Choosing Between Contract & Third-Party Manufacturing
The journey of a pharmaceutical product from conception to patient delivery is complex. All pharmaceutical companies, be they global giants or aspiring entrants, need to arrive at one of the most important strategic and operational decisions: how will they manufacture their products. A well-defined manufacturing strategy will accelerate growth, control quality, and optimize profitability; a poorly defined strategy will result in insurmountable losses. For most companies, the choice hinges on the two most common outsourcing strategies: contract manufacturing and third-party manufacturing.
In order to make the most fitting decision, it is important to understand the two approaches and how they differ from each other. This guide will clarify the differences, highlight the advantages of each model, and provide the insights you need to guide your decision on the best approach for your pharmaceutical business.
What Is Pharmaceutical Outsourcing?
The concept of outsourcing encompasses contract and third-party manufacturing practices. Outsourcing occurs when a pharmaceutical firm hires an external entity to duplicate its products. This outsourcing strategy benefits the firm by gaining access to refined expertise and sophisticated manufacturing facilities and by concentrating on other areas of the business such as core research, product development, and marketing. Companies have different business relationships with and varying degrees of integration with the outsourcing partners.
What Is Contract Manufacturing in Pharma?
Contract manufacturing becomes a service model when a pharmaceutical firm (the client) gives a manufacturing entity a detailed recipe, raw materials, and specific steps of a manufacturing process. The contractor's primary task becomes to follow the client's steps to the letter. It is similar to the concept of "manufacturing for hire."
The client maintains full control and ownership of the intellectual property (IP) and product specifications, as well as control of the supply chain. The contract manufacturer essentially becomes an extension of the client's production facilities as they provide the equipment and personnel to manufacture the pharmaceutical product in accordance with the terms of a detailed contract.
Key Characteristics of Contract Manufacturing:
- •Client-Driven Process: The client provides the product formula, technology, and, in many cases, the raw materials.
- •Scope of Action: As outlined in the contract, the only tasks assigned to the manufacturer are the production, packaging, and quality assurance activities.
- •Client Involvement: The client participant’s control and participation in the production and quality assurance processes are intensive.
- •Value in Execution: The contract manufacturer’s worth is attributed to the execution of the manufacturer’s detailed instruction and quality standards.
For this reason, this approach is frequently adopted by large, established, and even large-scale pharmaceuticals, which can afford to outsource or modularize the manufacturing of their products and complex pharmaceuticals, as they have completed the product testing and formulated the product.
What Does Third-Party Pharma Manufacturing Mean?
In the case of third-party manufacturing, while the principles are the same, it is broader and more collaborative. In this case, the pharmaceutical company seeks out a manufacturing partner more or less with a product concept or need. The third-party manufacturer is a pharmaceutical company and uses their own established, pre-approved formulas and expertise to produce the drug under the customer’s brand.
The manufacturer is more than a hired hand in this case. They control the sourcing of raw materials, formulation, production and packaging. In this case, the client company is only responsible for brand marketing and distribution. This is a very common approach in the production of generic drugs and companies looking to rapidly introduce a product line.
The Essence of Third-Party Production:
- •Ownership of Production Formulas: One of the characteristic traits of a manufacturer is the production of the company’s own documented and tested resources.
- •All-in-One Offering: This encompasses the entire supply cycle and production system to the finished packaged product.
- •Minimized Client Engagement: Clients must specify a desired product and are responsible for its final promotion.
- •Rapid Market Entry: This operational arrangement enables firms to introduce new products in a substantially compressed time frame.
For start-up firms and small businesses, along with any company trying to increase its product range, third-party production is a smart approach with no need for extensive in-house research and development.
How are Contract and Third-Party Manufacturing Different?
Formula ownership is the primary basis of distinction along with the service range.
Feature
Contract Manufacturing
Third-Party Manufacturing
Product Formula
Provided by the client company.
Provided by the manufacturing partner.
Intellectual Property
Owned and controlled by the client.
Owned by the manufacturer.
Raw Materials
Typically requested or defined by client.
Procured by the manufacturer.
Client Involvement
High; involves direct oversight.
Low; focuses on branding and sales.
Best for
Companies with unique, patented drugs.
Companies needing standard products fast.
Primary goal
To scale production of an existing formula.
To introduce a product line under a new brand.
Which Manufacturing Model Best Suits Your Business?
The decision to choose between contract and third-party manufacturing models boils down to your business’s resources, objectives, and market position.
Opt for contract manufacturing when:
- •You need to safeguard a unique proprietary formulation for a drug and a complete proprietary drug formulation.
- •You need full control over all aspects of production and the entire supply chain.
- •You have the capacity to oversee a complex partnership in the manufacturing processes.
- •To boost production capacity for an already established product line.
Opt for third-party manufacturing when:
- •You are a small company or a startup and have restricted resources for research and development.
- •You need to quickly roll out a portfolio of generic and common products.
- •Your primary strength lies in marketing and distribution, not in the manufacturing processes.
- •You seek to reduce extreme risk while borrowing the expertise of a successful, established manufacturer.
Unlock Your Growth with a Trusted Manufacturing Partner
Your options for scaling your business through contract and third-party manufacturing when considering your business’s strategic objectives are plentiful. For companies wanting to establish a footprint with less hassle than manufacturing in-house, third-party manufacturing is particularly streamlined, cost-effective, and efficient. You can build your brand and reach patients, knowing that the quality of your products is in safe and professional hands.At Fedley Healthcare, we expanding your pharmaceutical product line with confidence and speed is attainable, and so is accessing our full range of manufacturing services. Our extensive catalogue of high-quality, ready-to-market formulations is targeted to help you grow, and we’re ready to help you achieve your business objectives. Reach out to discover how we can be your trusted manufacturing partner.