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Pharmaceutical Technology, Outsourcing Resources Supplement 2012 (PDF)

Achieving a good return on assets through manufacturing-capacity utilization is an ongoing challenge for biopharmaceutical companies. Pharmaceutical companies need manufacturing capacity on hand to produce commercial products and also to launch new products as they come through their drug-development pipelines. The inherent uncertainty of drug development, however, makes it difficult to balance the need for timely access to manufacturing capacity with the interest of avoiding underutilizing capacity and a resulting reduction on a return on assets. This balancing act is particularly challenging with biologics manufacturing because the capital costs for manufacturing capacity are higher than traditional small-molecule drug-substance manufacturing. A long-term manufacturing capacity-sharing arrangement by Merck & Co. and MedImmune LLC, the biologics arm of AstraZeneca, established in September 2011, demonstrates a potential solution for the capacity challenges increasingly being faced by  biopharmaceutical companies. 

Changing fundamentals for biologics manufacturing

The impetus for the companies' manufacturing capacity-sharing agreement reflected larger trends in biopharmaceutical manufacturing. In the 1990s, many large pharmaceutical companies began building biologics manufacturing capacity in anticipation of advancing biologic-based drug candidates. At the same time, certain CMOs began to emerge to fill capacity requirements. As these changes occurred, during the 2000s, technology gains also started to significantly improve upstream yields, explained Michael Kamarck,then president of Merck BioVentures, who spoke at the Drug, Chemical, and Associated Technologies Association (DCAT) Business Development Forum, 

Successfully Partnering Pharmaceutical Manufacturing Throughout Product Lifecycle

, which was held in mid-March 2012 in New York. Proprietary fermentation technology, for example, improved yields at the beginning of the decade from 0.5 to 1 g/L to 1–3 g/L in 2002, to 3–5 g/L in 2004 to 10 g/L in 2007. The confluence of increased manufacturing capacity that resulted from both improved technology and recently constructed greenfield biologic-based manufacturing facilities resulted in overcapacity on an industry level. 

"This evolution brought us to another chapter in biomanufacturing," said Kamarck, pointing to strategic collaborations as a way to manage the capacity overflow and biomanufacturing needs. 

The genesis of the Merck–MedImmune collaboration

The fundamental changes in biomanufacturing trends came into play with the biologics manufacturing capacity-sharing arrangement made by Merck and MedImmune in September 2011. In 2007, AstraZeneca completed the acquisition of MedImmune, which became the biologics arm of AstraZeneca, incorporating the MedImmune assets, legacy AstraZeneca biologics assets, and Cambridge Antibody Technology, which AstraZeneca had acquired in 2006. A key manufacturing asset for MedImmune, which is headquartered in Gaithersburg, Maryland, is the company's large-scale monoclonal antibody (mAb) manufacturing facility in Frederick, Maryland. Prior to its acquisition by AstraZeneca, in 2005, MedImmune committed to support 500 kg of production per year through the addition of two 15,000-L bioreactors, which would replace an original 2 x 2500 L plant. The additional capacity was intended to meet the mid-range product demand of MedImmune through 2013. In acquiring MedImmune in 2007, AstraZeneca further authorized an additional 500 kg of capacity to include a total of four 15,000-L bioreactor trains at the new Frederick facility. 

When the MedImmune product for which the initial capacity was intended did not proceed through clinical development, MedImmune realized that existing products would not fill the site. The combination of a pipeline-delivery gap and the subsequent improvement in titres or grams-per-liter yields required an alternative solution to fill capacity.  

"This became the genesis of the concept for sharing capacity or selling it directly," explained Andrew D. Skibo, executive vice-president of operations at MedImmune, who also spoke at the DCAT Business Development Forum. The business case for developing an alternative approach to utilizing capacity was clear, he said.  

Contrary to the original plan, the plant would not be fully utilized by MedImmune's own pipeline until at least 2022 based on a three- to five-year delay in product commercialization and dramatically improved titres. In addition to the underutilization of the facility, the associated staff at the facility would be in standby status. "The skilled and trained staff was the highest value asset of concern," said Skibo. "We wanted to retain key employees by getting them working in their area of expertise." 

With the motivation of covering operating expenses of staff and depreciation for the manufacturing assets, which was estimated at $100 million per year, the business case for developing a partnership for sharing capacity was made. In evaluating a potential partner, Skibo outlined that certain criteria came into play. The ideal situation would involve one or two partners with large-volume needs specific to needing capacity for mammalian cell culture (i.e., Chinese hamster ovary). The arrangement would require joint capacity planning in a long-term deal (i.e., 10 to 15 years). In an arrangement, MedImmune capacity needs would prevail, and reciprocity with capacity in other areas, such as microbial bulk capacity, high-capacity mAb filling, and live-virus filling would also be part of any agreement. "This criteria would preclude a strictly CMO-type agreement from working," explained Skibo. 

"This type of arrangement would require the right people and people 'chemistry.' It is more than a financial agreement; both parties would have 'skin in the game,'" he said. 

Using those criteria, MedImmune selected Merck & Co. as its partner. The companies formed a 15-year manufacturing capacity-sharing agreement in September 2011 with Merck utilizing MedImmune's Frederick, Maryland, facility for Merck bulk product manufacturing. The companies also are exploring the suitability of Merck's facilities in the production of microbial-based compounds in MedImmune's pipeline, and other potential manufacturing opportunities where business strategies intersect. Manufacturing began in the fourth quarter of 2011. The arrangement provides benefits to both parties. For MedImmune, the arrangement provides long-range utilization of excess capacity at the company's Frederick facility while maintaining sufficient capacity for MedImmune's own products. For Merck, the arrangement provides flexible and rapid access to capacity for the company's maturing biologics pipeline, which includes biosimilar candidates. 

Skibo points out that the deal represents a new model in pharmaceutical manufacturing, one based on "co-opetition," a mindset that contains both cooperation and competition (1). A key consideration of a "co-opetition" model is that the players in the game of business include customers, suppliers, competitors as well as those that provide complementary rather than competing products and services. In the case of Merck and MedImmune, although both companies provide pharmaceutical products, there is no direct competition in the service being shared, namely biologics manufacturing capacity. The deal is structured to provide MedImmune and Merck a balance of lot cost versus production risk allocation that in combination is uniquely different than a typical CMO arrangement. Lot cost is based upon MedImmune's own internal fully absorbed lot production costs. The risk associated with lot production reflects a traditional CMO assignment of risk. Merck pays for any additional specialized resources and/or capital expansion upgrades as needed. The initial focus is on cell-based compounds for which Merck develops the process and analytics through medium scale, so any future changes are limited to fit and manufacturing needs only. MedImmune can provide large-scale technology transfer out of the Frederick facility as needed and can decline to work on any specific project. 

Since Merck and MedImmune announced their manufacturing-capacity arrangement, several other companies have partnered in biosimilars in a co-opetition-like or strategic partnership model. In February 2012, Biogen Idec and Samsung formed a joint venture, Samsung Bioepis to develop, manufacture, and market biosimilars in keeping with their agreement announced in December 2011. Under the agreement, Samsung is contributing $255 million of the $300 million for an 85% stake, and Biogen Idec is contributing $45 million for a 15% stake in the joint venture. The joint venture, which will be based in Korea, will contract with Biogen Idec and Samsung Biologics for technical development and manufacturing services. Samsung Biologics is a Samsung business formed in April 2011 to specialize in biopharmaceutical manufacturing. The joint venture will not pursue biosimilars of Biogen Idec's proprietary products. 

