GMP aspects of Contract Manufacturing

Author: Dr. Maurice Wermeille, Sr. Consultant at PMS Process Management System Ltd.

1. Introduction

Contract manufacturing is used in situations when one company, the “contract giver” (CG), mandates another company the “contract acceptor” or “contract manufacturer” (CM), in the same country or another country to manufacture its products. This is also known as subcontracting or outsourcing.

In the frame of contract manufacturing, the contract giver provides the contract acceptor with all specifications and, if applicable, also with the materials required for the production process. A contract sets out the requirement which the contract acceptor must meet concerning the quality of the product, certification, quantities, conditions and dates of delivery. It also establishes the guidelines for the inspection and testing of the products sets forth by the contract giver which contracts out the contract acceptor.

Since the process is essentially outsourcing production in foreign markets to a partner that privately brands the finished product, there are many different companies and industries that can make use of this type of contract.

This article presents the general aspects, advantages and risks that are related to the contract manufacturing between entities having to respect the Good Manufacturing Practices (GMP). The key elements that need to be taken in consideration in the frame of contract manufacturing are discussed in detail. A special attention is drawn on one aspect of that is rarely treated in the multiple articles that can be found in the published literature on this subject. This point of interest refers to the change control of any manufacturing procedure, test controls and general management done by both parts in contract manufacturing.

2. Particularity of the Contract Manufacturing

2.1 Description of the Business Model

In a contract manufacturing business model, the contract giver approaches the contract acceptor with a design or formula. The contract acceptor will quote the parts based on processes, production areas and processes, laboratory, tooling, and materials.

Typically, a contract giver will request quotes from multiple CMs. After the bidding process is completed, the contract giver will select a source, and then, for the agreed-upon price, the contract manufacture acts similarly and under the behalf of the contract giver, for producing, testing, releasing and shipping materials.

In addition, several activities can be considered: regulatory affairs, validation, in particular re-validation and current project development. A wide and relation between contract giver and contract acceptor is to be set in place. The picture 1 shows the complexity of the relationship between the 2 parts.


2.2 Job production

Job production is, in essence, manufacturing on a contract basis, and thus it forms a subset of the larger field of contract manufacturing. But the latter field also includes, in addition to jobbing, a higher level of outsourcing in which a client company entrusts its entire production to a contract acceptor, rather than just outsourcing parts of it.

2.3 Industries using Contract Manufacturing

Many industries use the Contract Manufacturing, for example aerospace, computer industry, energy and pharmaceutical industries.

The pharmaceutical industry must in particular be extremely strict with the requirements referring to the contract acceptor to ensure the accurate respect of GMPs. Any activity covered by the GMP Guide that is outsourced should be appropriately defined, agreed and controlled in order to avoid misunderstandings which could result in a product or operation of unsatisfactory quality. The chapter 7 “Outsourced activities” of the EU GMP deals with the responsibilities of contract giver and contract acceptor in order to guarantee the quality.

In general, the contract acceptor will be inspected by the contract giver and by the regulatory authorities from any country where their products or materials will be distributed under the trade mark of the contract giver.

2.4 Benefits and Risks

There are many benefits as well as risks to contract manufacturing. Companies are finding many reasons why they should outsource their production to other companies. However, production outside of the contract giver has many risks attached. Companies must first identify their core competencies before deciding about contract acceptors. The company’s competencies are what make them competitive in the marketplace. If a company allows another company to take control of them, it may lose that advantage. Therefore, when deciding about contract manufacture, the CG should weigh the benefits and the associated risks. The sections 2.5 & 2.6 describe some risks and benefits related to the contract manufacturing.

2.5 Benefit

  • Cost savings – Contract giver save on their cost of capital because they do not have to pay for a facility and the equipment needed for production. They can also save on laboratory costs such as wages, training and benefits. Some contract giver may look to contractors in low-cost countries, such as India, to benefit from the lower costs.
  • Mutual benefit to contract sites – A contract between the CM and the CG may last several years. The CM will know that it will have a steady flow of business during this time.
  • Advanced skills – Companies, either the CG or the CM, can take advantage of skills that they may not possess. The CM is likely to have relationships formed with raw material suppliers or methods of efficiency within their production.
  • Focus – Both companies can focus on their core competencies better if they can hand off base production to an outside company.
  • Economies of scale – CG have multiple partners that they produce for them. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be.
  • Protectionism – In an international context, establishing a foreign subsidiary as a CM can have favorable tax benefits for the client company, allowing them to reduce overall tax liabilities and increase profits, depending upon the activities of the contractor.

