As Outsourcing Relationships Evolve, Vaccine Production Will Continue to Shift to CMOs

The vaccine contract manufacturing market currently accounts for less than 1 percent of the total vaccine market — approximately $705M of $33.7B — but it is expected to grow over the next decade.  Varying factors will influence the growth of the contract manufacturing market segment, including overall growth of the vaccine market, especially in emerging markets, as well as the shift in the dynamic of outsourcing relationships.  Traditionally, vaccines had been viewed as a low-margin business with high barriers to entry.  Complexity of development and production, combined with significant fixed costs, low profit margins, and overregulation had limited competition among vaccine manufacturers and supposedly restricted innovation. However, advances in both preventative and therapeutic vaccines have renewed interest and brought about competition in this market segment. Among Nice Insight survey respondents, the primary area of therapeutic focus for vaccine production outsourcers is infectious diseases, at 71 percent. Increased global demand for the influenza vaccine has contributed significantly to the growth of the outsourced vaccine market — especially since the vaccine doesn’t offer long-term immunity and must be administered annually. Support and media exposure from organizations such as the International AIDS Vaccine Initiative help to keep the important role of vaccines in healthcare in the forefront and drive attention toward developing vaccines for diseases that currently have no cure. This exposure, coupled with recent reports of progress in two separate approaches to provoking an immune response to HIV, certainly contribute to the increasing number of biopharmaceutical companies interested in developing or manufacturing vaccines. Oncology is another key area for vaccine advances, with 52 percent of vaccine outsourcers engaged in this therapeutic category.  Nationwide immunization programs for HPV (human papillomavirus) vaccination established in 2008 in the U.S. and Europe have strengthened this market to an estimated value of $2.2B by 2018. The efficacy of the vaccine, as well as the expansion of the target audience to include both males and females, has secured the HPV vaccine’s future and made it a strong candidate for outsourced production. Anticipated shifts in vaccine production from innovators to contract manufacturers influenced the decision to add this service to the Nice Insight Biopharmaceutical Outsourcing Survey for 2014.  At present, the data show 13 percent of all respondents will outsource vaccine production, or 40 percent of respondents who outsource biomanufacturing. Big Pharma and Big Biotech account for the majority of vaccine outsourcing, comprising 59 percent of the buying market.  Emerging biotech and emerging pharma each comprise approximately 15 percent of the buying market, and specialty pharma accounts for the remaining 10 percent. Selecting An Outsourcing Partner For Vaccine Production While quality and reliability consistently hold the top two positions among partner attributes, when it comes to selecting an outsourcing partner for vaccine production, the importance of productivity and innovation move upwards, causing a company’s regulatory track record to shift to sixth position. In fact, when reviewing the companies most likely to be considered for an outsourced vaccine project, the top five companies scored best in quality, reliability, and productivity.  This ranking makes sense, as reliability is directly linked to security in supply, and productivity is directly linked to time-to-market. Security in supply is particularly important for routine vaccines, whether they are childhood immunizations or, like the newer HPV vaccine, administered during adolescence.  Time-to-market becomes a considerable issue when there is a surge in the need for a vaccine, such as the flu vaccine when a particularly bad strain hits or during times like the swine flu and bird flu outbreaks. As CMOs continue to be viewed as trusted partners in bringing drugs to market, their expansion into segments such as vaccine production will continue to add value to drug innovators in terms of product security, improved time-to-market, and increased capacity — all traits where the positive impact is passed on to the health of the consumer. By Kate Hammeke, Director of Marketing Intelligence at That’s Nice cSurvey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives on an annual basis. The 2013-2014 report includes responses from 2,337 participants. The survey is comprised of 240+ questions and randomly presents ~35 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions of the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score.  The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity and Reliability. In addition to measuring customer awareness and perception information on specific companies, the survey collects data on general outsourcing practices and preferences as well as barriers to strategic partnerships among buyers of outsourced services.