Amgen and Watson Pharmaceuticals formed a collaboration in December 2011 to develop and commercialize, on a worldwide basis, several oncology antibody biosimilars. Under the agreement, Amgen will assume primary responsibility for developing, manufacturing, and initially commercializing the oncology antibody products. Watson will contribute up to $400 million in codevelopment costs over the course of development, including the provision of development support, and will share product-development risks. In addition, Watson will contribute its expertise in the commercialization and marketing of products in specialty and generic-drug markets. The collaboration products are expected to be sold under a joint Amgen/Watson label. Watson will initially receive royalties and sales milestones from product revenues. The collaboration will not pursue biosimilars of Amgen's proprietary products. 

Baxter and Momenta Pharmaceuticals also formed a collaboration in December 2011, to develop and commercialize biosimilars. Baxter will provide its clinical-development and biologic manufacturing expertise while Momenta will provide its expertise in high-resolution analytics, characterization, and product and process development. 

Looking ahead, Skibo observed, "Partnering to minimize investment risk will become commonplace in the future. It easier to justify a $600 million to $800 million investment when there is more than one pipeline to support, in addition to in-licensing, biosimilars, and novel products." 

The manufacturing capacity-sharing model in biologics and Merck & Co. and MedImmune ushers in a new paradigm of "co-opetition".

A Manufacturing Capacity-Sharing Model: Merck & Co. and MedImmune LLC

The Avoca Group conducted a survey in 2011 to examine how outsourcing strategies, practices, challenges, and outcomes differ by the size of the sponsor and the size of the provider when outsourcing clinical research (1). The survey was conducted to determine whether there is a pattern whereby sponsor companies of different sizes (i.e., small, medium, and large) choose to work with providers of different sizes or type. And if so, was the association a rational one? That is, do sponsors select the types of providers that will provide them with the best service? The survey also addressed what this association means for clinical service providers.  

The survey was taken by a total of 193 respondents; 109 were sponsors representing a mix of small, medium, and large-sized companies, and 84 were providers of varying sizes. The survey focused on a wide range of sizes of sponsors and providers with respect to the following: provider selection; provider performance, overall and by task, by both the size of the provider and the size of the sponsor; sponsor strengths and weaknesses in provider engagement and management, by size of sponsor; and by specific CROs that perform particularly well for sponsors of different sizes. 

The data from the 2011 survey suggest there is a close association between the size of the sponsor company and the size of the CRO selected to perform clinical trials.  Most survey respondents felt that large sponsor companies (i.e., annual revenue > $1.5 billion) are best served by mid-sized to large CROs (i.e., top 15 and top five), whereas smaller sponsor companies (i.e., annual revenue < $100 million) are best served by small to mid-sized providers (i.e., top 15 CROs and below). This perception is supported by an analysis of satisfaction rates by percentage of outsourcing spend allocated to the largest CROs. The size of the sponsors tends to go with the size of the providers.  

Survey data revealed that for 67% of the Big Pharma companies surveyed, most of their outsourcing spend goes to the top five CROs. Seventy percent of small pharmaceutical companies dedicate less than 10% of their outsourcing spend to the top five CROs.  

On the providers' side, for most of the top five CROs, the majority of revenue comes from Big Pharma and less than 25% derives from small sponsor companies. For most of the small, full-service CROs surveyed, less than 25% of revenue derives from big pharma, and most revenue derives from small biotechnology and pharmaceutical companies. 

 Do sponsors associate with the types of providers that will provide them with the best service? Or is it only the perception of "right size" that drives sponsors to select vendors of corresponding sizes?  

Figure 1: Sponsors’ responses when asked what size of clinical service provider they felt provided the best service. 			

The reported rates of satisfaction among both the sponsors and providers were examined, and they showed that respondents from Big Pharma, medium-sized pharmaceutical companies, and small pharmaceutical companies were all most likely to feel that they were best served by mid-sized CROs rather than by the top five CROs or smaller providers (see 

). For their part, clinical service providers felt that large pharmaceutical companies are best served by the top 5 CROs (see 

Figure 2: Providers’ responses when asked what size of clinical service provider they felt provided the best service. 			

The data show that even though sponsors of different sizes generally select different sets of providers, their satisfaction rates are remarkably similar. Similarly, providers also are most likely to be satisfied with relationships with like-sized pharmaceutical companies.  The data show: 					

Small and midsized sponsors that use the top five CROs to meet less than 25% of their outsourcing needs are generally more satisfied than are small and mid-sized sponsors who use the top five CROs more liberally.

In contrast, large sponsors that use the top five CROs to meet at least 50% of their outsourcing needs are generally more satisfied than are large sponsors that use the top five CROs less.

Thus, it does appear that the observed association is rational. Sponsors are selecting the providers with whom they are most satisfied.  

Replies to survey questions indicate why the outsourcing decision is based on several factors. 

 The reasons sponsors provided to explain their choices of CROs make sense in light of the strengths different-sized providers bring to the table. Pharmaceutical executives summed up the differences as follows: "Large, full-service CROs are best when a global footprint, infrastructure, and 'deep' experience are needed. The Big Pharma and biotech sponsors and big drug developers rely on the large, full-service CROs if they're doing a large, pivotal, Phase III clinical trial."  

Pharmaceutical executives feel that the big CRO has "been there, done that" on projects of this size. With such large financial resources being dedicated to global trials, executives planning a Phase III trial feel more assured that a big CRO will give them the required attention and a good team, and they may also feel more comfortable with the financial stability of a large CRO. Full-service CROs have large capacity, the ability to risk-share, and well-standardized procedures, including training and quality-control activities.  

Executives feel that medium-sized CROs are best when it comes to value and having less staff turnover than the larger CROs. Medium-sized CROs also typically provide more flexibility, quality personal service, and senior management involvement.   

Smaller CROs, executives indicate, are best when it comes to flexibility, responsiveness, attention, and involvement of senior management. They also tend to have lower turnover than is found with larger CROs. Because they do not maintain a large infrastructure, smaller CROs are more cost-effective. As one executive from a small pharmaceutical company stated in the survey: "Smaller CROs have better personnel assigned for small sponsor companies. Big CROs tend to treat smaller customers worse." 

 As noted previously, providers also report that they are more satisfied when they work with sponsors of corresponding size. Providers that felt that sponsors of different sizes performed differently on these tasks most often felt that Big Pharma sponsors performed best. Most felt that Big Pharma sponsors were better than smaller sponsors at specifying tasks to be performed, and all relevant assumptions, in request for proposals. Providers, however, felt that smaller sponsors were better at considering CROs' input and advice during the bid stage. 

A survey respondent from a large CRO explained it as follows: "The big challenge [in working with smaller sponsors] is dealing with a sponsor that has little or no concept of the complexity, and thus the true cost of, clinical development." Another CRO executive noted: "When the small company requires us to provide cross-functional services, we must utilize a greater amount of project management resources to coordinate efforts between third-party firms. Also, smaller companies may require a greater amount of consultation for the drug-development activities. This may result in additional manpower spent to plan programs and greater communication." 

				"Efficiency would improve overall if the smaller sponsors engaged the CRO earlier in the process," another provider said, "so that we could be involved more strategically and could help them in planning their needs." 			

Smaller sponsors, however, were seen by most provider respondents to perform just as well as did larger sponsors in certain areas as follows: 					

Establishing appropriate contracts with CROs

Having reasonable expectations for the resources required by CROs to complete tasks

Identifying the most suitable CROs to bid on projects 

Research found other important benefits that were cited by CROs with respect to small to mid-sized biotechnology and pharmaceutical companies. "Small to mid-sized biotechnology companies are less difficult to manage because typically...you are working directly with key decision makers, and there is no middle-man communication, which streamlines productivity," one provider noted. "There is more flexibility with process and approach," stated another. An appropriate level of management and less bureaucracy than with large pharmaceutical companies were also noted. 

