The pros & cons of pharmaceutical contract manufacturing

Manufacturing a new drug is an expensive process, especially for startups with limited resources. That’s why many biopharmaceutical and pharmaceutical startups turn to a contract manufacturing organization (CMO) to handle the process of turning a drug formula into an actual product.

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Like any form of outsourcing, there can be drawbacks to using a CMO. However, it can also reduce costs, save you space, and help with overall production capacity. Here’s a look at how CMOs work to help you decide if they have a role in your plan for getting your startup’s drug to market.

RELATED READING: Why you still need an eQMS with a contract organization

What is a contract manufacturing organization?

A contract manufacturing organization is a company that manufactures products on behalf of other companies. In the biopharmaceutical and pharmaceutical industries, CMOs are experts in large-scale manufacturing of active pharmaceutical ingredients (APIs) and drug products. To produce FDA-regulated items such as drugs, pharmaceutical and biotechnology companies engage these organizations for their specialized drug manufacturing services. These companies can perform some or all of the duties associated with manufacturing and drug development, which may include:

• Manufacturing start to finish
• Coating the drug
• Packaging 
• Labeling 
• Wholesale or direct-to-consumer distribution

Contract development and manufacturing organizations

Along with CMOs, there are also contract development and manufacturing organizations (CDMOs) that provide both manufacturing and development services. Along with packaging and shipping out, CDMOs handle the formulation of the drug based on information provided by the pharmaceutical firm. Additionally, some full-service companies offer capabilities to take your new drug idea and partner with you from the pre-development stage through clinical trials and all the way to the shipment phase.

5 benefits of using a CMO

Early stage life sciences companies have many competing priorities. You have to coordinate with quality management, marketing, and other staff members while recruiting investors and attending to other duties. A CMO takes some of that off your plate, along with other benefits.

1. Reduce overall costs and time to market

They already have the needed infrastructure and technical staff, so working with a CMO or CDMO can decrease the cost of manufacturing your drugs. For example, the cost to develop a pharma manufacturing facility ranges from $10 million to $500 million. In contrast, using a CMO can range anywhere from $300,000 to $1 million per batch for a clinical trial. Ultimately, they’re many steps ahead of a startup, so your time from development to wide scale market should be infinitesimally quicker.

2. Scalability and flexible production capacity

A CMO is set up specifically for manufacturing and distribution. If your company has been all about research and testing, you don't have the tools or expertise in-house to suddenly transform from a laboratory to a factory. And if you do get your own facilities, you have to try and predict demand for your drug when choosing how much capacity to build. If the demand is more than you planned for, you won't be able to meet the need. If it's less, you're stuck paying for equipment, facilities and staff you don't need.

Working with a CMO lets you respond to the market instead of taking a huge gamble on it. You can produce what you need, when you need it without worrying about excess capacity. Additionally, CMOs understand the importance of quality and compliance, so you don't have to sacrifice safety for scalability.

3. Save on upgrading and maintaining equipment

If you do have your own manufacturing facility, you’ll have to pay to upgrade your equipment as technology advances—and that can get expensive. A CMO/CDMO’s only function is to make and distribute products, so part of their core business responsibility is to update their equipment whenever it’s needed as well as perform maintenance. They’ll have people on staff who can operate and repair equipment, whereas a startup would have to either hire or contract with specialized maintenance teams. This frees you up to focus on other aspects of your business.

4. Ease supply chain issues

During the pandemic, there were several instances of supply chain issues, including medicine shortages. CMOs are generally better equipped than startups to handle a supply chain crisis. They have inventories already built up and longstanding relationships with suppliers and can predict issues within the supply chain. They also have the advantage of being able to shift production to another facility in the event of supply chain disruptions. Working with a CMO ensures you have a partner when production hits a slowdown or stoppage.

5. Bandwidth to focus on core competencies

When your company resources aren’t directly allocated to manufacturing and distribution, you have more time to focus on other tasks, like marketing your new drug, researching or working on drug discovery. When you’re ready to take your drug to market, you’ll need to hire sales and marketing staff who can promote the product and get it into healthcare providers’ offices. Ideally, with less time focused on the day-to-day of manufacturing, you can allocate resources to other projects to help your company grow. 

RELATED READING: 8 essential elements of pharmaceutical quality management systems

Disadvantages of working with a CMO

Using a CMO or CDMO does have its benefits, but there are a few things to keep in mind when you are choosing whether or not to work with one. These potential cons might not be a dealbreaker, but they’re something to be aware of as you make your decision.

