Outsourcing 2017: Countries, Costs, & Some Concerns

By Louis Garguilo, Chief Editor, Outsourced Pharma

(As Previously Seen On OutsourcedPharma.com)

A renewed crossing into Asia or U-turn back to Europe and the U.S.? Thoughts of capacity and costs running over filling your head these days? Perhaps some of the following comments from Outsourced Pharma editorial board members will help answer some of the questions you have regarding outsourcing in 2017.

COUNTRIES TO COUNT ON
There was a time not too long ago when few Big Pharma or Big 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 overseas 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 Olsson, VP chemistry, manufacturing and controls at 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. Some organizations in China are taking remarkable steps to protect a customer’s IP, and those efforts become models for others there.”

Olsson is responsible for outsourcing his company’s entire discovery, development, and manufacturing, including for three commercial products. “Retrophin is 100 percent virtual,” he says. It’s also focused on orphan diseases. Readers of OutsourcedPharma.com 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 predicts that the improvements in reputation and reliability in China and India may provide more options for virtual and smaller companies like his. 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, [the existence of this distance] can be challenging.”

Specifically, he sees two immediate options. “Go with a lead CMO [or a consulting group as middleman] to basically work as your general contractor. 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,” he says. “I think it’s a matter of personal preference. But no matter where you outsource, quality and reliability of your products remain your responsibility.”

COSTS AND CMO CONSOLIDATION
“A definite theme for us has been the need to drive toward 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.

Bigelow restates a mantra of 2016, “Together, drug owners, service providers, consultants, and regulatory bodies need to identify ways to bring drugs to market as efficiently as possible.” 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 that out of necessity, they’ll establish fully integrated relationships with solutions providers.

“I expect 2017 to be a breakout 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.

CONCERNS CASCADING FROM YEAR TO YEAR
When I asked about outsourcing in 2017, I expected Carol Sherako, director program management at 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, continue to grow in importance to her and her company and, she believes, most of the outsourcing arena.

Sherako agrees with Olsson’s comments 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?”

"Creative ways to incentivize CDMOs to improve processes and drive for lower cost of goods is a top priority for many companies."

Peter Bigelow
President, xCell Strategic Consulting

 

INTERNAL VERSUS EXTERNAL CAPACITY
I told you we’d get back to this topic of future internal versus external capacity buildout. And we get a very straight reply on this from another Outsourced Pharma board member, Darren Dasburg, VP BioVentures — Biologics at 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 in future 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.”

Clearly, some countervailing winds in the seas of outsourcing are certain to blow in 2017. Happy sailing.