Avoca's data certainly suggest that there is a feeling in this industry that size does matter. It is important to consider what is at play behind the issue of size in organizations, such as the belief that infrastructure and training at a large global CRO are better, especially in emerging markets. There are already concerns about having trained staff in these parts of the world and investigators who really understand the clinical trials. The large CROs have invested in these regions, and they have hired big teams, and have a big global footprint and an infrastructure already in place. So if Big Pharma is looking for a strategic partnership, they tend to pick from the top five CROs. Big sponsors are consolidating their relationships and creating strategic relationships.  

On the surface, it might appear that the small- to mid-sized CROs would have a difficult time competing against the larger CROs. Yet, according to the survey, many pharmaceutical executives stated that on a day-to-day, project-team basis, the small to mid-sized CROs provide better service because they're able to be flexible and provide better teams. This explains why respondents from Big Pharma, medium-sized pharmaceutical companies, and small, revenue-generating pharmaceutical companies were all most likely to feel best served by mid-sized CROs as opposed to the top five CROs or smaller providers.  

For a mid-sized CRO, this is great news, because while the top pharmaceutical sponsors are spending most of their money in the top-sized CROs, it does not mean they necessarily feel the biggest CROs are the best service providers. And that perception creates opportunity for the smaller CRO, which does specialty work in its realm of expertise with any size company. 

 No matter what size organizations work with each other, it is going to come down to being clear about expectations, building trust, and taking time to invest in the relationships so that no matter what size the organizations are, they are optimal relationships and outcomes. As long as the organizations have the resources and capabilities to be able to run the trial, success depends on the relationship that sponsor companies and providers build with each other. If the relationship between the two partners is strong, the trials are going to run better—no matter what size organizations are working together on a given project.   

 It is important that there be a continued shift in Big Pharma's relationship with CROs toward one that demonstrates respect for the fellow professionals they are working with on a given project. The attitude that "you are my vendor—do as I say" has been moving toward "we should have respect for each other." More sponsor organizations are examining themselves and asking if their team is doing its best to foster these mutually respectful relationships with clinical service providers. They are acknowledging that it is crucial to provide training on how to manage effectively, and respectfully, the CROs and to collaborate to build trust and transparency. 

There is a difference among sponsor companies and CROs on which companies contracts with each other, and there is a difference in perceptions about capabilities, resources, infrastructure, and expertise. Despite these differences, they share common interests for safety and efficiency, and the drug is likely to be tested in clinical trials globally, making the CRO-sponsor relationship adaptable to companies of varying sizes. 

 is chief operating officer of The Avoca Group. 

The author provides results and commentary on a survey analyzing outsourcing strategies, practices, challenges, and outcomes in the selection of a CRO.

Size Associations in the CRO Outsourcing Relationship

Biosimilars represent a niche segment in the global biopharmaceutical market, but their potential is engendering interest from a mix of traditional generic-drug companies, innovator biopharmaceutical companies, new players to the market, and contract service providers. As a second-generation wave of biosimilars, inclusive of monoclonal antibodies, is scheduled to come off patent during the next several years, opportunities exist, but it is unclear as to what the true potential of the biosimilars market will be given differing regulatory issues, technical requirements, and developmental costs compared with traditional small-molecule generic drugs. 

Although the market for biosimilars is growing at a rate higher than the global prescription-drug market, it is still a relatively small market. The global market for prescription drugs is expected to reach $1.2 trillion by 2016, increasing at a compound average growth rate (CAGR) of 3% to 6%, according to 2012 estimates by the IMS Institute for Healthcare Informatics. Global sales of biosimilars, estimated at $693 million in 2011, are expected to reach $4 billion to $6 billion by 2016, representing 2% of biologic-based drug spending.  

BCC Research projects a slightly stronger market. It estimates that the global demand for biosimilars (inclusive of low-molecular weight heparin) totaled nearly $2.5 billion in 2011 and should reach $3.6 billion in 2016, a CAGR of 7.7% over the five-year period. BCC breaks the biosimilars market into four regions: APAC (Asia Pacific), the United States, Europe, and the rest of the world. The APAC region accounted for $683 million in 2011 and should reach $1.1 billion in 2016, a CAGR of 10.3%, according to BCC. The US accounted for nearly $1.1 billion of the biosimilars market in 2011 and should increase at a CAGR of 4.1% to reach $1.3 billion in 2016. Europe, worth $377 million in 2011, should reach $625 million in 2016, increasing at a CAGR of 10.6%. The rest of the world accounted for $335 million in 2011 and in 2016 should total $522 million, a CAGR of 9.3%.   

Looking at global biosimilar demand by value and product type in 2011, low-molecular weight heparin accounted for 44% of the market, according to BCC. Epoetins held the next highest share at 19%, followed by recombinant human growth hormone (11%), granulocyte colony-stimulating factors (7%), interferons (6%), insulins (5%), and other products (8%). 

				Interest in the biosimilars market is spurred by a number of top-selling biologics slated to come off patent during the next five years, including Herceptin (trastuzumab), Enbrel (etanercept), Humalog (insulin lispro recombinant), MabThera/Rituxan (rituximab), Remicade (infliximab), and Aranesp (darbepoetin alfa) (1). Unlike manufacturers of small-molecule generic drugs, however, manufacturers of biosimilars face a different path based on developmental costs, regulatory issues, and technical requirements to bring a biosimilar to market as well as greater uncertainty as to payer, physician, and patient acceptance of a biosimilar product (1).			

The establishment of a regulatory pathway for biosimilars through the passage of the 

Patient Protection and Affordable Care Act 

in 2010 and the recent upholding by the Supreme Court of that law as well as recently issued FDA draft guidance on biosimilar development is moving the establishment of a regulatory pathway for biosimilars in the United States (1–4). The recently enacted 

on July 9, 2012, established a new user-fee program for biosimilars to support the review of marketing applications for biosimilar biological products, further enabling US regulatory implementation of a biosimilars pathway. 

Although the US is considered a potentially strong market for biosimilars, the true test for biosimilars to date has been in the European Union, which represents the most advanced market for biosimilars, accounting for 80% of global spending (1). Despite an established regulatory pathway, only a few manufacturers have launched biosimilars in the EU, which include Sandoz (the generic-drug business of Novartis), Stada, Hospira, Medice and Ratiopharma (part of Teva Pharmaceutical) (1). According to a recent IMS analysis, biosimilar market penetration varies by EU country.  Germany and France account for half of the biosimilars market by value with a respective 34% and 17% share (1). On a product basis, granulocyte colony-stimulating factors have generally achieved the highest penetration by value (25%) and human growth hormone the lowest (4%)in the EU (1). In its analysis, IMS points out that the first generation of biosimilars has been met with limited uptake compared to small-molecule generic drugs mainly due to the limited price reductions of biosimilars. Average list (ex-manufacturer) price cuts in the EU of 30% are considerably less than those for traditional generic drugs, which are 70–80% (1).  

