Imagine your company just spent more than $800 million to develop a new innovative drug. Then, add to that the expense of recruiting, hiring, training, and fully outfitting a new sales force and speakers bureau to launch and promote what is sure to be the next blockbuster drug. Wall Street is all abuzz. Unfortunately, though, the CMO you selected to produce your API had yet another manufacturing “incident,” and now production is delayed. Sound far-fetched? Anhui Wanbei Pharmaceutical Company, an FDA-certified pharmaceutical company in China, had a pharmaceutical manufacturing accident in January that caused 62 workers to get sick. If production at one of your key CMOs has to be halted, resulting in a product shortage, the cost in lost sales revenue can easily eclipse a million dollars per day. Analysts estimate that a manufacturing interruption cost Genzyme (GENZ) between $200 million and $300 million in lost revenue in 2009. There are obviously risks to using a CMO, but there are also plenty of benefits, which is why utilization of these outsourcing partners is on the rise.
It is anticipated that the global pharmaceutical contract manufacturing market will exceed $40 billion by 2015. There are many good reasons for outsourcing manufacturing, including reduced overall costs, faster time to market, reduced regulatory issues, improved manufacturing efficiencies, reduced production capacity, reduced investment in capital-intensive facilities, improved net earnings and cash flow, improved flexibility in financial resource allocation, and the lack of internal manufacturing capability.
The intention of this article is to provide a checklist for the CMO qualifying and selection process. This checklist will be broad and may not apply in situations where the technology is so specialized there is a very limited availability of contractor organizations.
I interviewed John Farris, president and CEO of SafeBridge Consultants, and Peter Calcott, president and CEO of Calcott Consulting, to gain some insights from their combined 65 years of industry experience. What I learned is that the process of selecting and working with a CMO is akin to that of courtship in human relationships; namely, both have four distinct phases.
The Dating Phase of Qualifying a CMO
The qualification phase, aka the dating phase, is where you are determining if this is a particular company with which you want to do business. Before your company begins the CMO qualifying process, first ask, “Why do we want to outsource our contract manufacturing?” According to Calcott, this is not as obvious and basic as it might appear. “Generally, a lot of smaller companies do it because they don’t want to invest in concrete and steel. Building your own plant takes three or four years from conception to commercialization.” Calcott believes there are four legitimate reasons for outsourcing: (1) Risk aversion — company does not want to invest the capital in building a plant for a product that has not received regulatory approval; (2) Money — company does not have the capital; (3) Expertise — company does not have the expertise necessary for commercial manufacturing; and (4) Capability — company does not possess the ability to manufacture commercially at the scale necessary.
Both Farris and Calcott agree that during the qualifying phase, the most important consideration should be the CMO’s experience with manufacturing products like yours. This should be the overarching consideration pharmaceutical companies take into account before moving a CMO into the selection process. Once this has been determined, companies should develop a list of questions designed according to what is most important to their organization. A good starting point is capability and desire, meaning, does the CMO desire to be in business with your organization and for the period of time you anticipate this collaboration lasting? Other considerations for developing a CMO qualification checklist could include quality, regulatory history, and geography. The checklist on page 5 should be considered as a guide for getting started in the CMO selection process and individualized to your company’s specific needs.
Other considerations when developing your CMO qualification checklist might include employee training, engineering controls, personal protective equipment (including respirators), work practices, cleanup and waste disposal (normal operating conditions), spill response (including cleanup and disposal), industrial hygiene monitoring (air and surface samples), medical surveillance, workplace pregnancy evaluation, recordkeeping, and transportation procedures. If it is important to your organization, then it should be on your list.
During this phase you should assemble a selection team with key players, although who is on that team can vary. For example, if your product is unique in how it is engineered or formulated, then perhaps a chemist, engineer, or formulation scientist should be a member of the selection team. If your product contains components considered highly potent, then you may need a team member who is a toxicologist or industrial hygienist to assess the CMO’s ability with the safe handling and manufacture of these components. If your company is meticulous with regard to quality standards of your production, then according to Calcott, “It doesn’t make sense to go to a CMO that has a very poor reputation with regulatory agencies, because you will be frustrated constantly.” Companies need to be able to get a realistic perspective of how a CMO operates. This should come out during an audit conducted by key selection team members, prior to the signing of any contract. Determining a “good fit” between organizations is necessary prior to moving to the next phase.
The Engagement Phase of Selecting a CMO
The selection phase is when the two organizations put together a business contract — a prenuptial agreement, if you will — which defines how much quantity will be produced, for how much money, and over what period of time. This business contract, often called a quality agreement, is a requirement in the EU. It is written by members of both organizations (not lawyers) and formalizes who is responsible for what. It should be as detailed as possible and include a list of all the activities that are relevant to the successful manufacture, delivery, quality assurance and control, and safety procedures. Calcott has seen a wide variety of quality agreements, from as short as 3 pages of bullets to as long as 33 pages written in legalese. “Generally, the more detail you get in, the more understanding both parties have and the less crisis there is later when something happens. You should include such things as the right to audit, what can trigger an audit, regulatory inspections, safety stock of production or raw materials, technology transfer, starting up of the facility, etc.” Farris likened this part of the process to being a fireman. Eighty percent of your time is spent in fire prevention, and 20% is spent putting out fires. Better quality agreements lead to fewer fires.