New Technologies In Fill-Finish May Bring Brand Loyalty Along with Improved Patient Safety

In January 2014, Senator Charles Schumer (D-NY) called on drug-makers, the FDA, and the Consumer Product Safety Commission to help reduce the number of emergency room visits among children who are accidentally given the wrong dosage. He argues that implementing flow-restricting devices on liquid formulations could prevent approximately 10,000 emergency room visits each year and would cost only a matter of cents per bottle. While Schumer is pushing for legislature to mandate further measures to protect children, kids are not the only population that would benefit from improved delivery methods that are aimed at precise doses. A recent survey among biopharmaceutical companies that engage CMO services showed that 73 percent of these businesses offer formulations for special needs patients, 53 percent offer pediatric formulations, and 50 percent offer geriatric formulations. Each of these populations are at risk for inaccurate dosing, and while a flow restrictor is a prospective means to reduce medicating inaccuracies, there are better technologies becoming available. Packaging medications in a unit-dose format has been popular in Europe and Japan for some time, and has been widely embraced in the U.S. in the food and beverage market — just think of the little packets of flavoring one can add to their bottled water or the tubes of yogurt to take on the go. These convenient little packages are known as stick-packs and may be filled with powders or liquids. Not only are they premeasured to ensure accurate quantities — providing an advantage over the flow restrictor — the format reduces the likelihood of spilling the spoonful of medication while trying to gain a child’s compliance. Further, the packaging is travel friendly, and stick-packs can accommodate a wider variety of medications than liquids that would benefit from a flow restrictor, including powders and drugs that require sterile processing. As pharmaceutical companies, especially those with OTC products, become more consumer focused — 44 percent of respondents to the same survey stated their company is very consumer focused, meaning they actively seek out information on the buyers of their products and use that information to shape product development — finding delivery and packaging methods that appeal directly to buyers helps to ensure brand loyalty. In fact, nearly two-thirds of respondents (62 percent) stated it is important for a CMO to provide proprietary technology to offer marketing differentiation. At present, there is some disconnect between showing strong consumer interest and understanding what strongly appeals to consumers.  This presented itself in the research when interest levels in products specifically designed to be consumer-friendly lagged behind traditional pharmaceutical formats among the 42 percent who will outsource fill-finish projects in the coming year. When it comes to the product types of interest, there is a demand for advanced functionality, such as controlled or extended release, but survey respondents agreed their company’s product focus still leans toward tablets and capsules. This isn’t too surprising considering stick-pack technology is relatively new to the U.S. market, especially when it comes to prescription drugs. However, as outsourcing models evolve toward partnerships where biopharmaceutical companies expect CMOs to add value beyond reducing fixed costs, offering new technologies that are consumer friendly and ensure accurate dosing is a way for both brands (sponsor and CMO) to gain customer loyalty.  Specialized delivery technology can cement biopharmaceutical customers into long-term relationships with their contract manufacturer, and user-friendly packaging that facilitates accurate dosing strongly appeals to consumers. These methods will aid in capturing market share as well as building brand loyalty among consumers. The good news is that drug makers in North America will soon have wider access to manufacturers of medications in stick-pack format, which will in turn increase availability to consumers. An established European leader in unit-dose manufacturing, Unither, has plans to open the first liquid stick-pack line in the U.S. in the summer of 2014, which will join Ropack and PNP Pharmaceuticals (part of NSF), both based out of Canada to further serve the market. By Kate Hammeke, director of marketing intelligence, That’s Nice   Survey Methodology: Nice Insight CMO Strategy surveys are deployed on behalf of Nice Insight clients to a targeted group of outsourcing decision makers. The surveys are comprised of ~40 questions geared towards understanding current outsourcing practices, present and future expectations from outsourcing partners, which traits contribute to successful partnerships.   [n=200]

