OUTSOURCING FOR IVD MANUFACTURERS
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Figure 1. At Thermo Fisher Scientific’s site in Middletown, VA, products are lyophilized under tight control ensuring robustness in the field. |
Outsourcing to a contract manufacturer is a practical and cost-effective option for many companies operating in the IVD industry. It addresses numerous challenges associated with bringing an IVD product to market, especially when companies face rising manufacturing costs and longer time to market, or when they need to downsize facilities. Choosing an appropriate outsourcing partner can be a complex and difficult task. However, knowing what services a provider should offer will enable an IVD company to make an informed choice about whether to outsource and which partner to select.
This article discusses the cost-benefit of outsourcing IVD manufacturing and describes the key services to look for when selecting an outsource partner. Although all full-service contract manufacturers present comparable offerings, there are some capabilities that differentiate one provider from another. This article also provides guidance on what those differentiating capabilities are.
The Global IVD Market
The IVD market is one of the larger segments in the global healthcare industry. According to a market research report by RNCOS (Delhi, India), “Global In Vitro Diagnostic Market Analysis,” the global IVD market was worth $38 billion in 2007 and is projected to grow at a compound annual growth rate of 6.72% between 2007 and 2012. The report claimed that North America, Europe, and Japan together accounted for 90% of the global IVD market in 2007.
Another study, “In Vitro Diagnostics to 2011,” by The Freedonia Group (Cleveland) estimated that U.S. demand for IVD products will grow at a rate of 5.1% through 2011. New analysis in a report by Frost & Sullivan (San Antonio, TX), “Western European In Vitro Diagnostics Market Sustained by New Technologies,” revealed that IVDs in Western Europe earned revenues of more than $8.54 billion in 2007 and estimated that this figure will reach $12.65 billion by 2014. Different factors have triggered growth in the Western European IVD market such as the rising incidence of diseases associated with the aging population (e.g., respiratory and urinary tract infections), the addition of new countries to the European Union, and the implementation of diagnosisrelated groups. Germany, Italy, Spain, France, and the United Kingdom accounted for more than 80% of the total sales in the Western European IVD market in 2006.
The IVD market will also experience growth in emerging countries such as India, China, and Brazil. This assessment was discussed in a study by Kalorama Information (New York City), “The Worldwide Market for In Vitro Diagnostic Tests,” which predicted that the emerging markets in South America and Southeast Asia will experience annual growth of 10-20% in the coming years. In fact, North America, Europe, and Japan will begin to lose their share of the IVD market, which is expected to drop to 80% by 2010. This opportunity in potential markets in South America and Southeast Asia is due to their aging populations, rising standards of living, and widening health insurance coverage.
Challenges Driving Outsourcing
Despite such projected strong growth, the global IVD market faces a number of important challenges. Growing industry consolidation has increased competition in the market, escalating the difficulties for smaller IVD companies to maintain their market shares. The rising incidence of diseases has forced IVD manufacturers to invest more in R&D to develop new diagnostic tests for the diagnosis of disease, resulting in immediate increases in R&D costs. While clinical trials are becoming more expensive, the IVD industry is under rising pressure to decrease prices. All of these factors have contributed to a significant boost in the total expenses for IVD manufacturers.
IVD manufacturers also operate in a strictly regulated environment in which demonstrating compliance can be challenging in numerous markets.
- FDA requires a premarketing submission to demonstrate that a new IVD product is safe and effective for its intended use or uses. Following submission and after a typical 90-day review period, the agency either clears or rejects the IVD product for marketing in the United States. The costs and review periods vary depending on whether an IVD company submits a 510(k) or premarket approval (PMA) application. FDA’s decision is based on an evaluation of the new IVD device’s analytical performance, including its bias or inaccuracy, the level of imprecision, and the analytical specificity and sensitivity. The labeling of IVD products is also stringently regulated.
- The European Directive 98/79/EC on In Vitro Diagnostic Medical Devices mandates IVDs to be designed and manufactured such that they do not compromise the clinical condition or safety of patients, the safety or health of users, and the safety of property. In addition, IVD devices must achieve the performance stated by the manufacturer in terms of analytical sensitivity and specificity, diagnostic sensitivity and specificity, accuracy, repeatability, reproducibility, and limits of detection. The IVD devices must also be designed, manufactured, and packaged such that their characteristics and performance will not be adversely affected under storage and transport conditions (see Figure 1).
