Changes Underway for Biopharmaceutical Outsourcing

Outsourcing has increasingly become synonymous with cost-cutting, even more so as the economic crunch has forced biopharmaceutical companies to evaluate virtually every budget line item. Despite improvements in the economy and corporate profitability, the preliminary data from BioPlan Associates 8th Annual Report and Survey of Biopharmaceutical Manufacturing indicate that companies are continuing to focus on how to reduce costs (1). The shift in outsourcing of crucial functions may affect manufacturers' competitiveness in the long run.

Eric Langer

For 2011, the BioPlan study finds that 1 in 10 biopharmaceutical companies has outsourced jobs in both process development and in biomanufacturing to reduce costs (see Figure 1). This outsourcing occurred at nearly twice the rate of research and development (R&D) job migration (i.e., outsourced by biomanufacturers at a rate of 7.2% and 4.6% to domestic and offshore vendors, respectively). All of these activities are considered core strengths for biologics companies, and when such jobs are outsourced, they tend to stay outsourced as institutional knowledge as infrastructure and experience migrate.

Figure 1: Percentage of respondents deciding to outsource select biomanufacturing functions due to cost-reduction efforts (1).

Outsourcing data from the BioPlan Associates' report are among the crucial manufacturing issues probed through the annual study of more than 300 global biomanufacturers and contract manufacturing organizations (CMOs). To put the data in context, this report provides a composite view and trend analysis from biomanufacturers in 35 countries. It covers capacity constraints, expansions, use of disposables, emerging trends and budgets, disposables, downstream purification, quality management and control, hiring issues, employment and training (1).

Current industry service suppliers are recognizing this shift and have begun adding capabilities to their offerings. "A number of CMOs are adding fill–finish capabilities as well as assay and product-characterization services to their offerings, and several are providing additional flexibility by offering clinical production in disposable bioreactor systems," said Don Durham, president of Durham Consulting in a recent interview with BioPlan Associates. Durham believes this reflects a continuing trend, and service suppliers are responding by adding business capacity in these support services.

Outsourcing crucial operations

For the 2011 study, BioPlan Associates also evaluated the top 23 types of biomanufacturing operations currently being outsourced (see Figure 2). The survey showed, not surprisingly, that respondents outsourced an estimated average of 35% of their fill–finish operations. This level is consistent with last year's results. Approximately 26% of toxicity testing is being outsourced in 2011. In addition, outsourcing of both upstream and downstream operations (10.0% and 10.4% respectively), were up about two percentage points in 2011 compared with 2010.

Figure 2: Estimated average percentage of outsourced activities by biomanufacturing facility (1).

Future of outsourcing

Many service vendors insist that outsourcing can improve organizational efficiency for their clients and that service providers can often offer better quality and more efficient services. And these services are not just for repetitive, low-value activities, or for testing, or fill–finish work. The 2011 study tends to confirm this claim in its measurement of trends in usage levels for the top 23 biopharmaceutical operations commonly outsourced. We asked respondents which activities they expected to outsource at "significantly higher levels" during the next 24 months. Surprisingly, the 2011 data show that upstream and downstream operations are going to be outsourced at a much higher rate than in previous years. The growth in other, less crucial operations were virtually flat. For example, the percentage of respondents indicating fill–finish activities would be outsourced at a higher rate, was 24.6% in 2011 compared with 24.8% in 2010.

Figure 3: Respondents identifying biomanufacturing outsourcing activities likely to be done at significantly higher levels during the next 24 months (1).

Areas such as product testing and other assays continue to grow at double-digit rates. For example, nearly 20% of respondents indicated they would be outsourcing significantly higher levels of their product-characterization testing over the next 24 months. Tim Lee, deputy director of bulk manufacturing at Sanofi-Pasteur, notes, "The outsourcing of analytical test methods used in product characterization is a big trend as in-house testing labs become fully loaded with their manufacturing tests to release product. Also, many outsourced labs have specific expertise that industry doesn't have internally."

Conclusion

The economic recovery has been slow, and uncertainty continues to restrain hiring, which means the pressure to outsource and offshore operations has yet to abate. The BioPlan study also indicates that many contract manufacturing organizations and service providers have been experiencing much greater pressures from their clients to keep costs in line, reduce nonessential services, and otherwise trim budgets. This pressure, in turn, has forced service suppliers to run leaner operations and curtail some of the value-added services that might have otherwise been provided. While the industry will continue to see growth among emerging contract biopmanufacturing providers in India and other Asia-Pacific locations, providers in the US and Western Europe will see more modest improvements.

The economic uncertainty also makes shorter-term contracts more popular, and clients are increasingly expecting work to be done on short-term cost-and performance milestones, rather than on long-term commitments and partnerships. The price cuts and shifts toward more transactional, short-term business is likely to damage long-term relationships and reduce the potential strategic value that outsourcing can bring to clients. As long as global economic uncertainty remains, outsourcing will continue to be used as a buffer for cost cutting, and hiring of costly operations staff may continue to be delayed. This change may, in the end, result in strategic shifts in how companies are valued if their core capabilities and institutional knowledge in manufacturing, process development, and R&D continue to be delegated to external providers.

Eric Langer is president of BioPlan Associates, tel. 301.921.5979, elanger@bioplanassociates.com, and a periodic contributor to Outsourcing Outlook.

Reference

1. BioPlan Associates, Preliminary data from the 8th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, Publication for April 2011 (Rockville, MD), bioplanassociates.com/publications/bmcp.htm.