A recent study by the IGES Institute, based in Berlin, and commissioned by Sandoz, projects that by 2020, eight EU countries could save a cumulative total of between EUR 11.8 billion ($14.5 billion) and EUR 33.4 billion ($41.0 billion) through the use of biosimilar medicines (5). The study calculated the amount of expected savings from introducing biosimilars to eight EU countries: Germany, France, the UK, Italy, Spain, Sweden, Poland, and Romania. The IGES study was limited to three classes of biologics: erythropoetin alfa and granulocyte colony-stimulating factors, for which biosimilars already exist, as well as monoclonal antibodies, considered an emerging opportunity with several drugs coming off patent. The study team at IGES developed different scenarios based on possible developments of market share, pricing, and the time period for market entry of biosimilars after patent expiration. A typical biosimilar takes seven to eight years to develop, at a cost of between $100 million and $250 million, which includes additional clinical trials (5) (see sidebar, "The Costs and Opportunities in Biosimilars"). 

The costs and opportunities in biosimilars  			

According to the IMS analysis, the immediate opportunity for biosimilars will be in emerging markets although longer term, the US is positioned to be the leading market. It estimates that the US biosimilars market could reach between $11 billion and $25 billion in 2020, respectively representing a 4% and 10% share of the total biologics market subject to certain market, technical, and regulatory conditions (1). Part of this growth will also be tied to more complex biologics, such as monoclonal antibodies, assuming their position in the market. 

The biosimilars market has engendered several strategic partnerships among innovator biopharmaceutical companies, traditional generic-drug companies, new players to the biopharmaceutical market, and contract service providers (see 

). For example, in February 2012, Biogen Idec and Samsung launched a joint venture, Samsung Bioepis to develop, manufacture, and market biosimilars following their December 2011 announcement to form such a partnership. Under the agreement, Samsung is contributing $255 million of the $300 million for an 85% stake, and Biogen Idec is contributing $45 million for a 15% stake in the joint venture. The joint venture, which will be based in Korea, will contract with Biogen Idec and Samsung Biologics for technical development and manufacturing services. Samsung Biologics is a Samsung business formed in April 2011 to specialize in biopharmaceutical manufacturing. The joint venture will not pursue biosimilars of Biogen Idec's proprietary products. 

Table I: Select partnerships in biosimilars among contract service providers, generic-drug companies, and innovator-drug companies. 			

In February 2011, Samsung Electronics entered into a strategic partnership with the CRO Quintiles as part of Samsung's entry into the biopharmaceuticals market. The companies formed a new joint-venture company to provide biopharmaceutical contract manufacturing services in South Korea, with Samsung owning 90% and Quintiles 10%. At the time of the announcement in February, Samsung said it plans to commercialize biosimilars by 2016 and to expand into innovative biologics in the future. The joint-venture company plans to construct a biopharmaceutical manufacturing plant in South Korea with the goal of beginning full-scale operations in April 2013. 

Fujfilm began building its biosimilars business in 2011. In November 2011, it agreed to form a 50–50 joint venture for biosimilars with the biopharmaceutical company Kyowa Hakko Kiron. The joint venture was launched in late March 2012, with an initial focus on a biosimilar version of adalimumab. In April 2011, Fujifilm completed its acquisition of the former Merck Biomanufacturing Network, which provides contract biologics manufacturing. The acquisition included facilities in Research Triangle Park, North Carolina, and Billingham, United Kingdom. Merck & Co. had acquired the Billingham facilities through its 2009 acquisition of the contract manufacturer Avecia and the Research Triangle Park facilities as part of its acquisition of Schering-Plough in 2009. Diosynth was the former contract manufacturing activities of Organon, the pharmaceutical business of the Dutch chemical company Akzo Nobel. Schering-Plough acquired Organon in 2007, and Merck & Co. acquired Schering-Plough in 2009. Merck combined the UK and US contract biologic activities into the Merck Biomanufacturing Network, which was acquired by Fujifilm in 2011, and later named Fujifilm Diosynth Biotechnologies. Also in 2011, Fujifilm formed a partnership with Mutsubishi for contract biologics manufacturing under which Mitsubishi took a 20% equity interest in FujiFilm Diosynth Biotechnologies. 

Baxter and Momenta Pharmaceuticals formed a collaboration in December 2011 to develop and commercialize biosimilars. Baxter will provide its clinical-development and biologic manufacturing expertise while Momenta will provide its expertise in high-resolution analytics, characterization, and product and process development. 

In 2011, Merck & Co. partnered with the CRO Parexel by which Parexel will provide strategic access to global clinical development services for designated biosimilar candidates to Merck BioVentures, Merck & Co.'s biosimilars division. Under the agreement, Parexel will provide Merck BioVentures with strategic access to a broad range of regulatory strategy and clinical development planning capabilities for the development of certain broad classes of biosimilars across various therapeutic areas, including exclusivity for certain candidates. The agreement also provides for the establishment of a dedicated Merck BioVentures unit within the Parexel organization. In another deal, in June 2011, Merck & Co. partnered with the Korean chemical company, Hanwha Chemical, to develop and commercialize HD203, a biosimilar candidate of Enbrel (etanercept). Under the agreement, Merck will conduct clinical development and be responsible for manufacturing. In addition, upon marketing approval, Merck will commercialize HD203 globally, except for in Korea and Turkey, where Hanwha retains marketing rights. In return, Hanwha received an upfront payment from Merck and will be eligible for additional payments associated with milestones for technology transfer and regulatory progress as well as tiered royalties on sales. 

In June 2012, Merck Serono, a division of Merck KGaA, and India-based Dr. Reddy's Laboratories formed a partnership to codevelop a portfolio of biosimilar compounds in oncology, primarily focused on monoclonal antibodies. The partnership covers codevelopment, manufacturing, and commercialization of the compounds globally, with some specific country exceptions. Dr. Reddy's will lead early product development and complete Phase I development. Upon completion of Phase I, Merck Serono will take over manufacturing and will lead Phase III development. The agreement is based on full R&D cost sharing. Merck Serono will undertake commercialization globally, outside the United States and with the exception of select emerging markets, which will be co-exclusive or where Dr. Reddy's maintains exclusive rights. At the time of commercialization, Dr. Reddy's will receive royalty payments from Merck Serono. In the US, the parties will co-commercialize the products on a profit-sharing basis. 

The Merck Serono and Dr. Reddy's partnership marks the first step by Merck Serono to enter the biosimilar space. Earlier this year, Merck Serono set up a dedicated biosimilars unit that will be based in the Canton of Vaud in Switzerland, where the main biologics manufacturing facilities of Merck Serono are located. Also, in September 2011, Boehringer Ingelheim announced plans to establish a new separate business for the development and commercialization of its own biosimilars. 

Not all biosimilar partnerships have succeeded. In March 2012, Pfizer and the Indian biotechnology company Biocon ended their alliance to commercialize Biocon's biosimilar versions of insulin and insulin analog products. The companies agreed that due to the individual priorities for their respective biosimilars businesses, it was in their best interest to move forward independently. Pfizer and Biocon had signed their biosimilar pact in October 2010 for the worldwide commercialization of Biocon's biosimilar versions of insulin and insulin analog products: recombinant human insulin, glargine, aspart, and lispro. Under the 2010 agreement, Pfizer had exclusive rights to commercialize these products globally, with certain exceptions, including co-exclusive rights for all of the products with Biocon in Germany, India, and Malaysia. Pfizer also had have co-exclusive rights with existing Biocon licensees with respect to some of the products, primarily in a number of developing markets. Under the 2010 agreement, Pfizer made upfront payments totaling $200 million, and Biocon was eligible to receive additional development and regulatory milestone payments of up to $150 million and to receive additional payments linked to Pfizer's sales of its four insulin biosimilar products across global markets. 

