Pharmaceutical Outsourcing, May/June 2016
Demand for outsourcing services in the pharmaceutical and biopharmaceutical sectors continues to grow due to the continued global economic recovery and rising consumption of advanced medicines around the world. Drug manufacturers of all sizes have increased their investments in innovation, leading to burgeoning pipelines and near-record-level approval rates by FDA.
Spending on outsourcing has increased dramatically as a result according to the 2016 Nice Insight Contract Development & Manufacturing (CDMO) Outsourcing Survey of bio/pharma professionals (n=587); 71% of respondents indicate that they spend more than $50 million annually on services provided by contract manufacturing organizations (CMOs) and contract development and manufacturing organizations (CDMOs) in 2015, up from 23% to 24% for the period 2012-2014. It would behoove contract service providers to take note, however, of the numerous and varied differences in preferences, needs and expectations identified for emerging, small, mid-sized and large bio/pharma companies.
The results of any survey are only as valuable as the quality of the survey respondents. It is worth noting, therefore, that the majority (39%) of participants in the 2016 Nice Insight CDMO Outsourcing Survey are key decision makers (executive/management positions) in their organizations. Professionals with positions in R&D, formulation and analytical (18%), development, production and manufacturing (13%) and operations and engineering (10%) functions are also well represented. As a result, the survey is quite balanced with the opinions of both company leaders and those in the trenches.
The survey is also truly global in nature with 56% of respondents from North America, 28% from Asia, and 16% from Europe. In addition, survey participants utilize contract manufacturing services in all key pharmaceutical and biopharmaceutical markets around the world. Most projects are outsourced in the US (30%), Western Europe (14%) and India (12%), but a reasonable amount of activity is also taking place in Singapore and Southeast Asia (8%), Japan and Korea (7%), Argentina and Brazil (7%), Eastern Europe and Turkey (7%) and the Middle East (6%). These statistics clearly suggest that the results of the new 2016 survey should be highly indicative of the conditions in the global CDMO marketplace.
The breadth of companies represented in the survey also makes an analysis of the preferences, needs and expectations of drug manufacturers of different sizes possible. Specifically, the results include input from representatives of biopharmaceutical and pharmaceutical companies of all sizes — large (>$5 billion in annual sales), medium ($500 million to $5 billion), small ($100 to $500 million) and emerging (<$100 million) — corresponding to 36%, 43%, 12% and 9% shares, respectively.
Pharma Versus Biopharma
The greatest number of respondents work for mid-sized bio/pharma companies (43%), followed by big bio/pharma firms (36%). Small and emerging bio/pharma companies make up the remaining 21%. These results are interesting in light of the fact that over two-thirds (67-69%) of respondents representing large, medium and small bio/pharma companies indicated that their organizations focus on the development of new biological entities (NBEs), compared to 53-56% on small-molecule new chemical entities (NCEs), while over two-thirds (71%) of survey participants from emerging companies indicated that their firms focus on NCEs, with 65% also interested in small-molecule generics, and just 41% targeting NBE development.
Outsourcing Needs and Preferences
The overall survey results on outsourcing activities show important trends, but also hide some interesting differences between respondent company needs. For instance, according to the overall survey results, 47% of respondents outsource to both CMOs/CDMOs and contract research organizations (CROs), 30% use just CMOs/CDMOs, and 23% do not currently outsource but anticipate doing so within the next 24 months.
Breaking these numbers down according to company size, however, reveals that of those organizations represented in the survey, large and emerging bio/pharma companies currently outsource to both CMOs/CDMOs and CROs (~54%) at a slightly higher level than midsized companies (45%) and to a significantly greater extent than small firms (29%). On the other hand, large, medium and small pharma/biopharma companies outsource only to contract manufacturing organizations to a similar degree (30-34% of respondents) compared to just 18% for emerging businesses. In addition, a significant portion of small and emerging bio/pharma companies (37% and 29%, respectively) do not currently outsource but are planning to. Surprisingly, a quarter of medium-sized firms are also in this position, whereas just 15% of large companies say they do not currently outsource.
The reasons for outsourcing manufacturing activities also vary based on company size. Overall, respondents to the 2016 Nice Insight CDMO Outsourcing Survey list improving quality as the top motivator. However, for those that come from large companies, improving quality and efficiency are equally important, followed by gaining access to expertise and improving processes. Even more survey participants at medium and small bio/pharma firms listed improving quality as their top driver for outsourcing. Beyond that, medium-sized firms, desire access to specialized technologies and reduced costs, while those at small companies seek to reduce both operational costs and capital investments and improve their processes. Respondents from emerging companies were the only group to indicate a factor other than improving quality as the top driver for using CMOs/CDMOs. For them, reducing the risk of supply shortages is of most importance, followed by reducing financial outlays, improving quality and leveraging the regulatory expertise of service providers.
