The blockbuster era is at an end. Drugs are focused on smaller audiences today. With fewer doses to run, we must be flexible to support multiple molecules.
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.
Joel A. Tune
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.
Doesn't the end of the blockbuster era mean Big Pharma has excess capacity once the large plants go off line?
Only a very, very small percentage of their capacity is suitable for injectible products or many other new drugs. We've talked to a couple of customers who say their cost to upgrade a facility—maybe one they built 25 years ago—is as high as building a brand new facility from scratch. So you're actually starting to see a number of facility closures.
All that really goes back to two issues: the transition from orals to injectibles, and with it, the development of complex regulatory standards for biologics. Even sterile manufacturing from 20 years ago is much different in terms of standards and requirements than it is today.
So what's the next frontier for you? How do you have to change to compete with other contract manufacturers?
I actually think we're in the lead in one aspect: Baxter is one of the few companies that has actually designed and built facilities from the ground up solely for the purpose of contract manufacturing. So we design in flexibility that you don't have available when you're retrofitting an older facility.
How do you do that?
In the formulation suites, you set yourself up so you can move multiple tanks in and out. Customer A wants to use its own formulation tank to prepare the drug for filling. Customer B and customer C want their own, too. So you have to have the flexibility and infrastructure to move stuff in and out very easily and still meet the regulatory requirements.
One of the challenges that faces all of us is an increased pressure on flexibility. You may run the very first product for a company. When they launch the product, it's in a vial and it's lyophilized [freeze-dried to preserve macromolecules]. But within less than five years, they've moved into a liquid-stable version that they want in a syringe. Shortly thereafter, they want a sustained-release formulation in an auto-injector pen. That migration and change within a single compound will get faster, so responding with specialized processing and packaging, as well as capacity, is more important now than ever.
Do you have to have more facilities scattered around the country or do you move the drug after you make it in a centralized place?
Years ago, drug companies made the active ingredient in one or two places and they'd do the local fill and finish. They've migrated to regional operations, and now more and more of them talk about a primary global source, in part to get economies of scale from a small-volume drug. But also because technical knowledge is much more critical now. They are centralizing the expertise, not the product.
So the location of the knowledge is most important?
Yes. But I think there are some folks who will tell you that where the compound ends up is important, too, because it reduces the cost of managing their supplier. So there is only one place to audit as opposed to three or four. That's another reason to use a contract manufacturer. They are used to that regulatory scrutiny.
Is regulatory expertise so important?
When companies approach what they call the "make/buy decision" to go out and hire somebody, the one factor that shows up at the top of all our surveys with pharma and biotech companies is regulatory reputation and knowledge. Hiring a manufacturer must not induce more risk in the fallibility of their product than running it themselves. So regulatory and quality reputation is the first screen that a lot of folks go through.
Given how much the sector has changed over the past decades, what do you expect in the years ahead?
I think there is a swing going on from people who just extend pharma's capacity—to fill the dead spots in their manufacturing operations, if you will—to people who get up every morning and that's all they do. Now you've got a group of people who are building a core skill set. They handle the multiple changeovers and small batches that new, specialized, targeted therapies and niche drugs are bringing.
It's part of a change in Big Pharma. Where it historically wanted to be very vertically integrated, I think the challenge of smaller drugs and biologics has led the industry to think about how it creates the most value for patients and shareholders. And making the product and filling it is not necessarily it.
Joel A. Tune is vice president/general manager, BioPharma Solutions at Baxter Healthcare Corporation. He joined the company in 1978 and held a variety of R&D positions related to medical devices. In 1988, he began working in marketing, and by the mid 1990s, he turned his attention to strategic development in the US Healthcare Group. Since 2000, Tune has helped shape the strategic direction of global marketing, R&D, and finance at Baxter.