 Shaping the Biosimilars Opportunity: A Global Perspective on the Evolving Biosimilars Landscape (

Draft Guidance for Industry on Biosimilars: Q&As Regarding Implementation of the BPCI Act of 2009

Draft Guidance for Industry Scientific Considerations in Demonstrating Biosimilarity to a Reference Product

Draft Guidance for Industry Quality Considerations in Demonstrating Biosimilarity to a Reference Protein Product 

Saving Money in the European Healthcare Systems with Biosimilars IGES Institute 

An examination of the current and projected market for biosimilars, development costs for biosimilars compared with small-molecule generic drug, and partnerships in biosimilars.

Market Strengths and Weaknesses in Biosimilars

Quality by design (QbD) is based on sound science and quality risk management through which quality is built into products. Although the benefits of QbD are obvious, the industry has been relatively slow in adopting the concept because QbD often falls low on the list of immediate priorities. With product development and manufacturing increasingly being outsourced to contract development and manufacturing organizations (CDMOs), however, a strategic partnership between the sponsor and a CDMO can help realize the benefits of QbD. The author discusses how a CDMO helps in gaining process understanding and in developing robust, high-quality products and processes.  

Whether the product and process is developed at one contractor's site, transferred from one contract developer to another, or transferred from a sponsor development unit to a contract development and manufacturing organization (CDMO), knowledge transfer, an in-depth process understanding, identification of critical process parameters, and determination of proven acceptable process ranges (PAR) are crucial to successful development. By failing to identify and correct the root causes of problems early in the design phase of the process- and product-development cycle, organizations risk quality, yield, and supply-chain issues. Quality by design (QbD) should be viewed as an opportunity that brings value and business benefits to both the sponsor and the CDMO.

A CDMO supports the development of hundreds of molecular entities in different stages of clinical programs with small or large molecules in sterile and nonsterile processes. A wealth of knowledge and experience resides with a CDMO that could be leveraged by a sponsor for new projects. Drawing on knowledge gained from experience, a CDMO can move quickly in identifying critical steps, building a robust model to plan, and designing experiments to address problems. We often find that when sponsors have changed hands due to licensing of new chemical entities,  some information and documentation does not get transferred. A CDMO can help the sponsor orle001anize information, determine gaps, and work to build the program to meet the quality and regulatory requirements. QbD requires a solid base of knowledge of the drug substance, its physicochemical properties,  characterization, raw material and excipient interactions and variability, and how all these impact the dosage form design, target product profile, and shelf-life stability. A CDMO can leverage its inventory of knowledge and experience, work with a sponsor to lay out a plan, and apply the principles of ICH Q8, Q9, and Q10 to develop a QbD strategy that adds value to the sponsor's program (1–3). 

A CDMO develops products for virtual companies, biotech, specialty, mid-size, large pharma, and generic drug companies, and sees different philosophies and strategies adopted by sponsors in applying QbD to product development. As key players in industry, CDMOs need to move the QbD initiative forward by helping sponsors and clients see potential benefits, so they will give QbD a higher priority and understand the risks of not using the QbD toolbox.  

The benefits of using QbD at various stages of development have been well documented. In a live poll conducted during a QbD conference, the majority of representatives from the industry felt that it is "never too late" to adopt QbD and generate data to get an in-depth process understanding (see 

Figure 1: When is it too late to adopt a quality-by-design approach to your product at a CDMO? (Ref. 4).   			

In a 2008 survey, 58% of the respondents said that their QbD initiatives were only in the ideas and vision stage (5). In 2010, at another QbD conference represented by the small, medium, large pharmaceutical, and generic drug sectors, results of a live poll, shown in 

, indicated that more had moved on from this stage (6). 

Figure 2: At what stage are quality-by-design initiatives in your organization? (Ref. 6). 			

Organizations have been slow in thinking about the best way to implement the principles of QbD in their development programs as a part of their corporate strategy. When asked about the biggest obstacles, poll respondents' answers, shown in 

, indicated that pursuing QbD did not fit into the priorities of many organizations (6). 

Figure 3: What is the biggest obstacle to pursuing quality by design in your organization? (Ref. 6).  			

Based on various discussions, Patheon has compiled comments from the sponsors' perspective as to reasons for not adopting QbD in their programs: 					

"Our process is well developed and scalable. There may not be any need for additional process development to set appropriate design space."

"We need to meet aggressive timelines to ensure continued funding. For virtual to small organizations, proof of concept and moving quickly to the next phase of the clinical program are of top priority."

"Our goal is to have a product that will be successful in clinical trials. We can always optimize the process after the clinical phase is done."

"This product will be partnered or sold post Phase 2b; why invest in QbD now?"

"There are regulatory risks associated with conducting QbD experimentation and the risk of delays due to large experimentation and possible reformulation in the late stages of development. This could also lead to an additional bioequivalence study, which is costly and time-consuming." 

"We are reluctant to share development or proprietary information (e.g., filing or historical data)."

On the other hand, comments from CDMOs, compiled by Patheon from various discussions, offer a different perspective on why QbD is worthwhile:  					

"Many transferred processes are not well defined. Selection of excipients and their levels are not scientifically justified. Processes are scaled up to provide larger quantities of clinical trial supplies without sufficient data."

"The failure rate in clinical trials is high. Using sound judgment and a calculated risk-based approach, however, will help move the clinical program forward by balancing the scientific approach with capital investment." 

"Often there is no time to optimize products in later phases, which has impact on the cost of goods and security of supply." 

"Failed batches and additional regulatory scrutiny will cause more delay than doing a systematic study correctly now."

"A well-understood, stable product developed using sound QbD principles adds value to robust development, and the product is more attractive to potential partners for out-licensing." 

 show that, when considering conducting QbD with a CDMO, respondents are concerned about project delays, cost, information sharing, and the expertise of the contractor (4). As more and more product development is outsourced to a CDMO, however, sponsors will have to partner with CDMOs in pursuing the QbD strategy.  

Figure 4: What is the biggest concern you have in conducting a quality-by-design approach using a CDMO? (Ref. 4). 			

In recent years, Patheon has seen an increase in the number of sponsors/clients asking for QbD. Sponsors would like to know what strategy a CDMO would propose to proceed with this exercise and the experience level of the CDMO in designing a QbD work plan. More organizations are now conducting statistical design-of-experiment (DOE) studies to understand the design space for critical process steps in solid oral and sterile dosage manufacturing operations. 

CDMOs will typically have worked with a larger variety of complex processes and challenging molecules than their counterparts in individual sponsor organizations. The knowledge base gathered during many years and the experience gained in resolving complex problems can immensely help the sponsor through the steps in the QbD process (see 

Figure 5: Steps in the quality-by-design process. 			

A CDMO can design a phase-appropriate QbD strategy to build quality into the product being developed. An experimental plan should conserve API and consider time and cost. A CDMO can help in performing an in-depth scientific risk assessment that will help in justifying the investment in a QbD exercise. 

Because the financial investment in QbD to a small or medium sized organization can be huge, it is important for the CDMO and sponsor to jointly build a business. It is not always possible to put a financial value on everything we do. There also are business risks to this investment, such as the possibility of the project costing more, taking longer, or even failing due to a variety of developmental reasons. 

A case study illustrates the QbD process wherein Sponsor X developed a drug product and process in partnership with  Patheon, by using QbD principles to ensure desired safety, efficacy, and quality of the product. 

depicts the overall QbD strategy that was used.  

Figure 6: Quality-by-design process flow for a drug product (DP). 			

