This document summarizes a roundtable discussion between experts on current trends in pharmaceutical outsourcing. The experts discussed how consolidation in the pharmaceutical industry has led to CMOs focusing more on becoming full-service partners. They noted key drivers for outsourcing have shifted from cost to quality, speed, and gaining specialized expertise. CMOs need to invest in new technologies, maintain high quality, and form strategic partnerships to remain competitive in this evolving landscape. Effective communication and understanding between partners is important for developing win-win relationships. Globalization also presents challenges for outsourcing that require addressing regulatory and quality issues across different markets.

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Outsourcing continues to be part of pharma’s business strategy.
To gain insights on current trends in outsourcing and the
implications for CMOs and CDMOs, Pharmaceutical Technology Europe
conducted a roundtable discussion with industry experts. Participants
included Elliott Berger, vice-president, Global Marketing and
Strategy, Catalent; Antonio Magnelli, senior vice-president, European
Commercial Operations, Patheon; Cynthia Wooge, Global Strategic
Marketing, SAFC; Frédéric Gaussens, vice-president, Global Strategy
and Business Development, SGS; and Peter Soelkner, managing
director of Vetter.
PTE: As we see more consolidation in the pharmaceutical
industry, what is the impact on contract manufacturing
and outsourcing trends? Are there any particular activities
that tend to be outsourced more than others?
Magnelli (Patheon): Every market always
moves naturally toward optimization, with the
aim of increasing competitiveness between
the main players. Every merger consequently
leads to natural consolidation of the business,
driven by supply-chain optimization. The CMO
market is following the same trend, moving more
toward consolidation, with the best performers
becoming full-service partners to the pharma industry, not serving
as only occasional suppliers. These partnerships not only focus on
the general capabilities of a CMO, but also on the possibility to offer
extended services to support clients from early stage to market.
Gaussens (SGS): The impact of consolidation in the pharma
industry can go both ways. For instance, on the one hand, you
could have a scenario where a larger pharmaceutical company
acquires another and the result can be that work that was previously
outsourced is immediately internalized on the directive of the
acquiring company. Typically, this action can be justified by the
acquiring company initially needing to evaluate any particular
capacities it may have as a result of the consolidation. This being
Moderated by
Adeline Siew, PhD,
editor of
Pharmaceutical
Technology Europe
Moving with the
Changing Tides of
Outsourcing
said, we can point to examples
where a consolidation represented
an opportunity. In the second type
of scenario, there are instances
where SGS has been able to leverage
its existing relationship with the
acquiring company to gain immediate
credibility with the acquired company.
Over the past decade, there has
been an evolution in the kinds of
activities that are outsourced. In the
past, contract analytical outsourcing
typically consisted of more routine or
‘commodity’ kinds of services. Large
pharmaceutical companies were
reluctant to outsource high-value
services and projects that required
more method development. However,
what you find now is that more
companies are open to contracting
out high-value activities such as
cell-based assays, formulation, and
biologics characterization.
Soelkner
(Vetter):
As we have
seen with the
consolidation
in the
pharmaceutical
and biotech
industry, there has also been similar
activity in the service partner
network that supports this industry.
Typically, large pharmaceutical
and biotech companies prefer to
have a small number of carefully
chosen long-term strategic partners
rather than a large number of single
contractors. This approach helps
reduce administrative oversight,
including handling and managing
efforts, while also helping to
negotiate price.
Outsourcing is often done when
either the drug or its corresponding
manufacturing process is highly
complex, or when in-house
production is not able to be
performed economically due to
the volume or special nature of the
drug. A further reason to outsource
manufacturing is the flexibility it
affords in being able to react quickly;
for example, having a partner to help
with fill and finish operations at times
of peak demand. Thus, the partners
are considered an extension of their
fill and finish network.
Berger (Catalent): There has been
a shift that has seen the pharma
Industry experts share their perspectives on the evolving
outsourcing landscape and how current trends are shaping the
increasingly competitive contract manufacturing sector.
