Introduction
Over the past decade, pharmaceutical and biotechnology companies have increased their use of contractors for biopharmaceutical production. This includes both the production of drug substances as well as drug products. Over the next few years, this trend will continue as drug developers project a greater proportion of their manufacturing budgets will be devoted to outsource production. While virtual biotechnology companies have always relied on contract manufacturing organizations (CMOs) for their production needs, HighTech Business Decisions’ studies show large pharmaceutical and biotechnology companies will also spend a greater proportion of their manufacturing budget on outsourcing. For large biotechnology and pharmaceutical companies, moving production to CMOs presents challenges with regards to cost savings, controls, quality, and flexibility. Biotechnology companies want lower costs, but they also want a collaborative relationship. While partnership arrangements are being sought, many pharmaceutical and biotechnology companies continue to view the market for contract filland- finish services as a commodity, whereby price continues to be a factor for choosing a CMO.
Best Practices Study 2013
These two opposing perceptions are documented in HighTech Business Decisions recent report, Biopharmaceutical Contract Fill-and- Finish: Best Practices Study 2013. This report documents the current and future trends for fill-and-finish contract manufacturing services for biopharmaceuticals. This report is based on primary research through interviews and inputs from biomanufacturing directors from pharmaceutical and biotechnology companies and executives at contract manufacturing organizations. For purposes of our study, HighTech Business Decisions defines biopharmaceuticals as complex molecular structures including proteins, peptides, monoclonal antibodies, plasmid DNA, viral products or other large molecules created through the genetic manipulation of living cells or organisms used for therapeutics, diagnostics or vaccines. For this article, the CMOs are defined as those contract manufacturing organizations that provide drug product manufacturing services for biopharmaceuticals, including formulation, fill, packaging and labeling, lyophilization, and other services related to the final production of biopharmaceutical drug product.
Partnership versus Price
With the greater reliance on CMOs, pharmaceutical and biotechnology companies seek deeper relationships with their CMOs. They view CMOs as an extension of their own internal organizations. As a result, CMOs will play an increasingly important role in the production and quality of the biopharmaceuticals they produce. As noted by one biomanufacturing director, “fill-and-finish is the final step in a complex and costly set of manufacturing processes”. Given this environment, 89% of the biomanufacturing directors who participated in this study view having a partnering-type relationship with their CMO as more important than price. As noted by a biomanufacturing director, “I tell my CMO, I am not buying a batch, I am buying a partnership”. For the few biomanufacturing directors who mention price as more important than relationship, the primary reason is their perception that fill-and-finish is a straight forward, simple process and as such price becomes more important.
The term “partnership” has a variety of meanings when used to describe the sponsor-CMO relationships. Most biomanufacturing directors consider partnership as an open collaborative relationship that includes components of trust, service, and quality—which allows both sponsor and CMO to work together on issues as they arise. This type of relationship contrasts to a simple toll manufacturing relationship in which manufacturing processes are robust, product quality is well-defined and understood by both parties, there is minimal regulatory oversight, and failures in manufacturing are not catastrophic.
A few insightful comments from the surveyed biomanufacturing directors are shown below regarding the importance of having a partnership relationship with their CMO.
- “Partnerships are the most important. Without a good partnership—without people being aligned—the cost doesn’t matter, you won’t get to the goal line.”
Pharmaceutical/Biotechnology Company - “Trust and the quality audit are the ultimate, first, and foremost criteria. A partnership naturally forms from that. After partnership, it comes down to cost.”
Pharmaceutical/Biotechnology Company - “Partnership is more important because if you don’t work well together that can lead to failures and that can make the price of fill look insignificant.”
Pharmaceutical/Biotechnology Company
Essential Characteristics
The importance of having a partnering relationship is consistent with the biomanufacturing directors’ evaluation of a CMO’s good service level. A key component of a partnership includes an emphasis on quality. The majority of biomanufacturing directors note that the most important characteristic sought in a CMO is quality. Half the biomanufacturing directors rank this as their number-one criteria. Also related to quality, 23% of the biomanufacturing directors list having a global track record with major regulatory authorities as a top criteria in determining good service levels of a CMO. This offers evidence of good quality systems and high quality. The breakdown of top criteria for good service levels is shown in Figure 1.
Figure 1. Top CMO CriteriaSome insightful comments from the surveyed biomanufacturing directors are shown below regarding quality as a top criterion for evaluating a CMO’s service level.
- “Quality ranks highest for us because it supports all our investment in drug substance, a high-cost recombinant protein, and it supports the process. For these reasons, we have to ensure that the CMO maintains high quality of all service and systems that support our product. We are ultimately responsible.”
Pharmaceutical/Biotechnology Company - “We listed quality and global track record both as number one, because the track record assures quality and without quality we risk jeopardizing our brand.”