A combination of prior knowledge and experimental assessment during development were used to identify performance requirements (i.e., Stage 1), develop process understanding, and conduct the criticality analysis. In Stage 2, critical quality attributes (CQAs) of the drug product were defined. An initial risk assessment was performed in Stage 3 to determine which process steps and materials could control product CQAs. Stage 4 included a detailed criticality analysis which evaluated the functional relationship between critical and key process parameters and CQAs to establish the design space. The design space included the control ranges of the key processing parameters and in-process parameters (IPCs) used to meet the CQAs for a safe, efficacious, and chemically stable drug product. The design space defined by normal operating ranges (NORs) and proven acceptable ranges (PARs) in conjunction with material and product CQAs formed the basis of manufacture of the drug product. Process failure mode and effect analysis (FMEA) was conducted (Stage 5) prior to validation (Stage 6), followed by continuous verification and improvement during commercial operation (Stage 7). 

A detailed criticality analysis was conducted on each material attribute. Each aspect of the material was designated as critical, key, or noncritical based on its potential to impact a CQA as illustrated in 

Figure 7: Criticality analysis process flow. CQA is critical quality attribute. 			

Using the above systematic approach based on sound science and quality risk management, Sponsor X filed a QbD-based new drug application that was subsequently approved, and the product has been successfully launched in the marketplace. 

As pharmaceutical companies partner with CDMOs for development, clinical, and commercial programs, the CDMO will play a critical role in jointly developing a QbD strategy to develop robust processes and quality products. Due to the wealth of knowledge gained by working on multiple, challenging molecules, processes, and products, CDMOs are well positioned to support the sponsor in building a business case, justifying the investment, and applying risk assessment to drive QbD implementation. 

 PhD and MBA, is executive director of global science and technology for pharmaceutical development services at Patheon, 2100 Syntex Court, Mississauga, ON L5N 7K9, Canada, tel: 905.812.6874. email: 

 4.  S. Closs, presentation at FDA/Xavier University Global Outsourcing Conference (Cincinnati, OH, 2011). 

 6. A. Kane, presentation at FDA/Xavier University Global Outsourcing Conference (Cincinnati, OH, 2010).  

The author discusses how a CDMO helps in gaining process understanding and in developing robust, high-quality products and processes.

Quality by Design: A Contract Organization's Perspective

The pharmaceutical industry has faced significant competitive pressures over the past several decades that continue unabated. These pressures have led to interest in and adoption of new, more efficient and scalable operating models. Outsourcing is a major strategy that the industry has adopted across a broad range of value-chain activities. One key area where outsourcing is being increasingly adopted as an operating model is facilities management, a major indirect cost category that spans R&D, technical operations, and commercial facilities. Research shows that the level of market request for proposal (RFP) for facility management is experiencing on average 25% growth driven by Europe where RFP growth rates have jumped 50% (1). Despite the increased adoption of the model, there is still a need to better understand how the outsourced facilities management model can succeed, particularly in manufacturing and development facilities that have different constraints and requirements than commercial offices, where outsourcing is more commonly applied.  

Services in facilities-management outsourcing

Facilities management is comprised of a broad range of activities ranging from utilities-plant maintenance, building maintenance, and engineering to mailroom operations. At research sites, the definition of facility management can also include laboratory-related services, such as glassware services, fume-hood maintenance, and some laboratory equipment calibration. 

 includes the broad categories of services that define how facilities management is being interpreted in the pharmaceutical industry and the services included in facilities-management outsourcing. 

Table I: Categories of service typically included in facilities-management outsourcing contracts. 			

Some services listed in Table I were included even if they are performed in a cGMP setting. For example, cGMP cleaning is listed as generally included. However, cGMP production-equipment maintenance is almost never included in first-generation facility-management outsourcing initiatives. First-generation outsourcing refers to the initial outsourcing effort that typically involves transfer of people, processes, and some assets to a third-party supplier, and second- and third-generation outsourcing refer to re-bidding or re-negotiating the initial outsourcing contract. First-generation outsourcing is typically characterized by a focus on human resources terms and change management in adopting an outsourced model, and second- and third- generation initiatives typically focus on further leveragrticleing the strategy. There are only a handful of cases where cGMP production-equipment maintenance work was outsourced to facility management companies—these were experienced, third-generation outsourcing practitioners. There are exceptions to the general inclusion of the scope identifiedin Table I because of plant-specific considerations. For example, at a sterile facility, related heating, ventilation, air conditioning (HVAC) maintenance was not included because it is considered to be a key part of the product environment. The strongest determinant of what scope was included in a first-wave initiative was the sponsorship of the outsourcing project. Initiatives that were sponsored by a cross-functional executive steering group comprised of technical operations executives, chief financial officers (CFOs), sector leaders, and chief procurement officers (CPOs) tended to have the broadest mandate and consistent inclusion of services across sites. If, however, the sponsorship was primarily at a local level, scope was typically limited, and many plants and sites opted not to participate or participated in a limited way. The highest variance on scope inclusion was around technical services such as building and utility plant maintenance. 

Reasons for facilities-management outsourcing

The observations in this article are based on the authors' experience with the client assignments listed in 

Some companies in Table II are now in their second- or third-generation facility management outsourcing initiatives. These pharmaceutical companies are US- and EU-based companies, and outsourcing initiatives are within the pharmaceutical industry, and more specifically within plant manufacturing environments. 

Table II: Example client assignments in facilities-management outsourcing. 			

A facility-management outsourcing strategy typically starts with a US initiative, quickly followed by a second wave of implementation targeting manufacturing sites (if not in the first wave) or new geographies (e.g., EU or Asia). The first key finding is that pharmaceutical companies are expanding facility management outsourcing initiatives both geographically and functionally across divisions, indicating an increasing rate of adoption of the outsourced facility-management model.  

The companies represented in Table II pursued the facility-management initiative for serveral key reasons: 									

Facility management services are noncore services, which are business critical nonetheless, especially within the plant environment.

Most of these services are managed locally under prescriptive, task-based contracts that lack modern day contractual provisions for continuous productivity, scalability, and performance guarantees.

The number of contracts can be in the thousands, thereby impeding scale, efficiency, and market leverage.

Suppliers are delivering savings by bringing a new operating model to pharmaceuticals; savings are increasing due to market maturity and scale.

Process inconsistency and variance in practices across sites result in disparate financial and operational performance that outsourcing can address.

Aging workforce demographics and headcount constraints make outsourcing an attractive option.

Consideration of these factors has prompted large pharmaceutical companies to launch initiatives in this area. Companies such as Pfizer, Merck, Amgen, J&J, Novartis, Eli Lilly, and others have pursued leveraged facilities-managment outsourcing. RFP results show the economic benefits of outsourcing where savings across five-year contract terms are averaging between 15%-19%. In addition, these results are consistently strong across North America, Europe, and Asia. Even companies in the third generation of facility-management contracts continue to see efficiencies. Financial gains across generations of contracts are in large part due to the maturing of the supplier market, cultural adoption of outsourcing, and stronger governance structure and processes; these factors further enhance the leveraged outsourced model. For example, in a third-generation contract case, a client added significant cGMP vessel maintenance work to scope. Another third-generation customer added laboratory support services to scope where they found new sources of efficiencies. The latter resulted in a shift of work from a scientific-services provider to a facilities-management provider.  

The six pharmaceutical companies profiled in this article represent a five-year total contract value of more than $6.5 billion. Efficiency gains resulted in net present value (NPV) calculations of several hundred million dollars for these companies. Based on savings and NPV impact, the second key finding is that facilities management outsourcing has become a key efficiency lever. This lever, when applied across the network of manufacturing plants, and research and office campuses and sites can present a compelling value proposition. While the portfolio level savings are consistently high, plant-specific business cases can vary considerably. The observed variance in site-specific business cases suggests that the operating model is scale-dependent in terms of reliably predicting an efficient outcome from the effort: a small, localized pilot effort across a handful of sites is unlikely to consistently match the effort produced by broader-scale outsourcing initiatives. Savings come from several sources for pharmaceutical clients: standardized processes, leveraged contracts, application of technology, cross-functional deployment of labor, management, and overhead scale efficiencies.  

