Emerging Outsourcing Trends in 2013

The biopharmaceutical manufacturing community is heavily focused on productivity and efficiency. That focus continues in 2013 as a primary driver in the analysis of value in outsourcing of non-core activities. Over the past several years, studies conducted by BioPlan Associates have shown that an increasing number of biomanufacturers, up to 70%, are outsourcing at least some of their bioprocessing activities. While the recent rate of growth in outsourcing can't sustain its rapid pace indefinitely, there's no doubt that outsourcing has become a strategic element of manufacturing planning for most companies.

Outsourcing has traditionally allowed companies to focus on their core competencies by removing lower-end, repetitive tasks from their operations; today, some outsourcing is being integrated into higher-end technical activities. Preliminary data from BioPlan's soon-to-be-released 10th Annual Report and Survey of Biopharmaceutical Manufacturers (1) confirms that while outsourcing is still dominated by relatively lower value-added services, some companies are outsourcing core activities to a greater degree than in the past.

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TODAY'S MOST COMMONLY OUTSOURCED ACTIVITIES

BioPlan tested 24 key areas of bioprocess outsourcing in their 2013 global study of biomanufacturing. Preliminary results from the study indicate that the most commonly outsourced activity is analytical testing: other bioassays, by 89% of respondents. Other hot areas include toxicology testing (66%), fill/finish operations (64%), and validation services (63%).

At the other end of the spectrum, there is less interest in outsourcing for design of experiments (DoE) and certain process development tasks. These areas may still be considered by many to be too core to the corporation to be outsourced. Yet even these core capabilities not yet seeing widespread outsourcing activity aren't completely off the map, with as much as one-quarter of respondents or more outsourcing them to some degree.

To put in perspective the extent to which companies are leveraging outsourcing as part of their strategies, it's worth noting that of the 24 areas studied, 15 are being outsourced by at least 40% of study respondents.

TRENDS

The fore-runner in terms of outsourcing trends is clearly analytical methods, with nearly 89% reporting outsourcing, including all sorts of quality control-related (sometimes highly specialized) assays for product release. The reason for this situation is related to the need for highly specialized staff to run these assays and to have the expensive, high-maintenance equipment in constant operation. This percentage has increased from 83% last year and will likely increase in the future, with regulatory agencies wanting more and more characterization and other data about products.

A traditional field for outsourcing is fill-finish operations, and outsourcing of this activity appears to be holding steady so far this year. We might expect to see more outsourcing of this activity in the future, as more high-end fill-finish operations will be used, such as prefilled syringes, cartridge systems, and multi-use adjustable syringes. Indeed, demand for outsourcing of fill/finish operations is expected to rise: according to separate results from the study, 20% of respondents believe that their facility will outsource fill/finish operations to a much greater degree over the next two years. That makes it the second-biggest growth area among the 24 identified.

Meanwhile, some areas traditionally kept in-house, such as upstream and downstream process development and cell-line development have flattened out or decreased this year after having seen an upward shift last year. Study data also indicate that most companies so far are using their internal capacity for quality activities such as DoE and quality by design (QbD) rather than outsourcing, and that does not appear to be changing for the moment. With increasing importance, complexity, and new requirements coming from regulatory agencies, though, there may be more business need for these types of services in the future.

Overall, compared with 2012 data, the percentage of respondents outsourcing the activities identified remains for the most part relatively steady. Some of the biggest changes seen from last year (noting that this remains preliminary data) relate to the following activities:

• GMP training (up 7 percentage points from 48% to 55%)

• Product characterization testing (down 15 points, from 66% to 51%)

• QbD services (down 7 points from 32% to 25%).

AVERAGE PERCENTAGE OF ACTIVITIES OUTSOURCED TODAY

The BioPlan study analyzed the survey data to come up with an estimate of the average percentage of outsourcing done by biomanufacturers today across the activities tracked. This measures the influence of outsourcing on an activity, rather than how commonly that activity is outsourced.

On average, facilities outsource 32% of their analytical testing/bioassays (28% last year), 31% of their fill/finish operations (35% last year), and 28% of their toxicity testing (27% last year). These numbers may be low, given that not all respondents' facilities performed all these activities. However, their relative position, and their trend over time, compared with the individual activities is instructive.

