Pharmaceutical Outsourcing Part 1: An Introduction to Contract Manufacturing Strategies

A Report by Datamonitor

The globalization of the contract manufacturing market, particularly on-patent APIs, is set to continue and offer additional cost advantages for companies. India and China are expected to become increasingly popular locations for outsourcing on-patent API manufacturing over the next five to 10 years, as intellectual property protection and the operating environment improves.

However, companies should not overlook the other ways to extract the full value that contract manufacturing offers. Such steps include designing a suitable manufacturing strategy, which uses contract manufacturing strategically, choosing the right CMO and managing and monitoring a CMO effectively.

Executive Summary

Scope of the report

Pharmaceutical Outsourcing Part 1: An Introduction to Contract Manufacturing Strategies - Offshoring is not the only option to drive productivity and efficiencies provides an in-depth analysis of the ways in which companies can optimize their contract manufacturing strategies and increase the likelihood of a contract manufacturing relationship being successful. In this report, the contract manufacturing of intermediates and APIs (bulk active pharmaceutical ingredients) is examined in terms of supply to regulated markets such as Europe and the US. The manufacture of raw materials, formulation development and packaging are beyond the scope of this report.

Pharmaceutical Outsourcing Part 1:

An Introduction to Contract Manufacturing Strategies - Offshoring is not the only option to drive productivity and efficiencies consists of a written report and a  supplementing Executive Presentation, summarizing the key findings and recommendations. The written report has been structured into the following chapters:

• Chapter 1 provides an introduction to outsourcing and contract manufacturing, including an overview of the current and future trends that are affecting and will affect contract manufacturing;

• Chapter 2 examines the influencing factors behind companies making the decision to outsource or keep in-house a manufacturing function. Best practice contract manufacturing strategies used by large and small pharma and biotech companies are examined using case study analysis;

• Chapter 3 looks at how a company can efficiently and effectively identify and select the right contract manufacturing organization (CMO) and negotiate a suitable contractual agreement between the customer and vendor;

• Chapter 4 examines how companies can increase the likelihood of a contract manufacturing agreement succeeding and how customers can extract the full value.

As part of this report, Datamonitor conducted primary research with pharma and biotech company executives involved in drug manufacturing to gain further insight into contract manufacturing in the pharmaceutical industry. Throughout the report, the quotes used made by the stakeholders have been grouped into two categories: pharma/biotech company executive and senior auditor, leading pharma company.

This report is the first in a series of reports examining outsourcing in the pharmaceutical arena. The next report in the series, Drug Discovery Outsourcing, will also be published in 2006.

Key findings

In the course of its research and analysis for Pharmaceutical Outsourcing Part 1: An Introduction to Contract Manufacturing Strategies, Datamonitor identified the following key conclusions:

Companies need to ensure they have a well-designed manufacturing strategy, which complements the circumstances and requirements of the company as well as the nature of the project concerned. Where possible, companies should look to using contract manufacturing strategically to extract the maximum value that outsourcing offers;

- failure to select a suitable contract manufacturer, can led to serious repercussions such as delays in supplies or even jeopardize regulatory approval. As a result, companies need to have a good selection process and devote adequate resources to screen vendors based on a good and realistic set of selection criteria. The location of the vendor is one of the key considerations in the criteria, particularly given the growing shift of the contract manufacturing market from the West to the East;

- contract manufacturing agreements often fail to live up to the customer’s expectations. However, there are ways customer’s can minimize the risk of failure, such as through dedicating resources to actively manage and monitor the vendor and creating a partnership with the vendor, based on open communication.