Trends in Outsourcing Solid Dose Manufacturing in 2014

In 2014, the contract manufacturing market size for solid dosage forms is anticipated to be $19.6B, representing 58% of the total CMO market value of $33.7B.  While the market value percentage for solid dose has been drifting downward — likely related to the shift towards biologics, which are more expensive to develop and manufacture — the propensity to outsource oral solid dosage forms continues to grow modestly.  Of the 25% of respondents who will engage a CMO for commercial scale manufacturing projects this year, more than half of them will outsource solid dosage form manufacturing, showing a four percentage point increase over last (51% in 2013 up to 55% in 2014).  Nice Insight’s annual survey results indicated that solid dose manufacturing will be outsourced with the greatest frequency, followed by injectables (50%), semi-solids (44%), then specialty dosage forms (42%).  In general, respondents reported they would outsource finished dosage forms with a greater frequency than API manufacturing (for both large and small molecule APIs). When it comes to outsourcing behaviors, respondents who will contract solid dose manufacturing in 2014 showed a greater likelihood for considering emerging market providers than the general population, with nearly nine out of ten stating they include CMOs in emerging markets on their shortlists (87% vs. 70%).  Among those who consider emerging markets, 63% are already working with a manufacturer in an emerging market, and another 25% are aware of reliable CMOs but haven’t offshored yet.  With that said, CMOs in the U.S. and Canada still receive 23% of outsourced solid dose projects.  China and Western Europe follow, securing 15% of outsourced projects, and India is a close contender with 13% of the work. There are still anxieties among 13% of respondents who outsource solid dose manufacturing when it comes to offshoring.  The most frequently voiced fears include the “quality level is too risky,” “regulatory compliance concerns,” and “intellectual property concerns.”  Since respondents who will outsource solid dose manufacturing ranked quality as their top priority driving CMO selection, it makes sense that quality also topped the list of concerns. Similarly, a CMO’s regulatory track record ranked third (after reliability), which corresponds to regulatory compliance concerns as an apprehension for offshoring. It is interesting to see IP concerns in the top reasons for not considering emerging market providers since this worry corresponds much more strongly to primary manufacturing/API production than secondary manufacturing of dosage forms. Productivity, affordability, and innovation ranked fourth through sixth respectively, and this prioritization of outsourcing drivers among solid dose manufacturers happened to match the ranking of the overall respondent group. Both outsourcing and offshoring have shown their efficacy in cutting costs for pharma companies when it comes to solid dose manufacturing. Another potential development to emerge from reducing capital outlay on in-house manufacturing equipment and technologies is a shift from tactical relationships for OSD projects toward more strategic, long-term agreements with manufacturers. Interestingly, 65% of respondents who will outsource solid dosage manufacturing in 2014 expressed interest in a strategic partnership, which was considerably higher than the overall average of 48% interested in a strategic partnership. However, the factors that carried the greatest influence on strategic partnership selection closely coincided between outsourcers of oral solid doses and the overall respondent group.  They are: experience, track record of success, and financial stability of the organization. By Kate Hammeke, director of marketing intelligence at That’s Nice Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives on an annual basis. The 2013-2014 report includes responses from 2,337 participants. The survey is comprised of 240+ questions and randomly presents ~35 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions of the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score.  The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity and Reliability. In addition to measuring customer awareness and perception information on specific companies, the survey collects data on general outsourcing practices and preferences as well as barriers to strategic partnerships among buyers of outsourced services.

Pre-filled Syringe Technology Benefits Patients, Healthcare Providers and Drug Makers

According to the World Health Organization, 1.3 million people die each year from unsafe injection practices, including needle-sticks, blood born-pathogens, and reuse, sharing and unsafe disposal of syringes. As more parenteral drugs come on the market—driven by the increase in biological drugs that must be injected into the body—it is important that improved safety measures accompany these medications. Technology is playing a part in improving injectable drug safety with the introduction of retractable safety syringes to prevent needle-sticks and pre-filled syringes—with or without retractable needles—to improve patient safety and compliance and reduce the likelihood of contamination at the injection site.

According to Visiongain’s report “Pre-Filled Syringes: World Market Outlooks 2011-2021,” pre-filled syringes represent one of the fastest growing markets in drug delivery and packaging, with total revenues in the market expected to reach $5.5B by 2025.   This is in addition to offering one of the highest growth potentials in the biopharmaceutical industry, with 20% CAGR over the past five years.  There is good reason for this growth as pre-filled syringes are arguably a win for all.  They offer improved safety for the patient by mitigating dosage errors, healthcare providers have faster access to injectable medications in pre-measured doses, and manufacturers save money through reduced overfill wastage that occurs with vials.  In addition to the healthcare benefits, pre-filled syringes also offer marketing differentiation for drug makers.