Implementation observations can be classified into two broad areas: implementation of the RFP sourcing process and implementation of the signed contract. 

. In the RFP process, there are several complex challenges that need to be addressed. The decentralized plant environment makes it particularly challenging to achieve an RFP scope with minimal unexplained variance. Disparate, inconsistent scope across plants can be a barrier to realizing scale in outsourcing efforts. Secondly, given the intimacy of some services (i.e., water for injection [WFI], instrument calibrations) with manufacturing or science, the sourcing process itself needs to be business interest led. Initiatives that were primarily purchasing led with inadequate business participation required greater process intervention and longer implementation schedules. Determining the scope of the RFP is a complex decision that many businesses found hard to frame consistently as a business case. Finally, the sourcing strategy itself, from the commercial model to scope options, was subject to debate across a wide divergent of opinions across procurement, technical operations, the finance department, and facilities-management groups. Divergence of opinion without effective frameworks and processes for decision-making riskscompromised decisions may undermine the attainment of efficient bids or result in ineffective commercial models that actually increase friction between supplier motives and client-performance objectives. 

The RFP process also has additional complexity, particularly in Europe, around the timing of release of human resource notifications and information relating to data privacy and labor laws. Poorly managed and timed notifications and information can result in unnecessary worker anxiety.  

Successful initiatives were business-led, where purchasing was a key executive sponsor, advocate, and stakeholder. Initiatives with the right executive governance, project teams with prior outsourcing experience, and cross-functional representation were able to more effectively navigate decisions, manage cultural resistance, and stick to milestones. Teams with limited prior experience in outsourcing implementation of similar scale and complexity were not effective in leading such large-scale initiatives. 

In cGMP environments, site heads and their operational staff have particular concerns around how outsourcing will affect their ability to use shared staff. They are concerned whether a central contract structure will impede local operational decision-making, cause a loss of critical operational skills, and about how the contract will work post signature.These questions have to be addressed head on at the beginning of  contract design to build buy-in and alignment. 

 The implementation of a facilities-management outsourcing contract requires considerable engagement of cross-functional resources, coordination, and creation of governance processes. In outsourcing, the primary considerations have to do with the human resources terms for the transfer of employees. When the right human resources terms were used (i.e., terms that promoted continuity of employment and limited turnover), transitions and implementations went smoothly. The supplier market has done well in retaining and deploying transferred pharmaceutical staff. In the rare instances where human resources terms were not conducive to employee transfer, turnover was high as was employee anxiety. Another major observation during implementation was that some clients found themselves in protracted baseline disputes and issues with the outsourced provider.  

First-generation outsourcing issues stand in contrast to those found in third-generation outsourcing. In third-generation outsourcing, the primary considerations have to do with engaging market interest, tapping into supplier innovation, and making supplier-switching decisions. Experience in third-generation outsourcing indicates that suppliers that did not innovate and bring new, fresh thinking to ageing accounts faced the highest level of risk of sponsor companies switching outsourcing providers.  

In some cases, clients switched out long-standing facilities management suppliers in the third-generation RFP. What's reassuring is that these transitions were well executed with fairly good cooperation from the incumbents. The pharmaceutical industry has demonstrated that it can enter into complex facilities-management outsourcing contracts when necessary, and also exit incumbent contracts without operational disruption when required.  

The pharmaceutical industry and facility-management suppliers have effectively managed the transfer of thousands of employees from pharmaceutical facility management to supplier facility management organizations using effective human resources terms. Baseline development mechanisms (such as classifying total internal and external costs according to a common set of service definitions, and disaggregating on-time costs from on-going costs) are still maturing, and strong financial and contractual controls are needed to avoid protracted issues. Finally, continued supplier innovation and contribution (e.g., new practices from other accounts, well planned execution of business pressing initiatives, and anticipatory relationship posture) in outer contract years are key predictors for full retention of third-generation accounts. 

Facilities-management outsourcing has become a key efficiency lever for the pharmaceutical industry, and initiatives are expanding geographically and functionally.  

Successful outsourcing initiatives are business led and require strong executive governance and project teams with prior outsourcing experience and cross-functional representation.  

Baseline-development mechanisms are still maturing and strong financial and contractual controls are needed for effective supplier management. Continued supplier innovation in the outer years is a key predictor of account retention. In large part, suppliers continue to perform operationally well across most services. Cost and effectiveness are the two primary objectives for outsourcing.  

The two key areas of development for the industry, however, are in institutionalization of governance structures and processes, and improvements in financial and contractual controls. The former is required to effectively transition culturally from legacy operational models to supplier-relationship management models. Without effective executive oversight, such change is unlikely to be accomplished on a sustainable basis. And secondly, the market continues to show opportunity to advance in the areas of financial controls and contractual mechanisms for flexibility and change. Companies that take steps to institutionalize governance and build strong financial controls are able to avoid some of the pitfalls mentioned. Finally, suppliers and clients who jointly focus on third-generation innovation are also able to continue to find new sources of improvement as they enter into the third generation of relationships. 

 is a managing director at UMS Advisory. *To whom all correspondence should be addressed.

Global Trends and Activity in the Real Estate and Facilities Management Outsourcing Market

The authors highlight costs, benefits, and implementation success factors across first, second, and third generations of facility management outsourcing contracts.

Strategies in Outsourcing Facilities Management

The practice of outsourcing development and manufacturing services is not new in the pharmaceutical  industry. The traditional outsourcing model involves a sponsor company outsourcing particular projects to a contract services provider, which performs the agreed-upon services at the CDMO's or CMO's facilities. Other variants of this model can be adapted, however, as in the case of an adaption of an insourcing model. Although the term "insourcing" typically refers to taking functions back in-house to perform internally with in-house staffing and resources, a hybrid of insourcing and outsourcing can also be employed. Such is the case with an insourcing relationship between Eli Lilly and the contract research and manufacturing organization AMRI for chemistry services. Christopher Conway, vice-president of business development with AMRI, discusses the partnership with Patricia Van Arnum, executive editor of 

: In late 2011, AMRI formed an insourced partnership with Eli Lilly for chemistry services to support Eli Lilly's drug-discovery programs. Can you describe the nature of the partnership in terms of the resources (staffing, expertise, services) that AMRI is providing and the related infrastructure and support that Eli Lilly is providing as part of the partnership?  

: In November 2011, AMRI entered into a six-year collaboration with Eli Lilly based on an AMRI insourcing model. As a result of the experience gained in establishing operating infrastructure at several remote locations in India, Singapore, and Europe, AMRI's knowledge of the logistics, legal ramifications, human resources needs, information technology and infrastructure demands, and finances associated with the insourcing model has enabled a smooth establishment and ramp-up.  

AMRI announced in November 2011 that it would employ more than 40 synthetic chemists in Indianapolis in 2012 to support Eli Lilly's drug-discovery programs. This team is anchored by a core of experienced AMRI employees, who had been based in Albany, New York, and who have relocated to Indianapolis to assume various leadership roles. The remaining employees are new hires, the majority of which are being recruited from Indiana and surrounding states. 

Comparison with traditional outsourcing models

: How does an "insourced" relationship differ from a traditional "outsourced" relationship? What are the advantages of such a relationship compared with a traditional outsourcing relationship?  