- The Canadian Medical Device Regulations requires IVD manufacturers to meet the quality system requirements of the ISO 13485:2003 standard for medical devices. This standard specifies requirements for a quality management system in which an organization needs to demonstrate its ability to provide medical devices and related services that consistently meet customer and regulatory expectations.
- The Japanese Pharmaceutical Affairs Law covers the manufacture and distribution of medical devices, IVD products, cosmetics, and pharmaceuticals in Japan. This regulation aims to enhance the safety measures of medical devices, strengthen postmarketing safety measures, and fortify the medical devices review system for approval and license while taking international conformity into account. Japanese authorities have also introduced guidelines for medical device packaging to ensure that physicians and consumers will be provided with clearer, more comprehensive product and usage information to prevent potential adverse events.
Although there are numerous reasons for IVD manufacturers to outsource their product development, the justifications can be grouped into two areas: financial and strategic.
Financial Justifications. Large IVD companies often calculate the full production cost of each product manufactured by adding organizational operating expenses and spreading the costs proportionally over the range of devices produced. Such costs reflect the amount of indirect labor, space, and ancillary resources (e.g., management time) applied toward producing a finished IVD kit or component.
If a lean infrastructure is in place and an IVD company can share operational costs across a range of products, the overhead expenses assigned to the manufacturing cost of a particular product can be controlled and kept low. However, if doing so is not possible, or if the addition of a new IVD to a company’s product portfolio will require another production line along with the labor, space, and resources dedicated to it, outsourcing can become an attractive option. Such a situation is particularly true if an IVD company is located where the costs of such resources are higher than in other regions.
For many small and medium-sized IVD operations, the problem can be more acute. Most small IVD companies must cope with restricted cash flow. The amount of capital required for producing newly developed IVD devices can be extensive. For starters, capital may be needed for additional manufacturing personnel, production space, and new manufacturing equipment. Capital may also be needed to cover expenses for GMP and ISO quality management system consultants (if the systems certified to these standards are not already in place), and for sufficient raw materials and supplies to generate enough start up inventory once sales and marketing efforts have begun. Smaller IVD companies in this situation may find outsourcing a way to avoid the pitfall of running out of operating capital as product sales increase and additional investment is needed to fuel the momentum.
Strategic Justifications. Many IVD companies manufacture products within a specific discipline of the IVD industry, such as chemistry or hematology. Occasionally, such an IVD company may decide to add a product line that, from a marketing perspective, complements the products it sells but may lie outside its field of expertise. Smart business strategy provides the motivation for calling on the services of a contract manufacturer.
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Figure 2. Employees at Thermo Fisher Scientific’s Middletown, VA facility work on automated fill lines that can fill lot sizes of up to 200,000 bottles.
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For example, a chemical reagent manufacturer wants to add to its portfolio a new visual rapid test that it has developed or has obtained the rights to. However, the IVD company’s present manufacturing equipment, technical support, and production space may not be able to accommodate the addition of such a product. In such instances, an IVD manufacturer may decide that a better approach from a strategic viewpoint would be to outsource the production rather than build new in-house capabilities. On the marketing side, outsourcing would also offer the strategic advantage of faster time to market (see Figure 2).
Outsourcing is not always the case of a U.S. manufacturer moving production offshore. For years, many foreign IVD companies have looked to gain entry into the U.S. market. However, the logistics of setting up a manufacturing plant in the United States are complicated, and various regulatory, marketing, language, and cultural issues can make it difficult. Outsourcing is a viable option for bypassing many of these issues. Overseas IVD companies that want to sell in the United States may find that outsourcing production to a U.S.-based manufacturer reduces freight costs and provides an efficient means of distributing products in a market as large and diverse as the United States.
All of the above factors have triggered changes in the global IVD market, leading companies to look for quicker and more cost-effective ways of bringing new products to market. Outsourcing to a contract manufacturer has emerged as an option to speed up IVD product development and meet regulatory compliance requirements at minimal cost. Strategic partnerships between IVD companies and contract manufacturers enable the former to broaden their product portfolios and offer competitive prices in order to strengthen their market positions and deal with fierce competition. Choosing a suitable outsourcing partner is therefore a key business decision.
Selecting an Outsourcing Partner
Prior to choosing a contract manufacturer, an IVD company should investigate the contractor’s previous business relationships and projects. Obtaining references from the prospective service provider’s current and former customers will provide valuable information regarding experience and capability.