Twenty CMOs included in Nice Insight’s annual research offer services for pre-filled syringes.  We reviewed how the market perceives these brands with respect to the six outsourcing drivers and learned that their strengths lie in regulatory and productivity categories, which were ranked respectively third and fourth, in order of importance by buyers of CMO services.  On average, regulatory scores among CMOs that offer pre-filled syringes were a point higher than the general CMO benchmark for regulatory, 75% vs. 74%. This bodes well for drug innovators concerned about the regulatory challenges that accompany the transition from vials to cartridges. And fortunately for outsourcers, sixteen of the twenty CMOs that offer pre-filled syringes also provide regulatory support. Productivity was the second highest scoring category for CMOs offering pre-filled syringes.  Again, we found the average score among these CMOs to be one percentage point higher than the general CMO benchmark for productivity, 74% vs. 73%.

Quality and reliability, which traditionally hold the first and second place rankings among buyers of outsourced services and tied for third place with respect to the scores among pre-filled syringe CMOs, were additional areas where these CMOs received higher scores than the typical, broader benchmarks. The average among the pre-filled syringe subset was 73% for quality, two percentage points higher than the CMO benchmark of 71%. There was also a single percentage point increase in the reliability benchmark between CMOs offering pre-filled syringe services and the broader grouping, 73% vs. 72% respectively.

Innovation often holds sixth place among the outsourcing drivers when ranked by survey respondents, but when viewed from the perspective of CMO performance perceptions, it was ranked one place higher—in fifth. With an averaged score of 72% among CMOs that offer pre-filled syringes, the innovation score was the same as the broader CMO benchmark (72%).  The pre-filled syringe subset also averaged the same score for affordability as the mainstream CMO benchmark, each at 69%.  Affordability tends to be the lowest scoring category regardless of groupings (CMOs, CROs, and service or technology related subsets), which should not come as a surprise since drug innovators are consistently facing cost pressures and the overarching goal of reducing drug development expense.

In this instance, however, poor affordability may be a misconception of sorts, as pre-filled syringes have proven to be cost effective for several reasons, including the increased durability of plastic-base pre-filled cartridges over traditional glass products that may crack or break, as well as the reduced overfill when compared to vials.  The logistics associated with distributing pre-filled syringes offer some cost benefit over traditional vials as well. For example, pre-filled syringes weigh less and take up less space, which saves on both shipping and storage.  In addition to cost efficiencies for drug developers, patients save money by self-administering drugs instead of traveling to a doctor’s office or infusion center—another area where the pre-filled technology proves to be a win for all.

Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives. The 2012-2013 report includes responses from 10,036 participants. The survey is comprised of 500+ questions and randomly presents ~30 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions on the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Over 900 marketing communications, including branding, websites, print advertisements, corporate literature and trade show booths are reviewed by our panel of respondents.  Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score.  The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity and Reliability. 

Biologics Development Continues to Rise at Traditional Pharma Companies—What Does it Mean for Outsourcing?