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2. Outsourcing Trends
majors increasingly outsource to
a smaller number of suppliers that
possess a wide range of services,
technologies, and expertise.
These partnerships are starting
earlier in the drug development
process, sometimes in the late
discovery phase, because with more
challenging molecules, there is
increased need to help optimize the
API and formulations of new drugs,
encompass deeper engagement
including analytical and clinical
support, and last longer, through
late-stage clinical manufacturing,
scale up, and global commercial
manufacturing. Consolidation has also
resulted in increased interest from
Big Pharma in partnering on more
complex and specialized capabilities,
including drug development, instead
of just outsourcing space capacity.
Wooge (SAFC): A sizable increase
in outsourcing has been seen in
recent years, even among Big
Pharma. This trend is especially true
for APIs using specialized services
or technologies. An example in this
class are antibody drug conjugates
(ADCs), which require specialized
handling for highly active containment
and biologics processing, as well as
sophisticated analytical methodology
for their development and
manufacturing.
PTE: Outsourcing was
primarily driven by cost
reduction in the past, but
a lot has changed over the
years. What are the key drivers for
outsourcing today compared to the
past decade?
Wooge (SAFC):
The primary
drivers today
are quality and
speed to clinic for
new therapeutic
molecules. When
an innovator
company can partner with a CMO that
is highly experienced in the target
technology, efficiency in product
delivery can be gained along with
lower capital and resource usage
internally. In the case of ADC and
highly active compounds, specialized
handling and containment is required,
so these types of products are
outsourced to minimize capital outlay.
Berger (Catalent): Sponsors are
more focused on seeing solution
providers as long-term collaborators,
with whom they can have the
confidence and assurance of long-
term supplies where appropriate.
The complexity of products and
development projects is rapidly
increasing and the industry is looking
for specialized expertise to help bring
these products to market rather than
cost-based outsourcing of routine
activities.
Large pharmaceutical companies
continue to focus on its core
capabilities in developing new
drugs and taking them to market,
and outsourcing enables them to
conserve capital and energy in this
space as opposed to driving lower
costs. In the current market, the
need to outsource to gain specialized
expertise and technology, supplied
reliably and at high quality, far
outweighs the cost factor.
Soelkner (Vetter): Today,
large pharmaceutical and biotech
companies tend to focus their efforts
on the late stage development and
marketing activities for drugs in
special indications, such as cancer or
haemophilia drugs. They are primarily
concerned with their business
activities and will often cooperate
or merge with other companies
operating in the same area to bring
about synergies in these activities.
Because they focus on those
elements of the business, they often
outsource their fill and finish work to
specialty firms as much as possible.
In our discussions with larger
companies, it has been our
experience that price is not
necessarily the decisive factor in
choosing an outsource partner.
Rather, they are looking for a partner
that can support drug development
and manufacturing effectively and
efficiently.
Gaussens (SGS): In the past,
the relationship between the
pharmaceutical company and
the contract analytical service
provider was more transactional
and largely driven by cost. Today,
however, price alone is no longer
the main consideration. Drivers
now include strong project
management and more open, pro-
active communication. Additionally,
companies expect service providers
to have transparency with regards
to project issues that may arise, and
they expect to have a dialogue with
the service provider on resolution.
Successful service providers can then
set proper expectations with regards
to on-time delivery.
Magnelli (Patheon): Clients are
looking for a lean supply chain,
favouring service relationships
and partnerships over purely price
negotiations. The focus is now on
integrated support and partnerships
with shared mutual goals. Clients
share future pipeline opportunities,
allowing their CMO partner to grow
with them in a common direction.
Key drivers for success as a CMO
include the ability to foresee and
anticipate client needs as well as the
flexibility to adapt to expectations.
Every CMO has to evolve and create
an organization that is capable of
contributing to the client’s strategy,
not only guaranteeing them “units,”
but providing solutions that are
integrated and seamless.
PTE: As the outsourcing
landscape evolves,
how have clients’ priorities
and expectations
changed?
