Don’t Make These Mistakes in Your CDMO Master Services Agreement

This article will focus on how to assure that your Master Services Agreement with a CDMO is structured to keep work flowing smoothly.

Posted: June 4, 2018

API Manufacturing and Pharmaceutical Manufacturing

Pharmaceutical companies are increasingly outsourcing API research and manufacturing to contract development and manufacturing organizations (CDMOs) to the tune of an anticipated $43.7 billion by 2026. This is more than double the $20 billion outsourced in 2016.

There is good reason for this. Outsourcing enables pharmas to take advantage of CDMOs’ investments in technology and deep expertise without the need for substantial capital expenditures.  It’s a strategy that reduces sponsor risk in an already risky, failure-prone endeavor. As such it has become a well-establish practice. According to PharmaSource, small molecule API development, which is our area of specialization, has exceeded in-house development since 2007, growing from an average of 57% in 2007-2015 to 64% in 2016.

A Master Services Agreements (MSA) governs the relationship between sponsor and CDMO. Not all the pharmaceutical companies and sponsors we work with have in-house counsel to draw up these agreements. This article will focus on how to assure that your Master Services Agreement with a CDMO is structured to keep work flowing smoothly.

Master Services Agreements Contents

The MSA should, at a minimum, define the following five stipulations:

  • Who buys the raw materials for the project.
  • Dispute resolution framework.
  • Change order approval process.
  • Intellectual property (IP) ownership.
  • Payment terms.

Do you have questions on how to set up Master Services Agreement. Let us know.

Unlike the Work Order, which covers the specific scope of work to be accomplished, e.g. development and manufacturing of 2 Kg of material to be used in a Phase I clinical trial, or 10-12 weeks of R&D, the MSA typically has a three-to five-year lifespan. It spells out who does what and how in the contract. It pertains to all the work orders entailed in developing and manufacturing drug substances.

MSAs can cover single projects or multiple projects. They define the business relationship between CDMO and sponsor.

The intent of a well-formulated MSA is to keep the project moving along with minimal delays and if possible, no idle time. And should an issue arise, both sponsor and CDMO will know how to handle it, who is responsible and who has authority to make decisions.

Purchasing raw materials

The quality of the raw materials used in developing and manufacturing APIs is critically important given that they can make or break the chances for successful development. Whether the project requires off-the-shelf or customized ingredients, it’s imperative to have trustworthy suppliers who have been qualified.

Supplier—and supply—qualification is not only a good strategy for minimizing impurities and meeting project timelines. It’s also a necessary part of a regulated Pharmaceutical Quality System required for cGMP to ensure consistent quality and safety of raw materials. In addition to being a requirement of cGMP, supplier qualification is also mandated by the FDA to assure that pharmaceutical supply chains are properly controlled.

The MSA should stipulate how suppliers and raw materials are to be qualified, including material acceptance criteria, whether sourced by the CDMO or sponsor. As we’ve written previously we have our own SOPs for receiving, warehousing and releasing raw materials. These molecule building blocks are just too important to leave anything to chance.

Specifications

In the MSA it’s important to get specifications right. These need to be thought through carefully. For example, suppose an impurities specification is set for 1.0%. As the product is made the Lab result comes in at .9%.  Fine, right? Not necessarily. Although it would appear 0.9% is within spec, it can become a huge problem if on stability studies it then increases to 1.1%, which would be out of spec. Time and money would have been wasted if the batch is unacceptable.

The problem is that degradation during stability studies hadn’t been taken into account in setting the specification. A more appropriate specification in line with regulatory requirements would have been .8% or even .5% in the example.

Dispute resolution

There are two ways to settle disputes: quickly and slowly. Slow dispute resolution can stop a project in its tracks and will almost certainly set timelines back, something neither side wants. That’s why a dispute resolution framework is important to include in the MSA.

There should be mechanisms in place for informing and approving change orders and any other issues expeditiously. These may include how to proceed if technical issues encountered require additional funding, and a process for handling paperwork and approvals quickly. You want the paperwork to go to the right people. This avoids a potentially weeks-long project delay while waiting for paperwork to filter its way through the bureaucracy for signature although a verbal agreement has been reached. Ideally the MSA should provide project managers with decision-making authority, which is enormously helpful in adhering to the agreed-to timelines.

If disputes cannot be resolved by the project teams, it’s helpful to define ahead of time who in senior management on both sides will be involved.

Intellectual Property

A major aspect of the MSA is to define IP, IP control and IP ownership. For us it’s clear cut: if a customer contracts with us to develop an API and compensates us as agreed, the IP belongs to the customer. We also adhere to strict confidentiality and non-compete agreements.

Conclusion

To assure drug substance quality and keep projects moving along as quickly as possible, a Master Services Agreement includes how raw materials are procured and how their quality is determined; sets appropriate specifications; defines IP ownership, and has mechanisms in place for dispute resolutions and handling change orders. And of course, as in all aspects of business between pharmaceutical companies and CDMOs, lines of communication should be open, clearly defined and well utilized.

We’ve written a lot about questions to ask CDMOs in order to establish win-win relationships. Check out: “Three Questions to Ask Your CMO about Standard Operating Procedures,” “Key Questions To Ask Your CMO About Their Analytical Capabilities The Analytical Stages Before Drug Substance Manufacture Can Be Among the Most Critical in Terms of Keeping Down Costs and Ensuring a Successful Outcome. Sponsors Should Make Sure their CMOs Feel the Same Way,” and “Is Your CMO Qualified to Handle Your API Project? Five Questions to Ask Prospective CMOs and Two You Should Never Ask.” If you have questions, please call us (978) 462-5555 or email us at info@pcisynthesis.com.

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.