Over the past two years, research results from Nice Insight’s annual Pharmaceutical and Biotechnology Outsourcing survey indicate a rise in the percentage of respondents who work at traditional pharmaceutical companies that are engaged in the development of biologic based therapeutic drugs. Perhaps surprisingly, the largest increase comes from respondents who work for emerging pharmaceutical companies, up 14 percentage points over last year (34%, 2013 to 48%, 2014); followed by specialty pharmaceutical companies with a 13pp increase (52%, 2013 to 65%, 2014); and Big Pharma with an increase of 6pp (76%, 2013 to 82%, 2014). These changes coincide with an increase in the percentage of one’s outsourcing budget spent on biologics as compared to small molecule therapeutics—up a substantial 11 percentage points among Specialty Pharma respondents, 6pp in the Emerging Pharma group, and a modest 2pp among Big Pharma respondents. This makes sense considering biologics have traditionally been more expensive to develop than small molecule therapeutics, but as the patents for existing biologics continue to expire—an expected market value of $54B will go off patent in the next five years—the push for reducing costs in biologic development will become more crucial.  So, while both outsourcing expenditure and the percentage of expenditure going towards biologics development have both risen over last year, it should not necessarily be interpreted as rising costs, rather, it is more likely a reallocation of internal versus external spend on biologics development. A key shift Nice Insight research has highlighted over the past few years is a change in the ideology of outsourcing. A practice that started off as purely client-vendor relationship, centered around commoditized activities has evolved into more of a partnership, where CROs and CMOs are engaged in part because of access to external knowledge, not just the ability to complete tasks. As a matter of fact, when asked to consider a dozen different quantifiable traits, 74% of survey respondents whose business is involved in the development of biologics stated “technical expertise” was very important, second only to having a “track record of success,” 75% when selecting an outsourcing partner. Meaning, access to knowledge and experience are not only essential qualities, they drive CMO engagement when it comes to biologics. That being the case, it makes sense that businesses that are involved in the development of biologics are considerably more interested in forming strategic partnerships*, defined as a long-term, win-win commitment between two organizations, than those whose focus is strictly small molecule (56% vs. 24%). Interestingly, respondents whose business is involved in the development of biologic based therapeutics are also significantly more likely to consider CROs and/or CMOs in emerging markets such as Brazil, China or India (78%) than businesses that are strictly small molecule (50%). In addition, this group is more likely to already be working with emerging market providers than their counterparts (53% vs. 32%). Among respondents who outsource to emerging markets, almost two-thirds of the work is sent overseas.  The practice of outsourcing complex biologics projects that contain intellectual property further represents the shift in outsourcing beliefs, which was bolstered by improved patent laws in developing countries along with the strong education systems and access to an expanding pool of available patients to participate in clinical trials. By Kate Hammeke, Director of Marketing Intelligence at That’s Nice *In the Nice Insight annual survey, a “strategic partnership” is defined as 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.”

Increased Demand for Vaccines Will Continue to Benefit CMOs

At a time of year when flu season is usually winding down, news of a new form of bird flu has emanated from China. The strain was identified as H7N9, which had not been found in humans before. However, it took the lives of two Shanghai residents in late March. Initially, H7N9 was thought to be a low pathogenic strain that was not easily transmitted between humans. But an expert from the World Health Organization (WHO) has now expressed concern that the strain does show signs of mammalian adaptation. This news reminds us all too painfully of the recent swine flu pandemic, which killed 284,500 people in 2009 according to the Centers for Disease Control, and that the possibility of a global pandemic is real. This news came after a particularly rough flu season, where increased demand for the flu vaccine created spot shortages across the United States. According to industry research released by Kalorama Information, the vaccine market has grown from $5.7 billion ten years ago to exceed $27 billion currently. Increased global demand for the influenza vaccine has contributed significantly to this growth because the vaccine does not offer long-term immunity and must therefore be administered annually. Each year, infectious disease monitoring organizations worldwide coordinate with vaccine manufacturers, fill/finish suppliers, distributors and healthcare practitioners to try to ensure the parameters are in place to meet demand.  The large market for the influenza vaccine brings two key vaccine production issues to the forefront – time-to-market and cost. Improving time-to-market and reducing costs consistently rank among the top three reasons behind decisions to outsource work to a CMO (alongside improved quality). While vaccine production has historically been retained in-house for quality control and regulatory reasons, the evolving nature of outsourcing – from an ad hoc basis to more long-term partnerships – means it is highly likely we will see growth in outsourced vaccine manufacturing.  Current predictions estimate the vaccine contract manufacturing market will reach $620 million by 2015. In reviewing the data from Nice Insight’s pharmaceutical and biotechnology outsourcing survey, we looked at how CMOs offering vaccine manufacturing scored on productivity as it relates to improved time-to-market – and affordability, since decreasing manufacturing costs can positively impact product price. Two companies scored in the top five for both productivity and affordability – GlaxoSmithKline Biopharmaceuticals (76% and 71%) and OSO BioPharmaceuticals (75% and 71%). The remaining CMOs to rank in the top five for productivity were Fujifilm Diosynth Biotechnologies (80%) – the only company to receive an “excellent” score in productivity – Althea (78%), and BioReliance (75%).  For affordability, Cytovance (73%), Cook Pharmica (71%) and IDT Biologika (71%) joined GSK BioPharma and OSO Bio in the top five providers. It is important to note that GSK Biopharmaceuticals was the only company to rank in the top five for quality in addition to productivity and affordability. However, the companies that ranked highest in productivity and affordability tended to score above the benchmark in quality, meaning these businesses still performed above average among their competitors. Interestingly, there were no strong patterns across the twenty CMOs included in this analysis. Twelve different companies comprise the Top 5 lists for each of the six outsourcing drivers, with only one company scoring among the top five across all six categories – GlaxoSmithKline Biopharmaceuticals. As such, finding the right CMO for a specific project will vary depending on factors specific to the vaccine. In the case of the influenza vaccine, improved time-to-market and affordability are key to reaching a large population on an annual basis. Another benefit of CMOs adding vaccine production is increased capacity, which will reduce the potential for vaccine shortages, including those caused by the need to shift production of seasonal flu vaccines to the manufacture of vaccines for new threats like the H7N9 bird flu. By Kate Hammeke, Director of Marketing Intelligence, That’s Nice Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives. The 2012-2013 report includes responses from 10,036 participants. The survey is comprised of 500+ questions and randomly presents ~30 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions on the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Over 900 marketing communications, including branding, websites, print advertisements, corporate literature and trade show booths are reviewed by our panel of respondents.  Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score.  The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity and Reliability.