It is also noteworthy that more respondents from emerging pharma companies are very interested in becoming involved in strategic partnerships (71%) than survey participants from larger companies (53% mid-sized, 63% small, 65% large). This result is also confusing given that the largest percentage of respondents from emerging companies (65%) indicated that they look for tactical service providers (compared to 27%, 27% and 40% for medium, large and small bio/pharma firms) when selecting CDMO/CMO partners. Most medium and small companies seek preferred providers (49%, with 25% and 11%, respectively, choosing strategic partnerships), while large companies seek both preferred and strategic partners (37% and 36%, respectively).
Outsource Supplier Definitions:
Strategic Partner — A long-term, win-win commitment between two organizations for the purpose of achieving specific business objectives by maximizing the effectiveness of each participant's resources.
Preferred Provider — A carefully selected provider that has been thoroughly evaluated. These relationships frequently offer shorter set-up times and higher quality deliverables because the CMOs/CDMOs are thoroughly versed in the specifications of the sponsor.
Tactical Service Provider — A tactical service provider offers operational cost benefits, but don’t drive competitive advantage or shareholder value. These relationships tend to be more transactional in nature.
The phases at which outsourcing services are most likely to be needed also differ for companies of different sizes. According to survey respondents, large bio/pharma companies most often outsource Phase II and III activities, but also turn to CDMOs/CMOs for assistance with pre-clinical, Phase I and Phase IV/Post Launch activities. Medium-sized companies, on the other hand, outsource more Phase I and II activities, but also look for significant support for Phase III and Preclinical projects, and are least likely to need assistance with Phase IV efforts. Small bio/pharma companies utilize CMOs/CDMOs most often for Phase II projects, but also outsource preclinical and Phase I projects. They are least likely to look for help at Phase III and IV. Not surprisingly, emerging companies most often seek support from contract service providers for preclinical and Phase I activities.
Survey respondents have significant expectations for increases in outsourcing spending, however the number of respondents does vary as a function of company size. The results of the survey indicate that the largest percentage of large and emerging bio/pharma companies (47% and 57%, respectively) spend over $100 million annually on outsourcing than do other, while the largest portion of medium and small companies spend $51-100 million/year (56% and 59%, respectively). In addition, while respondents from all different sizes of companies expect their expenditures to increase over the next five years, the anticipated level of increase rises as the size of the company decreases. Thus, respectively 71%, 76%, 79% and 90% of respondents from large, medium, small and emerging bio/ pharma companies expect to see an increase in spending on outsourcing.
The number of CMOs/CDMOs is also expected to increase with spending on outsourcing. Currently 70-78% of respondents from small, medium and large bio/pharma companies and 84% of survey participants from emerging pharma firms use up to 10 CMOs/CDMOs. Interestingly, an additional 8% of respondents from emerging companies and 10% from small companies have 41-50 outsourcing partners. In addition, more respondents from small and emerging firms expect to increase the number of CDMOs/CMOs they use (76% and 74%) vs. 68% and 67% for large/medium companies).
The drivers for this expected growth also slightly differ; more survey participants from large and medium companies indicate that their company strategy and previous positive experiences are driving the use of more outsourcing partners, while more respondents from small and emerging companies noted that a general increases in their portfolios was the main motivator, with company strategies as second in importance.
Service providers should also be aware that when selecting outsourcing partners, big, medium and small bio/pharma companies use industry research as their primary method, while emerging companies rely on referrals from colleagues and web searchers. Small companies also seek information at trade shows.
CDMOs/CMOs may also want to take note of the variation in satisfaction levels and reasons for dissatisfaction among sponsor companies of different sizes. Notably, more respondents to the 2016 Nice Insight CDMO Outsourcing Survey from small and emerging bio/ pharma companies (60 and 63%) are satisfied with their outsourcing partners than respondents from large and medium companies (55 and 47%, respectively). On the other hand, a greater number of survey participants from large and medium companies are somewhat satisfied. As a result, 86% of respondents are at least somewhat satisfied at all pharma companies except small firms, where slightly fewer (80%) meet this definition.
Top sources of dissatisfaction include quality for respondents of large, medium and emerging bio/pharma companies and inflexibility for survey participants from small organizations. Respondents from large companies also have experienced issues with product/service quality and delivery, while those from medium-sized companies identified security/confidentiality and customer service as problem areas. In addition to inflexibility, respondents from small bio/pharma companies have had problems with poor quality and delivery performance, product and service availability and document completion. Along with quality problems, poor customer service, a lack of timeliness in resolving issues and security/confidentiality issues were the main concerns for survey participants from emerging firms.
When it comes to reasons for switching CDMOs/CMOs, the survey results indicate that large pharma companies equally do so to gain access to specific operational expertise and better quality, followed by improved timeliness. Getting better quality is the top reason for switching by mid-sized firms, followed distantly by achieving a better price. Small companies also switch outsourcing providers to get better quality, but also are seeking greater geographical convenience, lower error rates, better quality and lower prices. Similarly, emerging companies are looking for lower error rates, better quality and lower prices.