Pharmaceutical/Biotechnology Company - “Quality is the number one factor because fill-and-finish is the final step in a whole array of activities that all have to be done perfectly. The fill needs to be done right to ensure sterility including the proper quality oversight. This is why quality is high on our list.”
Pharmaceutical/Biotechnology Company - “The regulatory record is the most important. Most clients want to have success. If we go with a CMO with a successful regulatory record, it means they are meeting standards we don’t have to discuss.”
Pharmaceutical/Biotechnology Company - “Global track record with regulatory authorities is the number one factor because it ties to quality systems. Quality is also important. We look for service providers that have experience with commercial products on the market. We want a CMO that has experience with validation and licensing a product with the health authorities.”
Pharmaceutical/Biotechnology Company
Commodity Market
Interestingly, while the overwhelming majority of biomanufacturing directors view a partnership-type relationship with their CMO as more important than price, there are mixed opinions among biomanufacturing directors about whether the market for contract fill-and-finish services is a commodity. For our purposes, a commodity is a fungible good or service with no discernible difference between suppliers. In those instances, there is no reason to choose one CMO over another CMO except for price.
From our study, half the biomanufacturing directors perceive this market, or segments of this market, as a commodity. Conversely, half the biomanufacturing directors do not perceive the fill-and-finish market for biopharmaceuticals as a commodity. Further analysis of these differences between biomanufacturing directors’ view of partnership-type relationship being more important than price and the perception that the fill-and-finish market is a commodity market is shown in Table 1. Based on the chi-square test for independence, there is a difference between these two perceptions at a p-value of 0.05. Thus, while a partnership-type relationship is more important than price, there is a strong perception that services for fill-and-finish market are a commodity.
Table 1. Partnership versus Commodity Market
At first glance, it appears that the biomanufacturing directors’ valuing partnering-type relationship and their view that the fill-and-finish market is a commodity is inconsistent. However, at closer look we can see how both perceptions can coexist. First, partnership components such as trust and quality, communication and collaboration are critical to the production of biopharmaceuticals. Second, if there are many CMOs with available capacity who meet the quality and service level needs of the sponsor, then other features such as price becomes important. Overall, CMOs use both price and non-price elements to compete in the fill-andfinish market. From the biomanufacturing directors’ insights, there are several factors that influence their perception about the commoditization of the fill-and-finish market.
The major reasons for not considering fill-and-finish services as a commodity are a) the requirement for experienced personnel, b) complex processes, and c) specialty delivery systems. Other reasons also mentioned are d) the niche or specialty market of biopharmaceutical fill-and-finish manufacturing, e) the different prices charged by various CMOs, and f) the limited number of CMOs providing specific services. In addition, a few biomanufacturing directors note that the high bar on quality to ensure patient safety and the responsibility that the sponsors take for manufacturing is unlike other commoditized markets.
For those biomanufacturing directors who perceive the fill-and-finish market as a commodity, they cite the following reasons for their opinion: a) multiple CMOs offer good service, b) many CMOs compete for business on price, c) fill-and-finish processes are becoming more standardized, and d) while operationally difficult, fill-and-finish is less technically demanding especially for liquid fill in vials.
Still other biomanufacturing directors perceive this market as two distinct segments, noting that some aspects of the industry are a commodity while other aspects are not. There has been a standardization of processes and competition, which tend to commoditize the industry. On the other hand, there are specialty areas such as dual-chamber syringes or pen devices where expertise and services are limited. Largescale production, such as the dispensing of millions of doses of vaccine, is an example when filling is more of a commodity service, compared to early-phase production of biopharmaceuticals, which require many more activities that are product specific.
Many executives at CMOs have expressed their frustration at conflicting market demands for high service levels and lower prices. While pharmaceutical and biotechnology companies stress the need for quality and collaboration, they continue to demand lower prices. This requires CMOs to balance the cost needed to provide high service levels to their sponsors, with the needs to stay price competitive. As noted in our report, quality and high service levels are important, but meeting budgets and cost targets are also important.
Concluding Observations
There is a segment of the biopharmaceutical fill-and-finish market that may be considered a commodity, in which price is a key competitive attribute. Overall, as pharmaceutical and biotechnology companies increasingly rely on CMOs for their fill-and-finish needs, they are seeking a more collaborative, partnering-type relationship with their CMOs. While offering higher service is one non-price area where CMOs compete for business, there continues to be a need to meet budgets and cost goals.
William Downey, MBA is president of HighTech Business Decisions. HighTech Business Decisions is a market research and consulting firm that recently published the comprehensive industry study, Biopharmaceutical Contract Fill-and-Finish: Best Practices Study 2013. He can be reached at www.hightechdecisions.com.