2014 Trends in Strategic Outsourcing—Changes in the Qualities that Drive Outsourcing Partner Selection

The 2014 results from Nice Insight’s annual pharmaceutical and biotechnology outsourcing survey show positive news for both sides of outsourcing relationships. Just as there was an increase between 2012 and 2013 (+7% from 31% to 38%) in the percentage of respondents with an outsourcing expenditure between $10-$50 million, there was another 9% point increase in this expenditure bracket for the year ahead. Slightly under half of all survey respondents (47%) stated they will spend between $10-$50M on outsourced projects in 2014. The respondent group who will spend fewer than $10M on outsourced projects continues to shrink, now comprising only 29% of respondents. One key difference in this increase in expenditure over the 2012-2013 change was that respondents indicated they would outsource a greater number of different services—up from 4.7 on average in 2013 to 6.4 in 2014. This year’s results show that as a whole, survey respondents prioritized the outsourcing drivers as follows: quality, reliability, regulatory, productivity, affordability and innovation. In the past three years, CROs and CMOs have taken notice that drug innovators—across all buyer groups—consistently prioritized quality and reliability in the top two positions.  It becomes clear that the contract organizations have made efforts to improve upon these customer perception measures, which have in turn been reflected in improved scores offered by sponsor organizations across several categories.  For example, the benchmark for quality increased among both CROs (up 1% from 71% to 72%) and CMOs (up 2% from 71% to 73%) from 2013 to 2014. CMOs fared better in terms of improving upon reliability, with a 1% point upturn, from 72% to 73%, while the CRO benchmark remained the same as last year at 72%. Interestingly, there was small decrease for the CRO regulatory benchmark, down 1% point from 74% to 73%; CMOs held steady at 74% for regulatory for both 2013 and 2014.  The small drop in averaged regulatory scores across all CROs coincided with a 5% downward shift in the percentage of respondents who will engage a CRO or CMO for regulatory support.  These could be related, if sponsors were disappointed in with the regulatory knowledge their contractors possessed, it makes sense that they would be less inclined to acquire their assistance. The prioritization of an outsourcing partner’s productivity has shifted each of the last three years, moving from fourth place in 2012 down to fifth in 2013 and back to fourth for 2014—this year edging out affordability for the first time. When it comes to how sponsors evaluated CROs’ and CMOs’ performance on this measure, the data showed a 2% point decline in the CRO benchmark, down from 73% to 71%.  However, CMOs on average maintained their scores, with the benchmark sticking at 73%. In light of increased outsourcing expenditure for 2014, it was not too unexpected for affordability to drop in rank—now holding fifth position, as compared to fourth in 2013 and third in 2012. Interestingly, at the same time this measure has dropped in priority among buyers of outsourced services, both CROs and CMOs affordability scores have climbed.  The affordability benchmark for CROs increased 1% point from 69% to 70%, and among CMOs, the benchmark increased 3% points from 69% to 72%. There was some variation in ranking from the different buyer groups, for example, among emerging pharma respondents, affordability ranked third as compared to fifth across the other buyer groups.  Biotechs prioritized productivity slightly higher than the pharma groups or emerging biotechs, but perhaps the most notable difference was that emerging biotechs ranked innovation third, whereas the rest of the buyer groups ranked innovation sixth. The innovation benchmark for both CROs and CMOs was set at 72% in 2013. This was another area where CROs slipped in performance, with their averaged score at 71% in 2014.  Yet, CMOs once again maintained their scores, with the benchmark staying at 72%. Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives on an annual basis. The 2013-2014 report includes responses from 2,337 participants. The survey is comprised of 240+ questions and randomly presents ~35 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions of the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score.  The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity and Reliability. In addition to measuring customer awareness and perception information on specific companies, the survey collects data on general outsourcing practices and preferences as well as barriers to strategic partnerships among buyers of outsourced services.