The supplier’s financial stability and prospective longevity are key factors in determining the viability of a business partnership since most contract manufacturing projects can last 5-10 years or longer, and can grow in volume over time. A supplier should have good financial statements that are updated periodically, present a strong balance sheet, and show acceptable sales records from year to year. A supplier should also provide evidence of a good payment history and should not be involved in any significant outstanding legal proceedings. A contract manufacturer’s track record enables potential customers to review the manufacturing environment and to make an informed choice. Other factors to consider in selecting a contract manufacturer include the following.
Product Development. Some contract manufacturers can only bring to market an IVD product that has already been developed, while others can take on the entire product development process. Such contract manufacturers employ a qualified, experienced R&D team and use FDA-compliant, phase-based design control to permit any level of IVD product development from full research and development to on-market product manufacturing transfer. IVD product development capabilities include expertise in pilot production, lot-size and process scale-up, as well as equipment, process, and software validation. A provider’s ability to offer more than one service demonstrates its depth of knowledge and experience.
Since each IVD manufacturer has specific application requirements that may differ from other companies, a service provider’s product development process should address its unique needs. Providers should also have the ability to address an extensive portfolio of IVD products.
Facilities. Contract manufacturers must maintain facilities that not only comply with GMP and ISO requirements but also accommodate the production. IVD companies should choose a contract manufacturer’s facilities based on production requirements, which could include the following:
- Environmentally controlled rooms for aseptic processing.
- Refrigeration and freezer space.
- Filling lines that can accommodate small microliter to large multiple- liter runs.
- Vial, bulk, and specialty freeze-drying capabilities.
- Highly developed process capabilities.
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Figure 3. Thermo Fisher Scientific’s East Providence and Middletown facilities offer warehousing and logistics services. |
If a contract manufacturer also offers warehousing services, they should comply with ISO 13485 and CGMP, as well as obtain FDA registration and CMDS certification, which allows central supplying for multiple areas. Full warehousing and logistics services may include inventory management and automatic stock replenishment, allowing for the reduction of stocks and for just-in-time delivery (see Figure 3).
Regulatory Support. Obtaining regulatory clearance and maintaining regulatory compliance for IVD products are expensive and time consuming. An IVD company usually undertakes the entire regulatory submission process. However, a contract manufacturer with a global presence in the IVD industry and an established record of collaborating with international regulatory bodies can assume a regulatory submission on behalf of an IVD company and work toward full compliance regardless of where the customers are based.
A contract manufacturer can also undertake various regulatory support services to aid in the regulatory submission process. Such services include clinical studies management, QSR-compliant design control, technical writing, product labeling development and review, and generation of expert reports.
Packaging Development. Contract manufacturers should offer both primary and secondary packaging services with certifications from the U.S. Department of Transportation (DOT) and the International Air Transport Association (IATA). DOT regulations (49 CFR) apply to the transportation of hazardous products in North America by air, highway, rail, or vessel, while IATA regulations govern shipments of hazardous goods by air domestically and internationally. IATA regulations tend to be more restrictive, such that by following these requirements, a company can meet or even exceed DOT requirements.
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Figure 4. A packaging engineer at Thermo Fisher Scientific’s Middletown, VA facility provides label and kit design expertise.
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Apart from ensuring regulatory compliance, a contract manufacturer should offer label and kit design services for maximum ease-of-use by the end-users and efficient assembly in production (see Figure 4).
Conclusion
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Steven Galante is vice president of sales and marketing at Thermo Fisher Scientific Inc. (Waltham, MA). He can be reached at steven.galante@
thermofisher.com. |
The IVD market is a growing, dynamic, and increasingly competitive environment that poses numerous challenges. IVD manufacturers must constantly try to meet the rapidly changing needs of their customers, investing heavily in R&D to develop new and different products. However, their in-house expertise and facilities occasionally may not be sufficient or may need supplementing externally.
By collaborating with an outsourcing vendor, an IVD manufacturer’s in-house expertise can be complemented by external skill sets. Additional equipment or research capacity can be provided to meet specific production needs quickly at the minimum possible cost. As an additional benefit of outsourcing, IVD manufacturers can focus their efforts on and allocate their resources to their core competencies.
IVD manufacturers must pay attention to certain attributes when selecting their contract manufacturers. A full-service provider cater to all stages of the development or production process, from initial research and development to the regulatory or compliance process to final warehousing or shipping. A flexible and regulatory-compliant contract manufacturer outfitted with advanced equipment and a quality system ensures a level of responsiveness to customers’ needs from bench to batch.