Soelkner (Vetter): As outsourcing
projects to qualified specialists
continue to increase, so too does the
expectation for high-quality results.
Customers today expect state-of-
the-art equipment, laboratories,
and filling lines at their partners’
sites to enhance the quality of their
manufactured drug. They also expect
the highest possible flexibility in
equipment and processes. To meet
the specific needs of a product, the
service provider must be able to
offer both small and large-scale filling
lines as well as stainless steel and
disposable equipment. The service
provider must also have the capability
to process various systems such as
bulk and presterilized glass, as well as
polymer drug-delivery systems.
Gaussens (SGS): Today, especially
with more biologics in development,
companies are looking for providers
that can serve as medium- to long-
term partners. The level of technical
competence is now more important,
as the types of services being
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3. Outsourcing Trends
outsourced has changed. This being
said, companies typically engage the
service provider with an initial project
to demonstrate their capabilities.
Here is where project management
and an open dialogue are key in
dealing with issues and setting
client expectations. Because failures
at this stage can impact product
development, companies are more
demanding with their expectations.
Consequently, they are more apt to
abandon a service provider lacking
in competence, whether it be project
management or technology-related.
With stakes so high, companies are
not inclined to babysit a service
provide nor a project.
Magnelli (Patheon): In addition
to a lean supply chain and strategic
partnership, clients expect robust
quality and continuity. It is important
to meet increased customer demand
for integrated global solutions and
improved quality and regulatory
experiences, through building a
culture committed to reliability
and scientific excellence. On-time
delivery, simplicity, speed and quality,
are essential in demonstrating
commitment and success to a client.
Our clients seek CMOs with clear
investment strategies for future
growth that will deliver on the
promise of speed to market as well as
simplified and reliable supply chains.
Wooge (SAFC): Expectations for
outsourcing have changed from
CMOs being a low-cost provider of
large-volume APIs to that of a partner
providing a high-value, collaborative
service to expedite delivery of highly
complex new products into the clinic
and through commercialization.
There is an emphasis on technical
excellence and regulatory compliance
and knowledge, in which the CMO
can reliably provide both the product
and the necessary support for
regulatory filings.
Berger (Catalent): Long-term
relationships with a smaller number
of suppliers require a joint governance
structure that fosters deeper, multi-
site global relationship building.
Better communication is at the heart
of a successful long-term relationship
and tools such as gate-review
techniques and transparent balanced
scorecards help toward continuous
improvement in cooperation. These
partnerships also need quality
agreements that unite the two parties
in a single supply and quality chain.
Big Pharma increasingly expects a
high level of expertise, quality and
innovation from the CDMOs that they
partner with, as their own R&D and
operational budgets are focused on
fewer priorities.
PTE: How can CMOs and
CDMOs remain
competitive? And what are
the attributes of a
strategic partnership that benefits
both parties?
Berger
(Catalent): CMOs
and CDMOs will
need to continue
to invest in new,
differentiating
technologies
that Big Pharma
does not possess in-house. By
collaborating early and enabling
pharmaceutical companies to bring
truly differentiated products to
market, both the payers and the
patients will ultimately benefit.
Additionally, suppliers will need
to provide customized solutions
to smaller innovators who are
increasingly pursuing more
molecules further into development
independently.
Maintaining investment in both
quality and reliability is paramount
to maintain exemplary regulatory
compliance. A key policy at Catalent,
for example, is to harmonize
and strengthen its global quality
management system and to go above
and beyond what is necessary by one
single regulatory body.
Wooge (SAFC): CMOs and CDMOs
will need to stay abreast of the rapidly
changing technical landscape to
ensure they can meet the demands
of novel products being developed. In
many cases, these new therapeutics
are complex and require multiple
components. Having a strong
supply-chain network or strategic
partnerships that enable the end-
to-end seamless delivery of APIs and
drug product will offer a competitive
advantage to allow innovators to
focus on product development
instead of logistics. These strategic
partnerships are most valuable when
the independent companies work
together as a single entity with the
client and share similar cultures and
harmonized operational practices.