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With Outsourcing on the Rise, Why isn’t Strategic Partnering Getting Easier?

Since Nice Insight’s first pharmaceutical and biotechnology outsourcing survey almost four years ago, the data have shown a steady incline in outsourcing.  This comes in many forms, from increased outsourcing expenditure, higher percentages of respondents outsourcing various manufacturing services, reported increases in the number of projects outsourced each year as well as the number of unique services outsourced.  These changes reflect a shift in thinking as well; not long ago, outsourcing elements of drug development was thought to be an option.  One that could help reduce fixed costs and expedite time-to-market, but now, as 2013 winds to a close, outsourcing some aspects of drug development is virtually a requirement. As this practice evolves, the desire for stronger relationships moves front and center, especially since trusting a third party with your compound (product?) can be both anxiety inducing and tricky.  Particularly when it is a first time collaboration between two parties.  So how do you know which CMO to select for a project, let alone a long-term partnership?  Fortunately, research shows that the time when the bidder with the lowest price would win the project was short-lived and other metrics now take priority over affordability. As a matter of fact, only 9% of respondents who outsource small molecule manufacturing said they select the provider with the lowest cost from their shortlist; 13% who outsource biologics manufacturing indicated the same. Additionally, affordability dropped in rank from third position in the 2011-2012 study to fourth in the 2012-2013 research. Make no mistake, it is a good thing that price isn’t the most influential deciding factor for CMO selection, as cost-based bidding wars are dangerous for patients, scientists, the environment and more. When companies try to slash costs to win projects and still turn a profit, the corners cut can put us all at risk—not just the project at hand.  Furthermore, strong relationships—an essential basis for strategic partnerships—don’t usually form on an unbalanced foundation, where one party wins a great bargain and the other barely covers their expense. After all, when you collaborate, both parties will receive value beyond the exchange of goods or money. While different businesses have varying approaches to outsourcing, Nice Insight research shows that across all buyer groups, there has been an increase in the percentage of respondents who expressed they are “very interested” in forming strategic partnerships with CMOs; up 8% points from 24% in 2012 to 32% in 2013. One of the key challenges we have observed in the industry is the absence of set of hard traits, or quantifiable characteristics, that define the nature of a strategic partnership between a drug innovator and a CMO.  Instead, strategic partnering tends to be outlined by a collection of softer traits, or non-measurable characteristics that impart a feeling rather than checklist facts.  This void can cause some issues when courting potential partners, or frustrations when working with a company that was well reviewed and referred from a colleague who had different expectations and needs from their outsourcing relationship than your company.  Thus, the first step in identifying potential CMOs for a strategic partnership is to establish a clear explanation of the goals of the collaboration, and then detail how these goals are different than the goals of a tactical or preferred provider relationship.  When Nice Insight surveys buyers of outsourced services, we present the concept of a strategic partnership accordingly: 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.  This can serve as a starting point, but once the shortlist of suppliers has been established, it is crucial to fill in those “specific business objectives” with explicit and measurable milestones.  The same goes for the resources each party will bring to the relationship and gain an understanding of what it is going to take for each party to consider the relationship a “win.” After identifying your company’s goals in forming a strategic partnership with a CMO, opt for referrals from industry peers who share a similar ideology on outsourcing. If your company uses consultants or has procurement staff, it is important to share the outsourcing objectives and goals so that everyone is working towards the same purpose. Laying the foundation for a true collaboration, which contributes to an environment of mutual giving, is where long-term savings will develop. Then, it is time to seek out information on CMOs to see which companies may align with those goals.  Start with investigating how the company is perceived in terms of quality, reliability, regulatory track record, productivity, and innovation. By Kate Hammeke, director of marketing intelligence, That’s Nice Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives. The 2012-2013 report includes responses from 10,036 participants. The survey is comprised of 500+ questions and randomly presents ~30 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions on the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Over 900 marketing communications, including branding, websites, print advertisements, corporate literature and trade show booths are reviewed by our panel of respondents.  Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score.  The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity and Reliability.

