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Feature Articles : Jun 1, 2010 (Vol. 30, No. 11)

Due Diligence Essential in Selecting CMO

Firms Must Look Beyond Credentials to Find the Right Partner for Their Manufacturing Needs

At their foundation, business relationships with contract manufacturing organizations (CMOs) are about relationships with people. In a niche in which nearly all of the providers have state-of-the-art equipment, modern facilities, experienced employees, and leaders familiar with the industry, savvy biotechs must look beyond credentials to find not only a capable CMO, but one that fits their own organization.

Speaking at IQPC’s “Contract Manufacturing for Pharmaceuticals & Biotech” conference last month, Justin Noll, plant manager for Cherokee Pharmaceuticals, said that the word “partnership” may have lost its luster, but certainly not its importance. “Emerging companies are placing their company’s life in the hands of strangers. That has to be a partnership.”  

“A CMO is an extension of your supply chain,” noted Alex Badal, senior manager of global strategic sourcing and supply at Valeant Pharmaceuticals. Selecting a CMO may require a few months or a few years, depending upon the product’s complexity and importance, and anticipated sales and revenue. Initial questions will involve technology, the anticipated production time, expected costs, one-time costs, ongoing commercial pricing, and references.

“As in any relationship, there is more than one aspect,” noted Adam Sabouni, Ph.D., president and CEO of PharmaArtz. He advised identifying the top three priorities before selecting CMO candidates. “When those criteria are satisfied, then go beyond them. We make so many assumptions. In choosing a CMO, you need to delve deeply into the details,” to ascertain whether the primary assumptions are held jointly. Otherwise, misunderstandings are almost inevitable.

The question, as Noll stressed, is “can the CMO lay out a comprehensive plan from day one that shows all the activities that must be done to help the customer bring a drug to market. Competence and experience are key.”

CMO clients’ top priorities were quality, technical capabilities, and service, according to a recent survey of CMO clients conducted for PharmaArtz. A similar survey of directors of biomanufacturing operations at pharmaceutical and biotech companies, conducted by HighTech Business Decisions, showed the same priorities, according to William Downey, president. “Quality means both meeting the specifications and having quality systems,” Downey added.

There are, however, additional characteristics that must be considered. “Available capacity is key to many pharmaceutical and biotechnology companies, because they don’t want manufacturing to be the limiting factor,” Downey explained. “Technical fit is another critical factor. This is especially critical in the commercial phase where capacity must be a good fit with respect to technology, process, and scale.”

“Vet what they tell you,” Badal recommended. Quantitative and qualitative information can be extracted from each of those categories of questions, that will help prospective clients develop a fuller understanding of the CMO’s capabilities and operating environment.

Importance of Onsite Visits

“An onsite visit is where you meet the potential team members and learn who the company is rather than what it can do for you,” Badal said. Valeant’s team usually includes representatives from its quality assurance, regulatory affairs, and manufacturing departments, as well as the company’s point of contact.

Typically, Valent conducts two site visits for the top contenders, Badal noted. The first visit is simply to get acquainted with the site, to ascertain the age and condition of facilities and equipment, and to get to know the people and their style of operations and communications.

That includes understanding both the regional or national culture and the corporate culture. For example, in a highly hierarchical culture, will a junior associate  challenge a senior associate to resolve a potential problem? Will the need to avoid embarrassment cause issues to be handled without input from the client? Synergy between the CMO and the prospective client can alleviate many quality concerns  simply because the two organizations will have similar understandings and approaches.

“Experience matters,” Dr. Sabouni insisted. “A Ph.D. with five years’ experience is very different from a Ph.D. with 25 years’ experience in terms of depth of knowledge.” That difference can be very important, particularly when novel compounds are being manufactured.

Dr. Sabouni also recommended working with a CMO whose staff members have experience at both big pharma and small biotechs. Those with large company experience tend to know the regulatory environment better than those with small company experience, simply because they are more likely to have taken several drugs through the approval process.

“They also will have an eye on development issues and the eventual product launch,” Dr. Sabouni said. Those are issues that emerging companies too often overlook in the excitement of pushing the developmental envelope.

