Managing Legal Risks in Pharmaceutical Manufacturing Outsourcing: Vetting the Transaction

Transcription

1 Managing Legal Risks in Pharmaceutical Manufacturing Outsourcing: Vetting the Transaction AHLA: Life Science Practice Group April 7, 2009 Devin Rainey Cuyler, Partner, Reed Smith r e e d s m i t h. c o m

2 Purpose Vetting the transaction mitigates risk and produces outcomes that can be mapped into the contract manufacturing agreement Process Criteria Outcomes Agreement Terms

3 Start by Defining Role/Relationship No longer tactical outsourcing, now strategic outsourcing Determine integration within client organization Use internal operational team to help with selection General manager integrated into organization, then legal/finance/supply chain/ quality/operations ( virtual plant ) Lack of sufficient management (retained organization) by sponsor is a major area for failure Document selection process and criteria Determine role in sponsor s manufacturing/supply chain For example, determine whether need integration with contract research organization Whether CMO have relationship with downstream suppliers/manufacturers

4 Defining Role/Relationship Define KPIs to map back into Agreement Assists in reporting, management and tracking Basis for possible performance metrics, including incentive arrangement Map future sponsor requirements into selection criteria and Agreement Longer relationships so need to be forward looking May have material cost to change CMOs; need to consider and address future needs Assess knowledge needed for transfer and document Need to have documented Difficult for older products Two way travel Don t outsource problems

5 Separate and Rank Selection Criteria Basic requirements vs. differentiating requirements Basic Requirements: ability to manufacture, comply with quality requirements, cost effective and sufficient capacity Compliance with cgmp and other quality requirements key Issues with cost as the main driver Flexibility balanced with cost Differentiating Requirements Robustness of the CMO Communication and integration abilities

6 Selection Criteria, continued Differentiating Requirements, continued Proven track record for analogous products right time/quantity/quality Investment in technology, innovation and process improvement Investment in personnel quality of personnel dedicated personnel retention of personnel mitigation regarding turn-over Environmental awareness

7 Information Gathering Request for Proposal and CMO response RFP needs to take the role/relationship into account and reflect selection criteria Conducting interviews and checking references Need analogous manufacturing arrangements In person! On-site assessments of CMO processes, people, facilities and IT systems Process and technology improvement People, communication and IT are key importance discussed below

8 Information Gathering, continued Financial robustness assessment Difficult with foreign CMOs Not standard to do financial due diligence, yet important give risk allocation for key issues such as recalls Evaluate suppliers/subcontractors Need balanced approach Include review of commercial and legal terms and conditions in place with suppliers/subcontractors, to extent possible Understand CMOs management processes and history with suppliers/subcontractors CMO leverage may be an issue and may need to be addressed

9 Assessing Legal Compliance Licenses, permits, approvals Regulatory track record in US/Canada/EU/Japan Documentation of processes and controls, record keeping Assistance with regulatory inspections, actions/investigations, notification timeframes Consequence of recall (risk allocation issue)

10 People, Communication and IT Assess competence of personnel Education, background, experience Somewhat difficult to assess but important as the main area of subsequent complaint ID key personnel for Agreement These will be addressed in the Agreement Recruitment, retention and turn-over of personnel Communication can be difficult to assess, but another main area of complaint IT integration now required

11 Structure of CMO Arrangement Determine whether direct management of CMO or via centralized provider Note type of CMO (e.g., dedicated CMO vs. pharmaceutical company with excess capacity) If using centralized service provider or multiple CMOs, need additional processes and metrics to track performance If multiple CMOs for same product, early CMOs can begin with smaller volume / trial amounts to test compliance with metrics Avoid too many CMOs (e.g., many new CMOs for APIs each year) Consider structuring with entities having related companies in other jurisdictions to possible mitigate issue with legal enforcement (including parent or sister company guarantees)

12 Identify any Key Risks Identify and quantify (to extent reasonable) risks as an output from the vetting process Mitigate risks through business and technical processes Process portions of Agreement should be primary, with legal portions secondary Use risk management tools/methodology Integrate into risk management processes (e.g., risk associated with lack of CMO financial wherewithal addressed through finance function) Consider using standardized tools/methods such as RiskMAP

13 Memorialize Outcomes from Vetting Process in Agreement Agreement legal and operational Outsourcing agreements different than standard manufacturing agreements Use simple statements that translate well and find that intention statements helpful Need solid governance exhibit, linking both organizations, but frequently overlooked Include technical, business and legal issue resolution Link core contractual requirements/outcomes to disincentives/incentives Consider non-traditional incentives ( virtual equity, bonuses although need to be careful)

14 Conclusion Vetting the transaction not only helps with selection of the CMO, but also feeds into the Agreement Rather than include portions of the RPF in the Agreement, implement a process to drive meaningful selection criteria, which will generate outcomes that can be incorporated into the Agreement Moving from tactical, solely cost based outsourcing, to strategic outsourcing is needed Requires meaningful integration of the CMO and a long-term relationship Need to balance cost against mitigation of risk and quantifiable long term efficiencies and gains Need customized exhibits and schedules to the Agreement, as outcomes from each vetting process will be unique Consider new ways to incent behavior and to take a long-term approach with the CMO