1. Eats into your profit

Of course, using an outside partner for manufacturing needs will eat into your overall profit. Just how much the investment will cost you depends on your product and the process involved in making it. Raw materials, labor, the number of orders you need, and other factors will affect the total amount that you’ll pay. Providing the CMO with as much information on your product as possible can help them give you an accurate quote for their services. For small companies, the return on investment is high, given they lack the time or resources to set up a manufacturing facility, but it’s something to keep in mind when you are budgeting for your product launch.

2. Loss of control, possible compliance risks

No matter how much due diligence on a CMO you do ahead of time, ultimately, you can’t control every aspect of how they do business. The nature of contract manufacturing means you won’t have as much visibility into the manufacturing process as you would if you were performing the work yourself. A CMO may make decisions to save time or money that you would do differently. If any of these decisions mean the CMO is not compliant with cGMP regulations, your product could be at risk. With inevitable mistakes, you will most likely hear about something going wrong after the fact vs. being able to detect the potential for error ahead of time. And unfortunately, even if your CMO is responsible for a manufacturing problem, your company will most likely absorb the reputational damage.

RELATED READING: What Is cGMP in the pharmaceutical industry?

3. Ensuring a CMO is qualified and ethical 

It is up to you, as the contracting company, to ensure that your CMO or CDMO operates according to all FDA regulations. If they don’t, the consequences fall back on you if there’s an issue during manufacturing or packaging. FDA regulations outline that you need to have responsibilities and procedures in writing and that you’re legally responsible for approving the final product.

“The agency continued that, while a quality agreement may help maximize compliance, the drug company sponsor is ultimately responsible for ensuring the safe manufacture of the final product released,” Alan Minsk wrote in an article about warning letters from the FDA to a CMO out of compliance.

To ensure they are within compliance, set expectations from the beginning that you and the CMO need to communicate with each other frequently and that transparency on both sides is vital. Give the CMO your organization’s list of key requirements for contracted organizations and let them know upfront exactly what you expect in terms of quality so that you can start off on the right foot. Keep everything stored within your quality management system so that if the FDA does come knocking, you’ll have everything you need to show them that you are measuring the CMO’s compliance and monitoring their current good manufacturing practices.

In addition, there is always the worry of intellectual property risks when dealing with a CMO. You are basically handing access to your property to dozens of people on the other side. Even if the actual company signs an NDA and they don’t compromise it, the actual workers still have the knowledge of your product and it can be leaked or misused.

4. Communication issues

Sometimes, communication breaks down within an organization—not to mention with outside companies. If you don’t create a plan for communication and stick to it, then you could end up not knowing what’s going on during the manufacturing, packaging, or shipping process. So, if the CMO has delays in manufacturing and/or shipping and doesn’t let you know, then you’re the one fielding calls from angry customers wanting to know when they can get their product. 

It is crucial to have a plan in place for how you will communicate with the CMO, including frequency and methods. You might consider designating one person from your team as the primary point of contact and set up regular video conferences or phone calls to touch base. In addition, you can use a quality management system (QMS) that gives you visibility into every step of the process and allows you to approve or reject products at each stage. This way, if something does go wrong, you can quickly address the issue without delaying shipments.

Do outsourcing the right way

Contract manufacturing organizations can be a great option for pharmaceutical and biotech companies looking to outsource their manufacturing needs. But as with any business relationship, there are pros and cons to consider before entering into an agreement. Finding the right partner for your product needs and committing to a thorough due diligence period will lay the foundation for a promising manufacturing relationship. The partnership between a pharmaceutical or biotech company and a CMO should feel like a two-way street with both firms working together to ensure quality and compliance. 

That said, outsourcing your manufacturing operations should not detract from your company's quality and regulatory efforts. Even when working with a CMO, having our own quality management system in place allows for more visibility into the process and helps ensure that your products meet all regulatory requirements.

Some companies believe that because they’re at an earlier stage, they can essentially outsource quality management to their CMO and put off investing in QMS software. This approach will cause issues down the line. When you outsource without first developing a strong quality management system of your own, you lose precious time in establishing early operations and processes that ensure quality throughout the product development cycle. When your company is larger and more settled in its ways of doing business, outsourcing without effective quality control will slow you down.

Need an eQMS to help you scale? Check out Qualio.