CONTRACT MANUFACTURING IN PHARMACEUTICAL FERMENTATION INDUSTRIES- RISKS AND PROFITS

(PICTURE TAKEN FROM WWW.DSM.COM)

INTRODUCTION

Pharmaceutical industries are big bucks! Just see the volume of drugs produced by the giant pharmaceutical manufacturers and the record billions dollars profit shown every year. Yet these mega companies are always looking for profitability and finding ways to cut the costs of their production by trying to cut the costs of producing these drugs.

Some of these pharmaceuticals are produced by fermentation such as antibiotics, vaccines and biologics. The cost of production of these fermentation derived pharmaceuticals is sky high due to the high cost of capital investment in equipments and facilities. In view of this problem many of these giant pharmaceuticals companies tries to outsource their production or manufacturing by looking for contract manufacturing beyond their shores.

Asia has always been a very attractive site for contract manufacturing as it fulfills all the requirements needed for successful contract manufacturing ventures. It should be noted that outsourcing manufacturing capabilities is not a new phenomena as the Japanese were all ready at it as in the Fifties.

The most popular countries in out sourcing pharmaceutical contract manufacturing currently are India and China. Even Malaysia do not wants to be left out on this rich gravy train.

However, in pharmaceutical contract manufacturing is not all good news. Both the proprietor and the contract manufacturer face a lot of problems and issues. It may look good on paper, but in reality there are a lot of bumps to overcome and risks to be taken.

WHY BOTHER CONTRACT MANUFACTURING?

The first question that is often asked is why do the proprietary holders want to source out pharmaceutical contract manufacturing?

There is really one reason why pharmaceutical fermentation industries outsource their manufacturing or production, that is, to cut costs and increase their profitability. In this world of free market competition, the ability to reduce the cost of products will be crucial to the survival and profitability of the company. The advantages of foreign contract manufacturing include:

1 favorable tax benefits for the parent company, allowing them to
reduce overall tax liabilities and increase profits.
2 Other advantages over in-house manufacturing, including lower
costs, flexibility, access to external expertise and reduced capital.

The trouble is that the problem is not solved by simply carrying out contract manufacturing and just gets the benefits. As stated earlier contract manufacturing is not without risks.

There are many considerations to be taken before a suitable contract manufacturer can be hired such as:

1 Have they got the proper industrial facilities to carry out the manufacturing?
2 Do they have the right people and expertise to ensure the smooth running of the contract manufacturing?
3 Can the contract manufacturer produce the products to the expected quality and standards?
4 Have the contract manufacturer sufficient industrial experience and track records to carry out such production?
5 Can they justify the correct costing and tenders to compete with other contract manufacturers?

It is a well known observation that most of the experts in the fermentation of pharmaceuticals are new and have very little experience in running industrial level contract manufacturing and scale up productions. Most of them are probably so new and are in their baby steps phase of the learning curve to pharmaceutical fermentation contract manufacturing. Most of the experts are perhaps new lecturers in universities who are too academic inclined and not exposed to the practicals of production floors. Their levels of fermentation are perhaps still at the level of Mickey Mouse projects!

True! We do have facilities for fermentation, but most are just pilot plant scale and not really geared for industrial fermentations. This is in the case of the Universities fermentation suite or pilot fermentation unit.

Even though we may have companies that supposedly have the capacity to do contract manufacturing, but in reality they do not function as professional pharmaceutical fermentation contract manufacturer. All they can show are a few big size shiny fermentors and a few staff in gleaming white lab coats. In fact they are more involved in the propagandistic public exhibitions of what they can promise. A visit to their website will expose a lot of weakness and where tons of money is poured down the drain with no returns

A facility for proper industrial scale fermentation pharmaceutical contract manufacturing must be able to show its ability and capacity to produce industrial scale production. The facilities must be adaptable enough to be used for various types of pharmaceutical fermentations. In that sense the company should not show the priority of exhibition booths to fulfill the visiting school students

These companies should be more opened to the public of the successful tenders that have been executed and not just reports of visits and exchange of MoUs.


CONTRACT MANUFACTURING IS NOT WITHOUT ITS LIABILITIES

As for the country or company that offer contract manufacturing burdened by high capital costs and need for specialist educated force. Also the demand for facilities by companies must be high to sustain the company and make sufficient profits out of the venture.

They must be able to produce products to the specifications of the clients.

Their facilities and equipment must be adaptable to various specific demands of clients and they must have the capacity to carry out large scale production. Everything is ok if contract is profitable and booking books are full and you have long term contracts. If not you are going to have many stainless steel white elephants! And a lot of research staff and laboratory coated technicians walking aimlessly at costs!

Poor marketing is another problem. As they say it even if you have poor products good marketing will generate sales. If you have good product but poor marketing no one will buy your products

But out sourcing is not without risks as there are many factors to consider before choosing which country to invest or outsource. In certain cases, if no careful considerations are given the whole outsourcing exercise could be a failure with serious economic, legal and social consequences.

PHARMACEUTICAL FERMENTATION

Pharmaceutical fermentation contract manufacturing is not as simple as contract manufacturing for garments and shoes where all you need are simple production lines, simple machinery and thousands of workers. Far from it, pharmaceutical fermentation is very technologically complex that require well qualified experts and very sophisticated equipments and facilities. It is a very costly operation which put the investor into a lot of possible financial and even regulatory risks. Its products affect human health and safety directly.

Pharmaceutical fermentation is not as simple as food or beverage fermentations. In biologics fermentation aseptic and clean room fermentation is mandatory. Downstream processing steps are more sensitive

THE WAY OUT
The only way out of this predicament is to swallow our pride and work with other manufacturing contractors by:

1 Use facilities that are already in use to produce biologics or facilities by established companies in the region
2 Build new facilities by established contractors not by fermentor sellers or their sales men
3 Carry out joint ventures with other contractors as we did with Mitsubishi and proton cars and hoped that they do carry out technology transfers in the real sense!
Maybe the only significant advantage out of these arrangements is that we have our rights to add “ Made in Malaysia” on every products produced. He he





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