2.6 Risks

  • Lack of Control – When a CG signs the contract allowing a contractor to produce their product, they lose a significant amount of control over that product. They can only suggest strategies to the CM; they can force them to implement their suggestions.
  • Relationships – It is imperative that the CG forms a good relationship with its CM. The client must keep in mind that the CM may have other customers.
  • Quality concerns – When entering into a contract, CG must make sure that the CM’s standards are congruent with their own. They should evaluate the methods in which they test the products to make sure they are of good quality. The CG has to rely on the CM for having good suppliers that also meet these standards.
  • Intellectual property loss – When entering into a contract, a company is divulging their formulas or technologies. This is why it is important that a company not give out any of its core competencies to the CM. It is very easy for an employee to download such information from a computer and steal it.
  • Outsourcing risks – Although outsourcing to low-cost countries has become very popular, it does bring along risks such as language barriers, cultural differences and long lead times. This could make the management of the CM more difficult, expensive and time-consuming.
  • Capacity constraints – If a CG does not make up a large portion of the contractor’s business, the CM may find that they are de-prioritized over other companies during high production periods. Thus, the CG may encounter difficulties and delays to obtain the product they need when they need it.
  • Loss of flexibility and responsiveness – Without direct control over the manufacturing facility, the CM will lose some of its ability to respond to disruptions in the supply chain. It may also hurt their ability to respond to demand fluctuations, risking their customer service levels.
  • Pricing – This addition of a second company, the CM and second profit margin to be achieved, adds in cost to the product. The impact is seen either in a higher selling price to the customer or in a reduced profit margin for the CG.

3. Contract Manufacturing Agreement

To mitigate the business risks related to the contract manufacturing, it is recommended to put in place a Contract Manufacturing Agreement. This contract is a country dependent document that considered the local laws governing standard contract manufacturing agreements.

Under the Contract Manufacturing Agreement, the CM is compensated on the basis of recovery of the fully-loaded costs of manufacture, plus a margin (user defined). The agreement assumes, that as between the parties, the principal owns all intellectual property rights relating to the products and the manufacturing process.

The document includes, as standard, an allocation of risks between the parties that is consistent with that found in a typical contract manufacturing relationship, as well as an obligation on the client to indemnify the contractor for any loss or damage arising out of the performance of the manufacturing activities.

3.1 Content of Contract Manufacturing Agreement

The following items are to be established and have to be part of the Contract Manufacturing Agreement:

  • Purpose and background,
  • Terms an termination,
  • Products to be manufactured and specific requirements applicable to the manufacturing process,
  • Budgeting, payment and reconciliation mechanisms,
  • Territory,
  • Purchase of production materials,
  • Termination assistance,
  • Sub-contracting and assignment rights,
  • Provisions relating to notices,
  • Dispute resolution, jurisdiction and arbitration,
  • Other provisions (e.g. confidentiality, force majeure).

4. The Key elements in GMP Contract Manufacturing

In addition to the business general requirements to be considered between the CG and the CM presented in the previous chapter, the compliance to cGMP is an additional necessary condition to pharmaceutical contract manufacturing practice, as prescribed by chapter 7 “Outsourced activities” of the EU GMP. To ensure for marketing authorisation, the CG and the CM must adhere to cGMP regulation to ensure their products to be commercialized.

Choosing a CM that adheres of cGMP rules may be the solution to avoid unfavourable outcomes presented in chapter 3.

Among other things, the following aspects have to be considered as key elements regarding the contract manufacturing:

  • Quality Agreement
  • Adherence to manufacturing process
  • Suppler Audit
  • Release of manufactured product
  • Documentation and archive
  • Cleaning Validation
  • Change control

These key elements must be clearly defined, agreed and controlled in order to avoid misunderstanding which could result in a product of unsatisfactory quality. The next sections describe in more details these key elements.

4.1 Quality Agreement

The Quality Agreement specifies the minimum requirements that will apply to the contractual partner’s quality management system and defines rights and obligations with respect to the quality assurance of any products to be supplied.

The Quality Agreement should describe clearly who undertakes each step of the outsourced activity, e.g. knowledge management, technology transfer, supply chain, subcontracting, quality and purchasing of materials, testing and releasing materials, undertaking production and quality controls (including in-process controls, sampling and analysis).

Furthermore, the Quality Agreement should permit the CG to audit outsourced activities, performed by the CM or his mutually agreed subcontractors

4.2 Adherence to manufacturing process

The basic principle is to assure the quality, potency, identity and safety of products to protect both the consumer and the manufacturer. Therefore, adherence to manufacturing process is extremely important to guarantee the above-mentioned characteristics and to ensure the CM to enable its production to supply in time its consumers. Adherence to manufacturing process includes:

  • Manufacturing time,
  • Amount of material produced,
  • Capacity of utilization
  • Overall equipment effectiveness
  • Schedule of production
  • Availability of the system

4.3 Supplier Audit

As subcontractor, the CM will be audited by the CG. The goal of this supplier audit is to check, if the CM perform the manufacturing activity according to the quality standard defined in the Quality agreement.

