Contractually yours – quality contract manufacturing1 April 2015
Pharmaceutical companies are well aware of the benefits of contract manufacturing, but the process is more complicated where the rarest diseases are concerned. David Lowndes, senior vice-president global supply chain and quality at Shire, tells us how organisations can move towards a more robust operating model and improve quality oversight.
Contract manufacturing has long played an important role in pharmaceuticals, but changing product types and tighter regulations have rendered traditional approaches to outsourcing obsolete. The shifting environment has created opportunities for progressive CMOs and a new generation of forward-thinking biotech and pharmaceutical companies, however.
Until recently, outsourcing was shaped by what were often referred to as 'Big Pharma'. Such companies were founded before contract manufacturing was available. They created the industry and, by necessity, the infrastructure to develop, manufacture, sell and deliver products to patients, and have been changing lives ever since. These organisations thrived during an era of innovation in which blockbuster products served broad therapeutic areas, and commercialising them created huge capital bases and massive sales forces.
Somewhere along this path, the need to balance capacities for late-lifecycle products with those for new, more strategically important and valuable items created the case for outsourcing, and the traditional contract manufacturing model was born. Given the mission to manufacture older products, fledgling CMOs found themselves deep in the 'harvest' phase of product lifecycles and under pressure to help clients maximise profits. Driven by the Big Pharma model, capabilities were built to support large-volume products and to deliver low-cost alternatives.
Scientific progress caused many of these broad therapeutic areas to become collections of sub-areas, each requiring different treatments. This trend ushered in a period of fast growth within the speciality pharmaceuticals sector, and challenged companies to develop and supply larger numbers of products to serve the same patient populations. Continually advancing knowledge has made it possible to develop products to address the rarest diseases and to realise the concept of personalised medicines.
Modern pharmaceuticals companies must be agile and able to manage unprecedented complexity in ways that traditional Big Pharma firms, with their huge capital bases and sales forces, cannot. For the new generation, which grew up in the era of speciality pharmaceuticals and rare diseases, these attributes have been mandatory since day one, and outsourcing options throughout the product lifecycle has been available to support growth.
The increasing focus on rare diseases (of which there are around 7,000) has intensified the challenge. This is not a single therapeutic area, but rather a collection of many, so companies in this field must be able to manage complexity in their science and technology, supply chains and sales forces. Being able to benefit from the expertise and capacity of third parties plays a critical role in the success of such firms.
The attributes being exploited by a new generation were developed to support outsourcing from Big Pharma, and herein lie the challenges and the opportunities. As CMOs have been driven to help clients maximise profits, they have optimised capacity use and oriented their operating models towards tighter margins. In order for the new model to succeed, CMOs must align themselves with highly customised offerings that deliver agility, while managing high levels of complexity, and clients must reward them for doing so.
Shire was founded in 1986. While often considered a Big Pharma firm by virtue of its growing revenues, the company has expanded by exploiting third-party capabilities, and does not have the capital base and sales force associated with this category. Rather than being a traditional Big Pharma outfit, it is a new-generation biotechnology firm that has succeeded in the new model. So what has been learned?
From a supply chain and CMO management point of view, the secret is to select the best partners and build deep relationships with them. As a biotech in the speciality and rare disease field, this has often been difficult. The sector often requires small-volume products, and most big CMOs are still geared to large volume. Shire's product-by-product business is not attractive to business development teams selling site capacity, so approaches to the most suitable CMOs often fail during initial conversations.
The solution is to increase engagement at senior leadership levels, where broader and longer-term strategic partnerships can be discussed. For the most part, leaders with broader perspectives on the business are happy to get engaged.
Clearly, any long-term strategic partnership must provide value to both organisations. The worst that can happen in this scenario is that negotiations fail to reflect that, but all too often, this is exactly what transpires. If the relationship manager - or whoever is in charge of procurement or business development on the CMO's team - has an incentive to 'win' the negotiation, the whole process can stall, or even break down.
It is critical, therefore, that technical and quality teams work to define what represents value and that negotiations are centred on how value is realised, rather than price. Shire makes products with high gross margins, but makes much more money by ensuring that they are consistently available at the right quality and safety than it could by adding a few more dollars to batch prices.
Its technical and quality teams identify where potential waste and variability might result in high costs and uses this to set performance expectations that improve total cost of ownership, while encouraging and rewarding the CMO for great performance. Shire's experience is that, done wrong, waste - in terms of deviations, product loss, missed sales and even recalls - makes the per-batch price pale into insignificance.
It is important, then, that focus is not simply on price, as has sometimes been the case with traditional, harvest-phase outsourcing. Concentrating on a broad set of parameters helps the selection and partnership processes.
Placing emphasis on people, plant, process, technology and risk management works well, with the expectation that the company is able to deliver the same results as a vertically integrated supply chain. Patients, practitioners and regulators should not expect, or tolerate, anything less.
People are critical to performance, so development and retention of employees is vital. It would be easy wherever Shire was a big partner to request that the best performing and most experienced individuals worked on its products. This is impractical for CMOs, though, which have many clients, all of which require good people, so Shire has aimed for broad improvement across its staff.
Its HR department shares approaches to recruitment, compensation, rewards and retention and has provided training specific to its products. Shire is motivated by patients, enabling people with life-altering conditions to live better lives.
In most cases, CMOs do not have this relationship, so Shire takes patients to CMOs to speak to employees and help them understand the critically important roles they play in improving lives.
Understanding accountability is also key to Shire's thinking. In terms of the cost of quality curve, CMOs with relatively low margins benefit from being at the lowest cost of quality.
This requires a reduction in the failure rate and the CMO, as the manufacturing expert, has to be responsible for that, with Shire's support. Equally, for relatively high-margin business, Shire should not be comfortable at the low cost of quality. Building plants typically requires the company to invest in high levels of preventive measures, and Shire ensures it is accountable for that investment.
Process capability underpins ease of quality management and good manufacturing and supply chain performance. Integrating data management systems with certain partners has enabled Shire to transfer data overnight in order for it to be trended automatically, revealing process performance and flagging potential issues. This data is discussed with partners to identify areas for improvement.
This approach has consistently improved process capability and reduced deviations and product loss. This data has also driven implementation of a significant number of lean initiatives in collaboration with partners and the embedding of resources in their sites to carry out parallel reviews and support decision-making.
In the most advanced cases, Shire has integrated its ERP systems and is working to minimise noise in the planning process and reduce overall cycle time.
It now runs an annual meeting of all the companies in one dual-sourced, outsourced supply chain, discussing strategy, performance and risk management.
This event culminates in a tabletop business continuity exercise that demonstrates how best to collaborate in the event of any major disruption to the supply chain.
The only benchmark for regulators concerned about outsourcing is the traditional, vertically integrated model. Shire has aimed to demonstrate that it is possible to create an integrated outsourced supply chain that meets or exceeds that benchmark. It has made tremendous progress, thanks to the willingness of its partners to collaborate, rather than compete, within its supply chain.
The depth of partnerships and improvements delivered so far have already created the robustness and agility required to handle increasing complexity. There is no particular magic to this: Shire simply applies the same expectations to the supply chains it outsources as it does to those it chooses not to.