According to Farris, during the selection phase you need to conduct a thorough risk assessment. “It can’t be a check box format. I recently had a discussion with a firm that was prepared to bounce a CMO from consideration because it was using a check box format. The CMO was considered unacceptable in one area. This would have been a ridiculous decision, because the company did many other things very well. In terms of risk, this one item was very minor.” CMOs should be given the opportunity to make acceptable modifications in such circumstances. As a consequence, Farris believes the checklist a company develops should be properly weighted as to what is important to your firm.
Calcott is in agreement with regard to risk. “I have a very small start-up client that said it could use a CMO in Kansas, but for three times the price of a Chinese company. I advised them to go with the company they had more confidence in, even if profit margins were going to be lower.” The company selected the North American CMO, although it did have the Chinese CMO produce a couple of batches. According to Calcott, the first batches came back totally wrong; this validated the decision to go with the more expensive CMO.
The Marriage and Divorce Phases of CMO Collaboration
Once all of the agreements and contracts are signed, now begins the real work of making the collaboration successful. The marriage phase of the relationship is the day-to-day process of two or more organizations working collaboratively together toward a successful outcome. Failure in this phase can quickly lead to the final phase, which is the termination of the business arrangement. Often, the divorce phase is a preagreed-upon arrangement, set up and anticipated at the beginning. In the case of drug manufacturing, companies will usually secure a CMO for a specified period of time. Barring a patent extension, when the product goes generic, the relationship is amicably dissolved. At other times, for whatever reason, divorce may occur as a result of one of the partners not holding up its end of the bargain. Doing your due diligence during the qualification and selection phases should minimize the potential of this occurring. However, as in a marriage, it takes a collaborative effort to make things work.
One way to do ensure a continued and successful collaboration is to have frequent and open communication. Another is working together to conduct a thorough annual product review, a requirement for both the FDA and the EU. This is an excellent opportunity for both parties to sit down and discuss how everything went during the past year. Calcott sees this as being very valuable from a business point of view. “It allows you to look at every aspect of the operation and really say, did it go as well as we’d hoped? It’s a great opportunity for fine-tuning and to really initiate continuous improvement processes.”
Where Does the Relationship Typically Break down?
Farris has seen partnerships negatively impacted by CMOs not being able to deliver on time, on budget, and/or on specification. Involvement of regulatory agencies (e.g. FDA, EMA, OSHA, EPA) or other factors that result in the creation of liability for one member of the collaboration can lead to a breakdown in the relationship. Breakdowns in communication are another potential relationship pitfall. According to Calcott, “When things go wrong, there is an initial tendency for people to keep it to themselves and try to solve it on their own. In one situation I was involved with, a company was using a CMO for a particular component of a product. I thought the relationship was pretty good. Suddenly, I heard through the grapevine that the CMO was being inspected. We have a requirement in our contract for the CMO to notify us anytime an inspection is taking place. I got on the phone to find out what was going on. Indeed, an inspection was under way and was now in the second week. The inspection turned out to be really a humdinger. The CMO ended up getting into a great deal of regulatory problems.” Open communication up front could have allowed the contractor the opportunity to be involved earlier to help improve the situation. Another relationship snag can occur when one of the companies, CMO or contractor, tries to create a win-lose situation. Both parties have to feel they are in a positive and mutually beneficial working relationship.
To avoid these pitfalls, Farris and Calcott suggest doing due diligence during the qualifying and selection process. The establishment of realistic contracting, cooperation in providing all the necessary information up front, and constant communication can minimize the possibility of these snags negatively impacting the relationship. Due diligence by both parties will help ensure a productive and successful collaborative business partnership.
1. Does the CMO have experience manufacturing the product you need to have produced?
2. Does the CMO currently possess the capability and equipment to manufacture your product?
3. Are you willing to retrofit the CMO at your expense?
4. Is the size of the manufacturing facility the right size for production?
5. Is the manufacturing facility scalable?
6. Does the CMO have the willingness to manufacture the product over the time frame that you want?
7. Do you have confidence that the CMO will be able to manufacture the product satisfactorily?
8. Does the CMO have a strong track record of quality manufacturing?
9. Is the CMO’s quality philosophy similar enough to what you would expect if it was your own plant?
10. Does the CMO have a strong track record with regard to customer satisfaction?
11. Does the CMO have a strong track record with regard to on-time delivery?
12. Is the CMO in good regulatory standing, e.g. FDA, EMEA?
13. Does the CMO meet your level of specifications with regard to compliance?
14. Does the CMO hold all the licenses necessary for manufacturing and/or transporting your product?
15. Is the CMO in good standing with ancillary agencies, e.g. OSHA, EPA?
16. Is there the potential for cross-contamination resulting from other manufacturing processes taking place?
17. Does the CMO have a history of occupational illness?
18. Is the CMO financially stable?
19. Does the CMO possess robust safety operating procedures, structured hazard evaluation, and training to prevent exposure
20. Does the CMO rely on personal protective equipment to protect workers from exposures to drug substances and
products? Or, are effective engineering controls in place?
21. Is the CMO located in a geography that is acceptable to you, e.g. tax implications, import/export issues?
22. Does the CMO have the necessary infrastructure for successful communication and technology transfer between