: An insourcing relationship has the potential to accelerate a customer's drug-discovery, drug-product development, or manufacturing efforts by maximizing the real-time exchange of scientific information and the resulting ability to rapidly adjust research priorities in response to breaking results. Working closely together, AMRI's scientists can rapidly adapt to changing project needs, leading to faster turnaround response times and yielding reduced cycle times in lead-optimization programs. Co-location brings such benefits in sharp contrast to having synthesis support at a remote location in Asia, for example. 

An insourcing relationship is an ideal option when the sponsor may have significant unoccupied laboratory facilities and equipment available because of prior downsizing initiatives. These are already paid for or are being depreciated anyway, and utilization of an insourcing opportunity derives the most value from these assets. 

Customers/sponsors can take advantage of AMRI's intellectual capital because the insourced scientists still have access when needed to AMRI's global network of knowledge and experienced problem-solving in drug discovery and development. In addition, working with hundreds of companies across the industry exposes AMRI to best practices that the company can bring to the table. From a human resources (HR) perspective, the insourced scientists are AMRI employees, and this increases the flexibility of these resources while also relieving the burden of HR support, recruiting, and providing employee benefits, which remain the responsibility of AMRI and are already baked into the research agreement. 

Pharmaceutical companies are looking for CROs and CMOs that can use their expertise in more strategic ways. Insourcing sets the stage for true collaboration. In a traditional vendor–client relationship, the vendor's scientists work at their own site, often far removed from the client. With insourcing, a core team of scientists is located at the customer facility. This close proximity allows for constant communication, idea sharing, and joint problem-solving, ultimately creating a real-time collaboration with increased project productivity.  

From the provider's perspective, an insourcing relationship is a prime opportunity to demonstrate the value that the provider can bring to the relationship, In Darwinian fashion, providers that can demonstrate real contributions and value create opportunities to cement and grow a relationship. Those that do not will see these relationships ending or being transferred to someone else. In this fashion, both the sponsor and the provider evolve for the better of both.  

 For an insourced relationship, the employees of the contract service provider work at the facility of the sponsor company. How is that arrangement managed in terms of the project itself and the employees? In having both sponsor company and contract service employees together at one site, how does project management in an insourced relationship differ from project management in a traditional outsourcing relationship?  

 As employees of AMRI, all HR, benefits, safety, and other AMRI practices remain our responsibility. At the same time as we institute our corporate practices, our insourced employees also are obligated to layer over that the work obligations and corporate practices of our host sponsor. In establishing this insourcing relationship, AMRI has placed a senior leader on site to serve as the team leader and liaison with sponsor leadership. The team has been further partitioned into groups or sections under the direction of experienced leaders who function as project managers and group leaders. For significant challenges, these team leaders can tap into the broader AMRI leadership team as well as the sponsor's managers. 

What types of performance metrics are used in an insourced relationship and how do they differ from metrics used in a traditional outsourcing model? Are different or additional measurements put into play? 

 Insourcing models enable a truly collaborative work environment. For example, in traditional vendor–client relationships, the vendor scientists work at one site and the client at another. With the insourcing model, a core group of AMRI scientists will work alongside the customer's scientists at the customer facility allowing for constant communication, idea-sharing, and problem-solving. This ultimately creates a real-time intellectual think tank with increased project productivity. 

AMRI holds its scientists working at the customer site to the same stringent standards that are the hallmark of our reputation of quality. In addition, as part of the establishment of the insourcing collaboration, negotiators from both parties established performance metrics and set expectations, unique to this relationship, which are expected to be met. 

 What type of projects lend themselves to an insourcing model? Is it appropriate across the continuum of drug-development and manufacturing services or is the model more suited to certain phases of development and related activities? What are the key factors in deciding whether an insourced model is appropriate? 

 Availability of facilities and technologies that the insourcing scientists will need to access are key to the ability to establish such a relationship. The insourcing provider should have the ability to carve out work functions and conduct activities unique to existing functions, as well as provide supplemental capabilities to strengthen service areas that may already be in-house at some of these organizations. For example, a company may have synthetic chemists or biologists in-house, but AMRI may add more through the insourcing model. These groups would be separate, but not totally unique, in its core function to the customer. 

AMRI's technical capabilities enable the company to custom build an insourcing model depending on the specific and ever-changing needs of any customer. The insourcing model affords our customers the ability to tap into experienced, highly trained discovery, drug-product development and manufacturing teams to help translate customer ideas to clinical candidates to large-scale APIs both on the customer's site and/or at any of AMRI's global locations. 

 Traditional outsourcing models still dominate external development and manufacturing activities, but do you think insourcing models will become more common in the industry? Why factors may influence greater adoption of this model? 

 Pharmaceutical companies are adapting new strategies and reorganizing their programs, facilities, and resources, with many companies beginning to contemplate a greater reliance on outsourcing. With substantial layoffs within Big Pharma in the United States and Europe, many experienced discovery and development scientists are taking positions in the CRO industry. As a result, over time, the balance of expertise is beginning to shift from customers to suppliers. 

 Public policy perspectives: the lexicon of insourcing versus outsourcing			

The ability of providers to adapt and respond to industry changes is going to play a vital role in improving the success rate and outcomes at all stages of the drug-discovery and development pipeline. The ultimate factors in the adoption of this model are going to be driven by: the needs of customers within the industry, which includes the services being delivered on time and to budget; the need for collaborative advice; the need to ease the burdens of project management; and the need for more flexibility, adaptability, and quality. In addition, insourcing can offer significant cost savings compared with hiring permanent employees. As insourced scientists are AMRI employees, the administrative and benefit costs and obligations accrue to it. At the highest level, insourcing allows a customer to ramp up insourced full-time equivalents (FTEs) at a rate competitive with global external outsourced FTE costs and to use available laboratory space that would otherwise sit idle while demonstrating improved productivity that can be measured in pipeline candidates. 

The company is involved in another outsourcing model through its SMARTSOURCING program. Can you explain the program and how it fits into an insourcing/outsourcing model? 

 AMRI SMARTSOURCING is a new initiative to address the evolving needs of the industry, which includes insourcing and outsourcing. AMRI has examined the needs of pharmaceutical and biopharmaceutical companies and itself and has found that customers are looking for more supplier accountability and more trust as well as a better balance of risk and greater flexibility. AMRI's SMARTSOURCING approach is a versatile and strategic way of partnering that is a means of insourcing or outsourcing, or a hybrid model of both. It encompasses the broad range of technologies, capabilities, and global integration that AMRI can bring to a relationship, allowing our customers to customize an approach unique to its needs and budget. The company has used the rollout of its SMARTSOURCING initiative to showcase its improved performance and the customer experience that results from the close integration of global capabilities across the spectrum of drug discovery and development. 

AMRI, a contract research and manufacturing organization, discusses its adaption of an insourcing model with Eli Lilly.

Strategies in Outsourcing: Insourcing Emerges as an Alternative Model

Outsourcing Survey found a contract services industry that is enjoying better-than-expected business performance in 2012, fueled by increases in R&D spending at all levels of the bio/pharmaceutical industry. However, the survey, administered in June 2012, indicates that industry remains aggressive in seeking new business and is keenly aware of the risks that could change its fortunes.

Bio/pharma respondents reported strong growth in their spending on contract services, with 62% reporting that spending in 2012 has increased over 2011, including 43% who said that spending has increased by 10% or more this year (see 

Annual survey shows strong growth for service providers and promises to continue into 2013.

Pharmaceutical Technology-08-01-2012