Thought Leader: Q&A with Joel A. Tune

More Than a Safety Valve
Apr 01, 2006

Joel A. Tune
The global contract-manufacturing market is expected to more than double between 2001 and 2011, according to marketing consultants Frost and Sullivan. What was a hefty $10 billion business at the turn of the century is expected to top $15 billion in global revenues this year, and reach $25 billion by the end of the decade.

For decades, contract manufacturers have sold back-up strategies to companies preparing for market fluctuations, production glitches, and weather emergencies. As industrial pinch hitters, they step up when large and even small disasters halt production: Baxter has taken over when frozen pipes cut off an east-coast plant's water supply and, more typically, when equipment failures or FDA actions closed a plant. Other contract manufacturers kept products moving after Hurricane George knocked out pharmaceutical factories in Puerto Rico in 1998.

Pharma still enlists contract manufacturers as safety valves, but today's drug developers have also begun to outsource the production of increasingly complicated compounds while they are still in clinical trials. Rather than build factories, they spend money on new molecules or better formulations. As new drugs target smaller patient populations, contract manufacturers are taking on larger roles.

Pharm Exec: The contract-manufacturing sector is growing faster than the rest of the industry. Why is pharma outsourcing the manufacturing piece?

Tune: The biggest reason is the shift from traditional small molecules to the biotech and biologic revolution. A lot of new, small companies don't have a great deal of infrastructure or technical resources. They're focused on development and don't necessarily have the manufacturing and scale-up skills.

And when Big Pharma moves from oral medications into new, larger molecules or begins licensing injectible drugs, there's a mismatch in terms of manufacturing capacity. The contract manufacturers can step in while these products are in development—Phase II or thereabouts—and remove a lot of the risk. Small guys don't have to invest their precious capital in a physical plant. And pharma doesn't have to build a facility until it knows it's got a winner in the marketplace.

Phase II? That's several years before a product would actually be approved. How much lead time does a contract manufacturer need?

Speed is part of the beauty of contract manufacturing. Because we see a portfolio of products that come in, we already have established infrastructure and capabilities, so when a drug comes in for Phase II or Phase III production, we can literally start to do that work in a matter of months. For the developer to build a facility from the ground up can take three years or more.

How long would you expect to be involved with a drug like that? Would you be a transition manufacturer? Or do you see yourself manufacturing the drug for a longer period of time?

A lot of these drugs are not huge volumes, so if a new biotech company or a big pharma company has a couple of them, they may not think it's worth it to build their own infrastructure. So we'll typically keep those drugs for a very long time. In other cases, we run the product for the first two years or so. If it gets to be a blockbuster, the pharma or biotech company may bring it back in-house. So it works both ways.

People's ideas about supply chain are much different now than they were, say, 10 or 20 years ago. What other things about contract manufacturing are changing?

The biggest change is the blockbuster era coming to an end. More so now than in the past, new drugs are focused on narrower audiences, so the number of doses that need to be run is smaller. And the flexibility to support multiple molecules is more important than it has been in the past. You don't set a line up and run the same thing every day.

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