EXECUTIVE INTERVIEW - AAIPharma: Making the CDMO a One-Stop-Shop for Manufacturing, Development & Analytical Services

The global pharma outsourcing industry is on a fast growth track, likely to reach a market value of $360.6 billion by 2016, according to BCC Research. Making up the various legs of this market sector are contract research organizations (CROs), contract manufacturing organizations (CMOs), and contract development and manufacturing organizations (CDMOs). While each of these niche providers is experiencing rapid expansion in its own right, the CDMO is becoming a more integral part of a pharmaceutical company’s development and manufacturing strategies. Patrick Walsh, CEO, and Board Director of AAIPharma Services Corp. (AAIPharma), a CDMO headquartered in Wilmington, NC, recently spoke with Drug Development & Delivery about the role of a CDMO in today’s pharma and biotech space, why companies may choose to partner with a CDMO, and how the company has managed to maintain a leading position in the market.

Q: There is a bit of confusion in the industry about the differences among a CRO, CMO, and a CDMO. Can you help better define each?

A: Typically, the distinction is made based upon the company’s core strength and focus. For example, a CMO is typically defined by its focus on manufacturing and/or packaging services only. With a CMO, one expects the ability to handle very large batch sizes efficiently. Supporting the drug development side, CROs consist of large global organizations whose main business is that of patient recruitment, data management, and clinical trial management. Some CROs also offer select analytical or manufacturing services.

A CDMO is defined by its broader service offerings that link product development (R&D) services, analytical support, and manufacturing into one integrated process. There are a lot of stand-alone analytical service providers in the industry as well. Across North America alone, there are more than 400 analytical services companies, the majority of which are small operations”“less than $25 million in revenue”“and won’t have manufacturing attached to the analytical business. Our business, on the other hand, includes formulation, analytical capabilities, and manufacturing services.

Q: For our readers who may not know, can you describe AAIPharma’s service offerings in a bit more detail?

A: AAIPharma has been around for more than 30 years, and the company has gone through several iterations throughout that time. Today, we have a full range of drug development and manufacturing services, which is composed of analytical testing, which could be compendial testing, raw material testing, finished product testing, and drug testing; analytical development, which would involve method development and validations; pharmaceutical formulation development; biopharmaceutical development, which involves protein and large molecule work; stability storage and testing, as well as multiple manufacturing options, such as parenteral and solid-dose capabilities. When you look at how AAIPharma has positioned itself and why we’re doing so well in the sector, it’s because all of those services create a one-stop-shop for the client.

We actually trademarked the phrase Compound to ClinicTM to describe our services. We provide the ability to go from a compound into the clinic by using our comprehensive service offerings. A virtual firm, early-stage company, or global pharmaceutical company can bring us a compound, and we can take it through to the clinical stage and commercial market.

Q: Why is the pharma community increasingly turning to CDMOs?

A: If you look at our client base, we have more than 600 active clients, so it’s clear to see that many pharmaceutical companies are using CDMOs at this time. When you consider the changes in the pharmaceutical and biotechnology industries throughout the past 5 to 10 years, there’s been a significant trend towards outsourcing earlier-stage analytical and formulation capabilities. Clients are looking to get products into the clinic more quickly and make a decision on those compounds at an earlier phase, so they rely on service providers to assist them in these efforts. However, at the same time, they are also consolidating the number of service providers to which they outsource.

Q: How has that service provider consolidation affected AAIPharma and the industry overall?

A: We’ve seen growth rates for outsourcing, but throughout the next 3 to 5 years, we also predict increased consolidation, and thus, greater competition. Large and mid-sized pharmaceutical companies are actively looking at reducing the number of service providers they do business with and getting more intimate with those they choose as more of a full product offering. That obviously favors AAIPharma and our business model. Those providers that participate in the sector that are small and regional don’t have the capital infrastructure, lab automation, or ability to make necessary IT improvements due to of the large expense. This gives us a competitive advantage.

Q: For those pharma companies choosing to work with a CDMO, what considerations should be part of their decisionmaking process?

A: Clients typically want to see four things in a CDMO. The first is obviously a high quality organization”“the people, processes, and infrastructure to handle some of these very difficult projects. Second is responsiveness. Pharma is under tremendous timeline and financial constraints to move projects quickly. They need a CDMO that is responsive to their needs, understands their concerns, and is comfortable engaging in that kind of dialogue and timeline. Third is expertise. They are looking to obtain knowledge outside their own company to move the project forward. Fourth is a cost-effective partnership. Many clients are outsourcing capabilities that 5 or 10 years ago resided within their companies. So they’re making sure that if they outsource, the project will be completed at a reasonable cost and still be delivered expeditiously to meet their stringent timelines.

