From The Editor | February 16, 2021

503B Or Not To Be? Worthy Contemplation For Biopharma And Your CDMOs


By Louis Garguilo, Chief Editor, Outsourced Pharma

Laptop Person Working From Home

As detailed in our initial primer, 503Bs are specialized “outsourcing facilities,” licensed to compound – or “manufacture” – drug products in shortage but with a clinical need.

Some CDMOs have taken a look on whether they’d like to join the ranks of these specialty organizations.

Wayne Woodard, CEO, Argonaut Manufacturing, had comments representative of others:

“We’ve brought our team together to discuss dedicating some capacity and resources to becoming a 503B. We talked to board members. It’s intriguing on one level.”  

Intriguing, but investigations also resulted in a representative conclusion – with a notable exception we’ll detail in a moment:

“We were unable to make the business proposition or incentive for a CMO organized like ours,” Woodard explains. 

“We serve patients and the community within our mission statement, which indicates we don’t produce our own products so as not to compete with our client base. We focus on investments in areas that enable our clients. 

“However,” he adds, “We also think it could be an opportunity for drug sponsors to become educated on this topic, and perhaps contract this as part of their programs where it fits.”

“That would encourage more CMOs to invest in this area.”

That education is what we are up to here. Give Argonaut credit for time invested.

What we have learned:

For the most part, 503B work is small-volume, low-value, and requires a high degree of customization of new formulations each time an opportunity arises, making it difficult for dedicated CMOs to unilaterally build out this capability.

At the same time, on the investment side, the CDMOs I spoke with all said they actually had existing facilities suitable to take on 503B business. The investment barrier, at least, appears relatively low.

Civica Rx is a CDMO whose mission mirrors that of a 503B. The organization focuses on directly and reliably supplying hospitals and others with critical medicines often in shortage.

Although CEO Martin Van Trieste has no plans to convert capacity to 503B business, he understands how a certain biopharma client might benefit from a CDMO doing so.

“While it’s a narrow group,” says Van Trieste, “there are biopharma customers well aware of problems with drug shortages in their space, and they are focused on alleviating those. 503Bs can help biopharma organizations in that regard.”

“It comes up in oncology,” he continues. “Drug sponsors see a key component for an overall drug treatment, cocktail, or supportive-care product, frequently or currently in shortage.

“With the support of a 503B, these biopharma companies can offer a more complete solution to their customers.”

A 503B Convert

Pharmaceuticals International, Inc. (Pii) is a CDMO that recently dedicated capacity and capabilities to become a state-licensed and FDA-registered 503B.

In my conversation with CEO Kurt Nielsen, I first posited the arguments against:  

Low profit margins; small volumes; if a drug shortage is rectified, the market disappears; apparently little value to a CDMOs’ traditional biopharma customers (and our readers).  

“It’s the tyranny of the platitudes, right?” returns Nielsen.

“I'm not sure anybody would go to the bank and borrow a hundred-million dollars to do this,” he continues. “If you've got a filling line doing 200 vials a minute, this probably isn’t something you’ll ever become interested in.

“However, if you're already geared towards development and varying degrees of clinical trial supplies, you are likely to have equipment and training that could be used efficiently for 503B products.

“While it might be a bit of a Jenga puzzle, the pieces can fit together. It could be incremental business.

“It also comes down to the customer relationships CDMOs have, and how you build your business. I agree there's a limited universe of products that will be a good fit for both sides, but that doesn't mean there're none.”

He offers a simple example:

“Let's say we receive a handful of orders for sodium bicarb, but it's constantly in shortage. We can actually make that product. So let's apply under 503B registration.

“We’ll gain more experience with the product; learn whether or not we can run it profitably. If so, we could perform the work necessary to get our own ANDA approved – and that applies to an NDA as well.

“Now I'll have an approval for a product to supply to my biopharma customers in need of it.”

Core Understanding

Another way to view the benefit for the biopharma customer/reader, says Nielson, has to do with better understanding physician use and patient needs: How can supply in therapeutic areas of strategic interest for a biopharma company be augmented by providing new or existing compounded products?

“Essentially, this is observing and understanding current ‘in use’ innovations to in turn develop and supply product improvements, or bridge supply shortages.

“Ultimately providing solutions for physicians to treat their patients builds sustainable relationships throughout the health-care ecosystem.”

Nielsen also sees an interesting aspect of 503B-designation: it can “leverage the core of certain CDMOs, and point to a certain cultural trait.”

If a CDMO’s business model includes developing and manufacturing at an accelerated pace, and “working entrepreneurially” for biopharma customers, becoming a 503B is “a kind of natural extension of mission and vision.”

“There's something to be said for the responsiveness of the 503B business,” Nielson says.

“I am not saying,” he clarifies, “this makes one CDMO better or worse than any other. But maybe it tells biopharma customers something about who you are.”

The Last Word On 503Bs

This investigation into 503Bs for Outsourced Pharma readers was instigated by a reader from that industry.

Like many of us, Cindy Karapanos is concerned about drug shortages in the U.S. She believes CDMOs performing some 503B work would help ameliorate the problems. She’s wondered why they haven’t taken this up. 

“What are the top-of-mind topics today in our industry?” she asks me rhetorically.

“Drug shortages. Who would have thought this phrase would become so mild to the ear?

“Identifying medical supply-chain vulnerabilities. It’s hard to believe we have not gotten this behind us in the U.S.

“Strengthening and optimizing America’s supply chain. Rebuilding our production capacity; ensuring adequate supply in times of crisis; combatting systemic vulnerability.”

When I started this investigation into 503Bs, I was concerned there might not be enough to warrant reader contemplation.

I think you’ll agree we’ve found out differently.