One common way to carry out an audit is to check the adequacy of any procedures following to a checklist submitted by the CG.

  • Review past audits, note indications of possible problem areas and items, if any, that were identified for corrective action in a previous audit.
  • A checklist is to be used with a notebook into which detailed entries can be made during the audit.
  • At least three production batches should be selected for thorough analysis to include:
    1. traceability of all components or materials used in the subject batches,
    2. documentation of raw material or component, in-process, and finished goods testing for the subject product batches,
    3. warehousing and distribution records as they would relate to a possible recall.

4.4 Release manufactured product

Batch release of manufactured products is a necessary requirement to ensure high quality for use, sale, supply or export. Batch release testing expertise includes chemical, physical and biological testing.

The batch release for commercial use has to be performed by the CG. The Quality Management System of the CG must clearly state the way that the Qualified Person certifying each batch of product for release exercises his full responsibility.

4.5 Documentation and archives

Documentation is the key to GMP compliance and ensures traceability of all development, manufacturing, and testing activities. Documentation provides the route for auditors to assess the overall quality of operations within a company and the final product.

All records related to the outsourced activities, e.g. manufacturing, analytical and distribution records, and reference samples, should be kept by, or be available to, the Contract Giver. Any records relevant to assessing the quality of a product in the event of complaints or a suspected defect or to investigating in the case of a suspected falsified product must be accessible and specified in the relevant procedures of the Contract Giver.

4.6 Cleaning validation

Du to the fact that CMs use usually multipurpose facility and equipment, the cleaning is a critical aspect in the frame of contract manufacturing activities. Cleaning validation may be a burning point difficult to satisfied both CG and CM partners. In any case the efficacy of the cleaning has to be demonstrated by the CM and a plan for cleaning validation has to be discussed and agreed. This document should contain the following elements:

  • Assess equipment and products,
  • Evaluate the impacts of the other manufacturing processes on the contracted process. If the contracted process is covered and already validated under bracketing then no further validation is required,
  • Determine an appropriate cleaning agent and method,
  • Decide what residue(s) (including cleaning agents), are to be tested for based on solubility, toxicity, etc. and document rational behind decision,
  • Determine acceptance criteria for the residue(s) (including cleaning agents),
  • Develop sampling methods, e.g. swab or/and rince methods to remove the residues,
  • Develop analytical methods for detection of the nature of the residues from swab or/and rince methods, e.g. visual residues, carbon organic total, HPLC methods,
  • Compile and approve validation protocol,
  • Perform validation studies in accordance with protocol,
  • Compile and approve a validation report documenting studies, conclusions and recommendations.

4.7 Changes control process

Many critical areas are generally satisfactorily fully covered by the client company and the contractor manufacturers.

When choosing a contractor, the client company is focused on and has resolved the different important items, as outlined in the previous chapters. After being established, the contract between the client company and the contractor might last months and years. A risk that is few mentioned in the several articles on the contract manufacturing arises through the changes.

It makes sense to classify the changes either as minor or as major and to establish a strategy to implement the changes in a right way. For example, the minor changes can be implemented on a customer notification basis, but the major changes have to be previously preapproved by the CG, before implementation.

The pictures 2 and 3 present the different situations and change controls at CG. Presented as decision trees, the two pictures help to understand the complexity of any change proposed either by CG or by CM.


5. Conclusion

Selecting a cGMP certified contractor help to send a message of positivity and truth; it represents an overall goodwill to the target market and to the customers. For consumer, a product manufactured by cGMP certified contractor is a guarantee of confidence. In this article, change control management relationship between client company and contractor was pointed out as an additional point of excellence to ensure high quality, safe and effective products to be available on the shelves of stores and homes.


European regulation: EudraLex The Rules Governing Medicinal Products in the European Union Volume 4 EU Guidelines for Good Manufacturing Practice for Medicinal Products for Human and Veterinary Use, Part I – Basic Requirements for Medicinal Products, chapter 7 “Outsourced activities”, January 2013

US regulation: Contract Manufacturing Arrangements for Drugs: Quality Agreements Guidance for Industry. U.S. Department of Health and Human Services Food and Drug Administration Center for Drug Evaluation and Research (CDER) Center for Biologics Evaluation and Research (CBER) Center for Veterinary Medicine (CVM) November 2016.