Outsourcing 2017: Countries, Costs, And Some Concerns

By Louis Garguilo, Chief Editor, Outsourced Pharma

A renewed crossing into Asia, or U-turn back to Europe and the U.S.? Thoughts of capacity and costs running over your holiday cheer? We may not have soothing sugar plums for you, but we do have more helpful analysis from Outsourced Pharma Editorial Board members regarding life in twenty-seventeen.

Countries To Count On

There was a time not too long ago when few Big Pharma or Biotech based in Europe or the U.S. would consider outsourcing important drug discovery or development work to Asia. Then came a new dawn, when it seemed everything was in the process of being sailed oversees to service providers in India, China, even South Korea and other distant destinations. Today, we hear it’s coming back. There’s been a backtracking to the days of keeping projects closer to the vest.

Well, people like Nils U. Olsson, VP Chemistry, Manufacturing and Controls, Retrophin Inc., doesn’t quite agree.

For the foreseeable future, he says, “I suspect we’ll see much more API manufacturing done in China. Also, as the market there matures, many of the perceptions of questionable confidentiality and looser protection of trade secrets, will diminish.” He adds: “Some organizations in China are taking remarkable steps to protect customer’s IP, and may lead the way as models for others there.”

Olsson is responsible for outsourcing all of his company’s discovery, development and manufacturing, including for three commercial products. “Retrophin is one-hundred percent virtual,” he says. It’s also focused on orphan diseases. Readers of these pages know of concerns that consolidation, and the growth of “Big CMOs,” might not fit the needs of companies such as Retrophin, focused as they are on smaller target markets.

Olsson actually intertwines these two subjects, if as he predicts, a tightening up reputation- and reliability-wise in China and India can provide more options for virtual and smaller companies. Now that will be something to follow in the coming months, and surely beyond.

And there’s another, related challenge, according to Olsson. It has to do with the growing distances between CMOs themselves. “Coordination of activities between CMOs, for example API manufacturers and fill-finish providers, or external analytical services, has become a key to moving forward,” he says. “For a company operating under a virtual business model of outsourcing everything, it can be challenging.”

Specifically here he sees two immediate options. “Go with a lead CMO (or a consulting group as middleman) to basically work as your general contractor,” Olsson says … but then quickly adds: “However, while this may seem convenient, it can also mean giving up another degree of control.”

The other option? “Immerse yourself in the management of each company involved in your supply chain. I think it’s a matter of personal preference. But no matter where you outsource and how widespread, quality and reliability of your products remain your responsibility.”

Costs And CMO Consolidation

“A definite theme for us has been the need to drive towards lower costs,” says Peter Bigelow, President, xCell Strategic Consulting, and former Pfizer and Patheon executive. But he’s not talking about tougher negotiating between drug owners and service providers. He’s focused on improved partnering for better productivity and overall financial outcomes.

“Together – drug owners, service providers, consultants, and regulatory bodies – need to identify ways to bring drugs to market as efficiently as possible,” Bigelow restates a mantra of 2016. He believes innovative companies now fully understand that product pricing will incur intensifying visibility and public pressures moving forward. Unfortunately, says Bigelow, “Many of the new products under development require expensive ingredients and complicated manufacturing processes. Creative ways to incentivize CDMOs to improve processes, and drive for lower cost of goods, is a top priority for many companies.” 

Bigelow says that as the CDMO industry consolidates and matures, pharmaceutical companies will have greater expectations for partnering. He believes of necessity they’ll establish fully integrated relationships with solution providers.

“I expect 2017 to be a ‘break out’ year in terms of the types of contracts that are signed,” he says. “Traditional pharmaceutical companies continue to increase their strategic interactions with partners, and look for ways to effectively manage risks by integrating with CDMOs.”

From this integrating, an important consequence arises: It will ensure that “less capacity will be built internally by Big Pharma, and more CDMO capacity will need to be leveraged.” This will put more “stress on specialty capacity, such as biologicals, but will also create efficiency opportunities for more traditional capacity.”

Hold that thought for a moment.

Concerns Cascading From Year To Year

When I asked about the New Year, I expected Carol Sherako, Director Program Management, Sanofi Genzyme, to focus on project management. After all, articles we worked together on in 2016 on this subject became some of the most widely read on OutsourcedPharma.com.

She didn’t let us down: both internal and external project management, she says, continues to grow in importance to her, her company, and she believes most of the outsourcing arena.

Sherako agrees with Olsson’s comments above that in 2017, it’ll be important to look at utilizing “more global CDMOs.” She feels this may play a key role “in helping us learn how to form better partnerships, those needed in all our sponsor-provider relationships.”

As she takes a wider survey of the business environment and competitive landscape, Sherako also sees a growing need for services directed at more focused and specific science and technologies. “People won’t just need capacity; they’ll need specific capacity,” she says. She uses her own field as an example: “Will there be capacity in the area of gene therapy?” She too wonders about new or expanded CMO facilities – and the expertise to operate them.

“Are we in a buyer’s or seller’s market? What is the business environment? Are CMOs ‘at capacity’ in certain areas of technology? Will those of us who wish to outsource more have to negotiate differently to come to terms for IP, expenses, and scheduling? If CMOs are indeed ‘at capacity,’ will this cause companies to invest internally in cGMP facilities capable of manufacturing clinical trial material and commercial supply?”

I told you we’d get back to this topic of future internal versus external capacity build out. And we get a very straight reply on this from another Outsourced Pharma board member, Darren Dasburg, VP BioVentures – Biologics, Medimmune/AstraZeneca.

“Topic one for me during 2016 was the rather sudden realization that CMOs will not be able to carry us forward in the near term, and if we continued to push it, could cost a commitment to batches and forward years,” Dasburg explains. “This caused us to look deeply at what we could do ourselves, as well as got us in the acquisition game on the bio-drug substance side.”

He continues: “Additionally, like many others we have a reliance on drug-product filling, we're learning that not everyone approaches quality and regulatory quite like we do. Our near-decade focus internally has us visiting the idea that we are paired with a certain external group of providers, but there’s a growing demand for our time and attention.”

Some countervailing winds in the seas of outsourcing are certainly a blow. Welcome to your New Year. Happy sailing.