Magnelli (Patheon): CMO
and CDMOs must be efficient to
compete, but the best way to remain
competitive is to focus on being a
highly reliable partner that provides
excellent quality and on-time delivery.
Becoming a preferred partner will,
in any case, be dependent on the
ability to create relationships aimed
at sharing company strategies.
Client pipelines are one of the main
drivers for a CMO/CDMO strategy
because they offer the possibility to
preview and foresee market needs.
CMOs must develop solutions that
lead to robust product formulations,
simplified supply chains, and take
customer needs from start to finish,
from API all the way to commercial
supply. Through these partnerships,
customers find cost-effective support
for the launch of new products,
reducing the cost and time needed to
get to market, which is a ‘win-win’ for
clients seeking fair pricing and CMOs
seeking profitability.
Soelkner (Vetter): A key success
factor for a CDMO to remain
competitive today is to focus on key
competencies. That means ‘more is
not always better.’ Rather, a contract
services company must decide which
attributes it wants to excel at and
how it wants to be perceived in the
market. For example, a CDMO might
offer a wide service portfolio, or offer
highly competitive prices. Or, it may
be perceived as one that focuses
on high quality, offering a great deal
of experience in handling complex
compounds and manufacturing
processes.
‘Win-win’ partnerships are born
when a solid working relationship
between both parties is established.
Of critical importance in the
creation of this partnership is the
understanding between both parties
of the strategy and the business
roadmap. To achieve this, good
communication among team
members and peers is necessary,
though not always easy to achieve.
Differences in corporate cultures and
business models as well as varying
levels of knowledge and experience at
all levels are just a few of the issues
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4. Outsourcing Trends
that can make communication among
parties more difficult.
Nonetheless, once a good level of
communication is reached, the basis
for both parties to benefit is created.
The sponsor company gets valuable
time and resources to concentrate
on its core competencies, and the
strategic partner is well aware of the
sponsor’s expectations.
PTE: Has the increasing
globalization of the
pharmaceutical industry
added new challenges to
outsourcing? How can these
challenges be addressed?
Gaussens
(SGS): There
are plenty of
challenges in
outsourcing in
an increasingly
global pharma
industry. For
instance, the trend over the past
decades was establishing operations
in Asia. For pharmaceutical
companies, the move made sense
given the fast growth in China and
India, with the promise of lower
costs. The reality, however, is that
issues such as regulation on the local
level as well as the expectation of
equivalent quality of service have
proven to be initial hurdles. Over the
past decade, there has been more
focus on these quality and regulatory
issues given the scrutiny of the US
FDA. These issues do not need to be
dealt with in more mature markets
such as North America or Europe.
Soelkner (Vetter): A major
factor affecting the outsourcing
business is indeed globalization.
Drugs continue to be sold on a global
scale, and therefore, any company
doing business globally must provide
solutions that meet the different
market needs efficiently and reliably.
Consider, for example, the Asia Pacific
(APAC) region; approximately 10 years
ago, the medicines produced within
this region were primarily intended
to be used only there. Today, there is
a growing increase in activities that
are designed to enlarge the customer
base for drugs manufactured within
APAC to be distributed to countries
outside of APAC. We expect this
activity to increase in the future.
With this change in distribution
comes increased challenge for
pharmaceutical companies and their
contract manufacturers who now
face competition from outside the
region. Manufacturing companies
must adapt to differing criteria of the
recipient countries if they are going to
be successful. For example, they have
to make certain that distinct quality
requirements are met for countries
located inside, as well as outside,
the APAC region. As they enter this
market, contract service providers
will be faced with these challenges
and must react accordingly.
Wooge (SAFC): Globalization
in the pharmaceutical industry
is a reality—and certainly offers
challenges, such as operating in
multiple time zones, different cultures
and languages, as well as dealing with
import/export issues and transport.
These challenges can be overcome
with strong project management
and standardized processes to
ensure all aspects flow together.
