Production Pressures Can Be Cured by Contract
12 December 2005
The pharmaceutical manufacturing sector is beset by problems relating to traceability, validation, time to market, manufacturing lead times and quality. There has never been a better time to outsource manufacturing.
The focus of pharmaceuticals companies has shifted over the past 10 to 15 years from one of development and delivery to that of commercial efficacy in the face of increasingly downward price pressures. For this reason the value chain in pharmaceutical manufacturing has been examined more closely than ever before.
In 2001, Jim McKiernan, Partner at PricewaterhouseCoopers in Basel, Switzerland, highlighted in a published article that the complexities (and costs) of the value chain had to be addressed by the pharmaceutical manufacturers. At that time he estimated that, "most advanced pharmaceutical companies have rationalised down to between 10 and 20 plants globally, compared with 60 and upwards at others". At the same time he argued that the ideal vision of two primary and between five and 10 secondary plants was a long way away for most companies.
These observations reflect a growing trend toward outsourcing certain elements of the value chain. There is a distinct trend towards outsourcing clinical trial supplies (CTS) and formulation testing through contract resource organizations (CxOs) and other service providers to resolve capacity shortages, tighten development timelines, and reduce processing costs. Indeed, CxOs, especially those in formulation development, have grown quickly, evolving from "an extra pair of hands" into strategic business partners, purveyors of innovation, and proprietors of novel drug-development technologies.
However, within the value chain there are three principal areas of concern to the pharmaceutical company. In the historical structure most traditional pharmaceutical value chains comprise three easily defined discrete manufacturing steps:
Primary (the manufacture of the drug's active ingredient -
usually through many steps of chemical synthesis)
Secondary (the conversion or formulation of the active
ingredient into the tablet, ampoule or other dosage forms)
Packaging and labelling
Clearly, within the primary stage, the molecule development and formulation are least likely to be outsourced, albeit within this stage once the molecule has been patented and the formulation developed, the option to use CxOs and CTS providers can become attractive.
It is in the secondary stage and in packaging and labelling, the attraction of outsourcing becomes most compelling.
Financial constraints to production transfer
This poses a number of problems to the manufacturer. The relocation and subsequent transfer of production is incredibly time consuming, very costly and potentially disastrous for production continuity unless two lines can be run in tandem until validation and stability studies are completed for the new line. This problem is exacerbated if the lines in question are on the downward demand curve, since amortisation of any manufacturing investment may take considerably longer than for a new product - in some cases the costs of transfer may be considered too high to recover those costs within the product's lifetime.
Typical of such products are liquid injectable treatments that are delivered in ampoule form. Ampoules are in decline and the total market is estimated to be falling by as much as 10% per annum. Since it could cost between eight and 10 million Euros to install a new ampoule line, it is clear that such investment must be considered carefully in the light of a potentially falling market.
The option to subcontract production, even for declining product lines, relies on a number of factors that at times have precluded big pharma companies from considering such a move. Briefly, the primary concerns are: the ability of the subcontract manufacturing company to meet compliance requirements; the management of the validation process; stability compliance; the cost of the product; the cost of transfer; time taken to effect transfer and the long term financial stability of the subcontract manufacturing company to ensure continuity of supply over a long product lifecycle.