In last year's study, BioPlan observed that the greatest percentage shift in recent years occurred in analytical testing/bioassays. That trend seems to be continuing unabated this year, up another 4% points to 32%, meaning that close to one-third of analytical testing is estimated to be outsourced by the industry. Moreover, 26% of study respondents expect their facility to outsource this area at significantly higher levels over the next two years, making it the area with the biggest potential for outsourcing growth. The current and expected growth in analytical assay outsourcing may be a result of the trend toward biosimilars, which require extensive analytical comparisons between the biosimilar protein and the innovator/reference product.

API biologics manufacturing is another area seeing significant growth of operations. Again, this is forecast for continued growth, with 13% of respondents indicating that they will be outsourcing this to a much greater degree in the next 24 months.

There is a noteworthy trend towards heavier use of outsourcing in some areas. In these activities, the estimated percentage of the activity being outsourced is growing faster than the growth in percentage of facilities that are outsourcing the activity. This indicates that the facilities outsourcing these activities are becoming ever more dependent on contracting them out. Such cases include:

• The estimated percentage of upstream (12% this year vs. 6% last year) and downstream (12% this year vs. 7% last year) development operations being outsourced rising significantly despite only a modest rise in the percentage of facilities outsourcing these activities

• The estimated percentage of DoE being outsourced almost doubling (7% vs. 4%) despite the proportion of facilities outsourcing this to any degree remaining flat.

Data suggests that outsourcing continues to increase, even if that increase doesn't apply uniformly to all activities.

Taken together, data suggests that outsourcing continues to increase, even if that increase doesn't apply uniformly to all activities. It is interesting to see that some of the less popular outsourcing activities (i.e., upstream and downstream development, DoE) are being more heavily contracted out, suggesting that this behavior is concentrated among few industry participants who are increasingly happy with the results.

BUDGETS

Preliminary data from the BioPlan study also indicates that budgets for outsourcing are on their way up. Respondents were asked to indicate how their spending on outsourcing will change over the following 12 months, in R&D and for manufacturing.

Based on the preliminary data received, it is estimated that on average, budgets for outsourcing at individual facilities will increase by over 10% during the next 12 months; this is an increase from last year's estimate.

Not everyone has more to spend on outsourcing, though. This year, 16% of respondents have said that they expect a decrease in their outsourcing budgets of some degree, slightly more than double the percentage from last year who forecast a cutback. But those cutbacks are more than offset by the number of facilities who are looking to increase their budgets. This year, almost one in five said they are expecting to increase outsourcing budgets by more than 25%.

OUTLOOK

The continued rise in outsourcing suggests that product manufacturers are tending to view contract manufacturing and outsourced services more as an asset to drive strategic decisions than as simply a way to save money. Some companies have also become more comfortable letting go of some of their more crucial activities, and have become more trusting of CMOs.

Careful selection of an effective CMO with the requisite know-how and observation of industry standards and process can increase the value of outsourcing, and potentially mitigate risks of outsourcing high-level activities. Biopharma CMOs are expanding their manufacturing competence through the use of novel technologies, single-use/disposable bioreactors, and other differentiated bioprocessing services. Expansions are resulting in increased adaptability, lower costs, faster turnaround, and higher yields.

For clients, this means that more CMOs will likely meet their needs (more competition, more choice), and the costs for using CMOs for product manufacturing are becoming at least slightly more competitive. Biologics manufacturing is inherently complex, and companies are becoming more aware of the value of experienced CMOs as a provider of expertise, as well as a back-up manufacturer, with 'flex' capacity.

Outsourcing of biopharmaceutical manufacture is a long-term trend.

Outsourcing of biopharmaceutical manufacture is a long-term trend that will require adoption of project management processes, and specific skills to manage external relationships. The industry and, particularly client-contractor relationships, will continue to mature and become more complex. With these changes will come a more cooperative management and maintenance of outsourcing relationships, which will increase the ability to partner on technically complex projects. We should expect to see more companies become confident outsourcing core activities in the future.

Survey Methodology

Eric S. Langer is president and managing partner at BioPlan Associates, Inc. Rockville, MD, elanger@bioplanassociates.com, tel. 301.921.5979, www.bioplanassociates.com.

REFERENCES

1. BioPlan, 10th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, Preliminary Data, Publication April 2013, Rockville, MD, www.bioplanassociates.com