Outsourcing to CROs and CMOs in Emerging Markets in 2014

In Nice Insight’s most recent pharmaceutical and biotechnology outsourcing survey, 70% of overall respondents indicated they would consider CROs and CMOs in emerging markets, such as Brazil, China and India, when selecting suppliers for their upcoming projects. Of that 70%, 49% already work with an offshore supplier. Another 31% indicated they are aware of reliable businesses in emerging markets but simply haven’t worked with one yet. One in five said they are willing to outsource to emerging markets but do not know any reliable CROs/CMOs yet. On the flip side, respondents who said they would not consider suppliers in emerging markets were primarily concerned about quality level (47%) followed by regulatory (33%) and intellectual property (26%). Complicated logistics and communication issues were mentioned respectively by 23% of respondents. Notably, 27% said they have simply not considered it. There were some significant differences between buyer groups when it comes to offshoring to emerging markets. Big Pharma (71%), Biotech (70%) and Emerging Pharma (67%) showed a similar likelihood of considering offshore CROs and/or CMOs. However, Emerging Biotechs indicate they are much more likely to consider suppliers in emerging markets (86%), whereas Specialty Pharma sway strongly in the opposite direction, with only 61% considering this option. So it correlates that respondents indicating that their company considers emerging market suppliers are more likely to be involved in the development of biologics (81%) than those that don’t (55%). The volume of projects a company has to outsource may influence consideration of emerging market CROs/CMOs. Respondents who consider them reported that they will outsource an average of five different services in the next 12-18 months, compared to an average of 3.3 services among those who don’t consider emerging market suppliers. One could conclude that this might be influenced by cost, but that would be false. After all, the group that considers emerging market suppliers has a larger annual outsourcing expenditure on average than their counterparts who do not. Ultimately, a third of the survey respondents (34%) already work with suppliers in emerging markets. Those who do tend not to send all of their work offshore – they actually split their projects across several markets, with some inclusion of CROs and CMOs in emerging markets. Among these outsourcers, an average of 26% of projects will be awarded to businesses in the US and Canada – a notable decrease from two years ago when this group reported that 36% of outsourced projects were awarded to North American businesses. This is a big trend worth noting. However, no single emerging market picked up a significant amount of the work shifted away from the US and Canada – in fact there was a 2% uptick in projects outsourced to China (17%), India (13%), Western Europe (12%), Argentina & Brazil (11%), and Eastern Europe (9%). The remaining 13% of outsourced projects was split amongst Korea, the Middle East, and Thailand & Vietnam. The percentage of projects outsourced to China and Thailand & Vietnam remained steady between surveys for 2011/12 and 2013/14. It’s likely that existing concerns about outsourcing to emerging markets will remain a barrier for some decision makers in the near future. And there will always be projects that are best served by domestic suppliers for logistical or strategic reasons. However, data continues to indicate that there is a growing trend towards successful outsourcing to emerging markets, which is something all companies should consider in their long-term positioning strategies. We’ve heard reinforcement of this in qualitative interviews in the past year and it also correlates with news reported this month relating to the implications of ObamaCare. Survey Methodology: The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcing-facing pharmaceutical and biotechnology executives on an annual basis. The 2013-2014 report includes responses from 2,337 participants. The survey is comprised of 240+ questions and randomly presents ~35 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions of the top 100+ CMOs and top 50+ CROs servicing the drug development cycle. Five levels of awareness from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score.  The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity and Reliability. In addition to measuring customer awareness and perception information on specific companies, the survey collects data on general outsourcing practices and preferences as well as barriers to strategic partnerships among buyers of outsourced services. Check out if/how Kate’s opinions and actions on outsourcing to emerging markets shifted in the past couple of years  http://niceinsight.com/Articles/Index/3050