Managing Contract Manufacturers in Life Sciences: Complex but Critical Strategy
The 21st century has been a remarkable and volatile time in the Life Sciences industry. The onset of the patent cliff in the pharmaceutical and biotechnology sectors set forth a variety of strategies that have, quite literally, changed the face of the industry. Organizations, in an attempt to recoup the lost revenue and margin from patent expires on blockbuster products, began acquiring companies at a pace that has never been seen before. What has emerged is a new and more focused industry. Non-strategic divisions where sold off in divestitures and focus areas were expanded with acquisitions that grew their pipeline, markets and revenues.
In spite of all the M&A activity, the industry continues to explore new ways of improving their operating margins. Outsourcing of operational processes has continued to increase in importance across the industry as organizations look for ways of reducing operational overhead. Long used in the Medical Device and Equipment sector, Pharmaceutical and biotechnology companies have traditionally had more of an insource approach to manufacturing but that continued to change. Drug companies are not only leveraging contract manufacturing organizations (CMO) for less complex small molecule and active pharmaceutical ingredient production (API) but are now leveraging CMOs for more complex, large molecule products in spite of that manufacturing complexity. This strategy is not without risk as organization understand that you can outsource the process but you cannot outsource the accountability for that process. This dramatic transformation of business models, processes and work strategies are focused on returning to the levels of profitability that had been accomplished earlier in their history.
If that wasn’t complicated enough, the industry continues to see the emergence of global regulations that make manufacturing a complicated process to outsource. Global serialization, outlined in my previous blog The Rapidly Changing World of Serialization in Life Sciences, now requires drug manufacturers to include a unique serial number on every vial of product produced. That serial number coordination with the CMO is challenging and is further complicated as the drug manufacturer is required to submit the information to global regulatory agencies who want to track the serial numbers to ensure the integrity of the product and, ultimately, the safety of the patient.
At SAP Life Sciences, we are very excited about our ability to help global pharmaceutical, biotechnology and medical device companies during these very challenging times. First, SAP can enable a cloud based approach to direct materials that supports all aspects of direct material procurement. This would include processes to support supplier audits, approved vendor lists, purchase order releases and blanket purchase orders. The cloud helps organizations reduce their capital expenses while also simplifying the IT support to enable the process.
Further, SAP Life Sciences can provide the cloud based abilities for life sciences companies to aggressively leverage CMOs for the manufacturing of their products, even in this highly regulated industry. This would include the medical device and equipment segments who have leveraged CMO strategies for many decades but also for drug companies inclusive of the serialized information. Organizations are not only able to provide the CMO with all of the work order, manufacturing instructions, routings and standard operating procedures for regulated manufacturing but would also include the ability to manage and generate all serial number information that would be applied to every vial of pharmaceutical and/or biotechnology products during the manufacturing process. This information is delivered through a network that further simplifies the process and improves operational efficiencies, ultimately reducing the total cost of ownership to support the process.
Lastly, SAP Life Sciences is very excited about the future as we are not content with just leveraging the cloud to enable the direct material and contract manufacturing processes for small and large molecule compounds including serial number support to meet global regulations. We believe the network can be exploited further in the area of operational quality and production tracking. Manufacturing data, batch reports, quality information and operational KPIs can be shared across the network to ensure the manufacturers have full visibility and transparency around the outsourced processes. This is highly strategic and reflects the underlying complexity of enabling outsourced manufacturing across all segments of the Life Sciences industry.
Let me know your thoughts and comments on the blog.