Did Your API Project Exceed Budget? Here’s Why

The four most common out-of-scope project costs

Posted: January 1, 2018

API Manufacturing and Pharmaceutical Manufacturing

There’s a great deal of art involved in developing Active Pharmaceutical Ingredients (API), and the same is true for budgeting. Numerous factors come into play in almost every project, and at every stage of the project. Always, there are unknowns.

That’s why quoting in the CDMO business is an educated guess at best.  At worst, it’s a disingenuous ploy to make the project price seem more competitive than it will ultimately turn out to be.

In previous articles, we’ve discussed at greater length some of reasons project costs could escalate.

This article will focus on the four most common reasons for out-of-scope charges that may require additional funding.

  1. Sponsor requests

A frequent source of cost overruns is add-ons by sponsors. As the chemistry for an API develops, and if it looks promising, it’s not unusual for a sponsor to decide to invest more in the asset for several reasons.

One is that the R&D yields additional results with potential to unlock more value than initially expected.

Another is to have a better shot at licensing to a big pharma. A potential licenser may not want to spend another 1.5 or two years developing an API. They expect the sponsor to enhance the value of the asset ahead of any licensing conversations. We’ve seen plenty of situations where sponsors have invested the time and effort in a drug candidate and were rewarded.  If we have done a good job of de-risking the API, which we usually recommend, big pharma will know they can have a secure and reliable supply chain, a key decision point in their due diligence. In those cases the conversation moves more quickly from how much the asset is worth to a licensing discussion.

Indeed, investing in a promising asset pays dividends down the road.

Conversely, we’ve seen pharmaceutical companies walk away from licensing less developed assets.  If they deem the risk of having to spend significantly more time and effort to develop the API for clinical trials, it’s usually a deal breaker.
7 tips-to-select

  1. Additional analytical work

As the chemistry evolves, process changes can occur. These require analytical changes, particularly if there’s a dramatic process change and the initial analytics are no longer valid.

Analytical work is time consuming.  Each step in the process must be qualified and documented in a form and format consistent with Quality Assurance (QA) requirements for the regulatory review the analytics will be subjected to.

  1. Scale-up

As we’ve previously described, chemistry that works well in the R&D lab at small scale may be difficult to replicate at larger scale. That’s the major reason we strongly recommend an intermediate step between the R&D lab and manufacturing: kilo scale-up, which mitigates risk.

Impatience is the enemy of budgets. There’s always a rush to complete projects. However, consider the fees. They’re $14,500 per week for the R&D lab vs. $75,000 per week for the cGMP manufacturing plant. It’s much more cost-effective to assure the asset can be successfully scaled up in the kilo lab at $14,500 per week than in the cGMP suite at more than 5 times the cost.

Many technical issues or immature processes that could cause delays can be identified during kilo scale up. It gives scientists the chance to understand and fix the problem prior to moving into the manufacturing suite.

Kilo scale-up entails executing the manufacturing process three times and tweaking it if necessary to assure that the desired product and yield are obtained.

  1. Raw materials

The quality of the raw materials used in any API development project are important building blocks.  We use numerous reliable sources for raw materials. But even with the most diligent sourcing and the close alliances we maintain with trusted suppliers, there are many things that can and do go wrong.

As we’ve mentioned in other articles on the topic of raw materials,  we could find unacceptable foreign matter in the raw materials. Or when we test batches before accepting and stocking them, we could determine the level of impurities exceeds the amounts specified in our GMP protocols. Those are both non-starters. We would have to find higher quality or different raw materials that may be costlier before the project can move forward.

Other raw material issues also can add cost to an API project. The evolving chemistry may dictate that we use more of a raw material to reach a desired yield, for example.

How much to set aside for out-of-scope costs

The rule of thumb for doing a home kitchen renovation project is to expect to spend 30% more than you budgeted. Likewise, there’s a rule of thumb for out-of-scope items in API development projects. Prepare to spend an additional 15-20%.

The amount varies from project to project of course and may not be needed, but set aside the funds to be prepared if additional funding is needed. Developing new chemistry for every API project is a complex and time-consuming endeavor. Although some projects do go smoothly, most require either more analytical work or issues are encountered somewhere along the line that must be resolved.

If a big pharmaceutical company does become interested in that promising asset, you don’t want them to walk out the door because the analytical work was incomplete or the project wasn’t far enough along in its development.

Where are the extra costs incurred?

There are several different stages at which additional costs could materialize—in R&D, in analytical work, and in manufacturing.

At PCI Synthesis, we tend to be conservative on the time it takes to do detailed analytical work and inevitably we are asked to pare that back some. But most often we wind up adding it back in, as it’s what the pharma companies and the regulators will be looking closely at.

When people take our advice from the beginning, API development costs tend to be lower overall.  The work gets done more efficiently and the work is completed with a high level of quality

We know no one wants to spend more money than necessary and we are very proactive in looking for money-saving solutions. For example, in one of our polymer projects the substance was being made in less than ideal conditions. The sponsor wanted a 2nd, GMP compliant source. However, the cost-benefit analysis we did showed the costs would be too high, and we recommended against a secondary source. It would have required a great deal more time and exceeded the asset’s value.

Summary

The rule of thumb is that most API development projects will cost 15-20% more than budgeted due to out-of-scope project costs and addendums. Until a project is well under way, it’s hard to know with new chemistry whether processes will change, requiring additional analytical work, or if the current raw materials will suffice. Putting the additional funding aside de-risks projects, assuring they will be completed to the specifications required by big pharma and regulators.

Check out other related topics such as “When Raw Materials Don’t Meet Specs: How Do You Minimize Delays?”; “7 Most Important Things to Look For in a CMO’s cGMP Manufacturing Capabilities When Choosing a CMO”; and “10 Factors to Consider When Picking a Partner for Commercial Scale API Manufacturing” We’d be happy to talk with you about how we scope out projects and how we use our experience to reduce the likelihood the projects grow beyond the scope of work. (As we wrote in another blog post, cost-overruns are counterproductive for us.) Call us at (978) 462-5555 or email us at info@pcisynthesis.com. We’ll get back to you quickly.

Related posts:

Transferring API Technology to a CMO? Use This Checklist
At what stage of API development should you start to think about ICH guidelines?
Cryogenics in Newburyport?
The 7 Key Steps in Medical Polymer Synthesis
Setting Comprehensive Specifications in API Manufacturing

About the Author

Ed Price CEO of PCI Synthesis
Ed is the President and CEO of PCI Synthesis (PCI), he serves as a co-chair of the New England CRO/CMO Council and sits on the Industrial Advisory Board for the Department of Chemical Engineering at UMass, Amherst. Ed is also a long standing member of the American Chemical Society and advises the Bulk Pharmaceutical Task Force of the Society of Chemical Manufacturer’s and Affiliates (SOCMA).

Do you have questions? Talk to Ed.