Q: When is AAIPharma typically brought into a client’s drug development timeline?

A: We can be brought in at any stage of the product development continuum. If the client has a molecule that requires formulation or solubility analysis to get it into a delivery system that would be amenable to a Phase I study, we can be brought in at that point. We also have clients who contact us at the end of the spectrum, where they’ve managed the product themselves, and would like to have somebody just manufacture and package it on a commercial scale.

There is not a one-size-fits-all scenario because there are so many ways to manage these processes. We also see large pharma companies formulating on their own and then outsourcing, or others who want to outsource the formulation and then bring the project back in house at Phase II. Virtual companies may have one compound they’re running, and large pharmaceutical companies may have a series of compounds they are looking to narrow down and determine which one is most amenable to moving forward. Those are two different profiles; we do both and work well with each type of organization.

Q: AAIPharma made some announcements within the past few months regarding expansions to its service offerings. Can you explain what those entailed?

A: Within the company, we have three business units”“manufacturing, pharmaceutical development, and analytical services. Each one is complementary and synergistic to the other, meaning there’s overlap, but we believe each should stand as a leader on its own.

Our manufacturing sector is growing at a 20% year-over-year growth rate. We made the decision about a year and a half ago to increase our manufacturing capacity in both our Wilmington, NC, and Charleston, SC, facilities. Our parenteral manufacturing is one of the fastest growing segments within our portfolio.

To further improve our development and analytical service offerings, we built a 40,000-sq-ft, world-class Technology Center in Wilmington and recently added additional ICP-MS, GCMS, LC-MS, UPLC, and HPLC systems to our list of instrumentation to meet growing market demands. New particle size testing equipment was added to support preformulation and material testing services.

We also expanded our biopharmaceutical development services by adding a micro-flow imaging system, a multi-angle laser light-scattering detector, and a dynamic light-scattering detector to support aggregate and particulate testing services. A capillary IEF was added to further support protein analyses.

AAIPharma also expanded its extractable and leachable testing services to evaluate and qualify the materials used in the manufacturing process and final product configuration. Our Technology Center that opened in May in Wilmington was part of a $15 million capital expansion program that included enhancements in analytical, microbiology, preformulation, and mass spectrometry resources.

Q: As the entire healthcare sector turns to electronic record keeping, how has this permeated the CDMO realm?

A: Project documentation will become virtually paperless with the rollout of an electronic laboratory notebook system. This further maximizes internal analytical processes and provides clients real-time accessibility to their project deliverables, which few contract pharmaceutical development companies have achieved. It’s great to say that, but unless you’re automating and providing online data access, you’re not able to do that. The pharmaceutical industry is beginning to request immediate access to data because these are clinical projects that require online, real-time results, and it’s important that we lead that pace to be a dominating company in the next 3 to 5 years.

Q: What challenges do you face as a CDMO doing business today, and what are your concerns as you look to the future?

A: We made a decision as a company to put our infrastructure in the US, while many of our competitors are offshoring these jobs and communicating electronically. We strongly believe there’s a technically and scientifically trained workforce here that is as good as anywhere in the world, and we can invest in our infrastructure here to compete globally. The market is growing at a greater than 10% rate, so that has fueled a lot of opportunity for this sector. But, there is a high barrier of entry to create and organize a company like AAIPharma. There is the cost of capital, the cost of maintaining regulatory standards, and the cost of investing in lab automation. Couple this with clients who are actively reducing the number of service suppliers on whom they rely. We are always under pressure to get to, and maintain, the critical mass that allows us to have the infrastructure in place to be a leading presence in the space. A CDMO has to be willing to invest heavily in its business to be a top-tier provider. That’s just a requirement of doing business.

Looking ahead, for me, it’s keeping pace with the automation. Three to five CDMOs will emerge and dominate the marketplace. They will be paperless in their labs, have online client data access, run on electronic lab notebooks, and offer multiple manufacturing and analytical service options. So as clients become more selective in service providers, they’ll have breadth and depth of service offerings to maintain and expand as the clients’ needs expand.