However, to be efficient, clear and
transparent communication is a must
to understand and mitigate the risks
at each step, and proactively provide
solutions as a team.
Magnelli (Patheon): The CDMO
market is becoming increasingly
global and companies must be able
to operate in international markets.
Pharmaceutical companies are
looking for the ability to work with
more than one manufacturing site
in a CDMO’s network, maintaining
regulatory compliance and
capabilities for clients. Offering
strategic services on a global scale
not only allows CMOs to serve
local geographic markets, but also
serves clients seeking long-lasting
relationships into the future.
Berger (Catalent): We believe
that local market access as well as
access to local talent are key. Service
providers constantly have to adapt
to frequent regulatory changes
and be on top of proposed shifts in
legislations to be able to advise their
clients through the process.
PTE: In your opinion, what
is the future outlook of
outsourcing?
Gaussens (SGS): The
future of outsourcing looks quite
good. Specifically, the addressable
market (i.e., the portion of the R&D
market that can be outsourced
because there are certain activities
that can never be contracted out) will
be broader than previously. According
to a recent Frost and Sullivan report,
the penetration rate of outsourced
services is presently between 25–30%
of the addressable market. Within
the next decade, it is conceivable
that this number can reach 40–50%
[QA: please provide reference for this
figure].
Berger (Catalent): The rate of
outsourcing will only increase.
Customers’ demands are becoming
more diverse and specialized, and the
need for partnering and collaborative
innovation with experts in such
fields can only be matched with
outsourcing.
Partnering enables pharma
to focus on capabilities and
minimize investment in specialized
technologies and capacity while
getting better products to patients
faster. For smaller companies, time
is the pressure to allow for a return
on investment to be made as soon as
possible, and they recognize they are
unable to be experts in every stage of
the development or even to manage
multiple suppliers well. Allied to
this, they need integrated expertise
in development, formulation,
technology, manufacturing, clinical,
and regulatory expertise for any
given dose form (e.g., extractables
and leachables testing in inhalation
products or intravenous bags) and in
given geographies (e.g., how ANVISA
audits compare to FDA audits).
Magnelli (Patheon): The near
future will bring further consolidation,
and success will depend on building
a strong global presence with
end-to-end, integrated offerings.
Outsourcing, specifically by small and
mid-size pharmaceutical companies,
will continue to increase. The
decision to outsource will be different
for big, medium, and small-sized
companies, depending on their core
strategies. Outsourcing isn’t done
just for financial reasons anymore.
Outsourcing allows customers to
find smart business solutions for
simplified and reliable supply chains.
This approach allows customers to
focus on market growth and new
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5. Outsourcing Trends
product launches with strategic
partners.
Soelkner (Vetter): In the injectable
area where our company is operating,
we see that further growth is
forecast, with biologics being the
major reason behind it. This growth
represents significant opportunities
for companies operating in the
contract services sector that
support pharmaceutical and biotech
companies.
Also, the continuing erosion of the
blockbuster model combined with the
fact that many promising new drugs
come from small biotech companies,
means further opportunity for
CDMOs to help guide these small
companies and provide support early
in the drug-development process.
CDMOs subsequently can also
continue their partnerships with large
pharmaceutical companies after an
out-licensing process is realized.
There are, however, challenges to
recognize, and a good deal of hard
work is required to overcome these
challenges. For example, there is an
ever-increasing regulatory oversight
of the contract services industry
that is necessary to enable the safe
manufacturing of drugs. This is a
factor that every company operating
in this sector must pay special
attention to if they want to succeed.
They must work hard in ensuring their
quality systems stay ahead of the
market.
Wooge (SAFC): The market for
outsourcing continues to look strong,
especially for complex technologies.
With the recent rise in quality
citations in API manufacturing sites,
especially in Asia, there will be an
even stronger emphasis on quality
and transparency in outsourced
programs. Organizations that have
earned excellent reputations as CMOs
will continue to be sought after as
valued partners. PTE
6 Pharmaceutical Technology Europe March 2015 PharmTech.com