On the other hand, he continued, “individuals with small company experience are especially important to biotechs because they know how they think.” They also better understand the need for speed and the financial constraints that can make or break a small company.

The second visit is a quality audit. Typically, Badal said, a team will investigate the CMO thoroughly, examining its internal operations, production floor, equipment, and maintenance records, as well as its scale-up process and capabilities, regulatory affairs track record, and standard operational procedures. “Learn how they handle out-of-spec findings,” Dr. Sabouni suggested.

This is also an opportunity to examine the CMO’s external linkages. “We look at their supply chain and sourcing activities and relationships,” Badal said. “If they’re not strong, you risk hiccups in the future, in terms of quality issues, delays, and delinquencies.”

Some firms (in other industries) will interview the CMO’s suppliers, ascertaining their quality procedures, financial strength, and ability to handle the additional business. Also, the team will determine whether a local or regional disaster to one of the suppliers would halt or significantly slow production, or whether the supply chain is sufficiently broad to adjust to fluctuating conditions.

Badal also recommended using the trip to verify the local reputation of the CMO and its key staff members. “You’re doing a lot of evaluation on the people at this point including calling and checking references.”

Look at past products, too. Dr. Sabouni advised examining a CMO’s regulatory track record. “Were there warning letters or reprimands? How were they resolved? Check their 386 records and the results. When were they last visited?” he asked. Whether the visit was six months ago or six years ago matters. “Were there regulatory issues? Were the products delivered on the expected timeframe, and if not, why? If issues arose during production, could the CMO realistically have been expected to have anticipated and resolved them proactively?”


Issues are most likely to arise in areas that weren’t addressed during the due diligence process, Badal said. “Timelines may become longer, suppliers may have issues, communications may not be clear.” Therefore, Badal advised extreme diligence early in the selection process.

Ensuring clear communications can prevent complications. “Over communicate,” Noll advised. “Leave nothing unsaid. If a team is working, leave it in place. If it’s not, don’t worry about hurt feelings. Get different people in there.”

Having a single point of contact for communications—the production manager or business development manager—can minimize misunderstandings. “The worst-case scenario is casual communications, where perhaps 60 people communicate between the organizations. They have good intentions,” Dr. Sabouni said, but, from the project manager’s perspective, this creates chaos. “Communications should be streamlined.”

In Badal’s experience, having a single point of contact hasn’t delayed operations although, “sometimes it’s difficult to relay information through the organizations.” In such cases, it may help to have the counterparts communicate directly. This may be especially true for regulatory affairs. In fact, Noll added, “regulatory affairs is the only area where customers really have to work to accommodate their CMO.”

The protocol for communications should be established up front. Generally, that means establishing weekly project meetings and a schedule for regular meetings at the vice-president level. A framework for dealing with problems also should be established as early as possible. While negotiations are progressing, establish who is responsible for communicating issues.

Assumptions can form a potential pitfall. “Some customers, biased by a past disaster, can focus on one aspect of the project and unwittingly give it greater emphasis in the eyes of the CMO,” Noll said. Therefore, “tech-transfer meetings should be a formal exchange of information; anecdotes are for dinner.”

Noll said that analytical issues are one of the biggest stumbling blocks for emerging pharma. “A good CMO lays out all the hidden issues early, so the customer doesn’t need to worry, for example, about validated stability-indicating methods or making sure the polymorph screening work has been done.”

Another area is route optimization. As Noll explained, “spending a little money early can lead to big savings later on. When a funding window opens up, companies go into overdrive, and some things that could make a product a viable drug rather than a funding vehicle can become imperiled. Doing the grunt work as early as is practical makes sense.”

Global Concerns

Whether a company works with a global CMO or remains in country is a strategic decision. “Valeant doesn’t own manufacturing facilities in the U.S. We outsource,” Vadal said.

A few years ago, Valeant began nearshoring its CMO work, bringing manufacturing closer to U.S. operations without actually bringing it into the U.S. Valeant currently works with CMOs in Canada, Mexico, Brazil, and Poland. That approach takes advantage of the lower pricing possible in other nations, proximity to raw materials, and the logistical benefits of working in compatible time zones.