflow capacity option; but in today’s paradigm, a CRO is more often treated as a partner. This has offered the opportunity for both industries to share information, learn from each other and increase odds of a successful outcome. Sponsor-CRO relationships based on mutually developed best practices, clear expectations, a commitment to communication and ongoing process improvement have reaped significant rewards and value from outsourcing.
While all pharmaceutical companies are intent on developing products and using service providers to meet these goals, not all have the shared requirements, expectations, expertise or understanding of how to engage and get the most from their service provider to produce the best value for both organizations. Companies willing to develop an outsourcing management practice will find the most benefit to outsourcing as a viable option.
NM: I see three main areas of improvement in our industry:
- Leveraging Six Sigma and lean manufacturing practices. Our Trusted Process methodology, for example, is designed to reduce variability within the process for more predictable results. Our customers have seen tremendous improvements in delivering actionable results on time and on budget.
- Ability to test protocol feasibility ahead of actually deploying it. The computing power and knowledge in this area has matured greatly.
- Ability to simulate manufacturing and process dimensions and to test variation simulating scale-up manufacturing. Companies have machines where you can experiment with different variables in a simulated environment. It’s not yet 100% predictable, but it allows for a greater degree of certainty of your manufacturing route and the economics behind it.