CONTRACT MANUFACTURING AND THEIR AUDITING
Arshad Hala*, Prof. Rajesh Dholpuria, Nilesh Sovasia
1Seth G. L. Bihani S. D. College Of Technical Education,
Institute Of Pharmaceutical Sciences & Drug Research,
Gaganpath, Sri Ganganagar, Rajasthan 335001
Contract manufacturing is defined as the manufacture (or partial manufacturer) of a product to the order of one person or organization (the contract giver or customer) by another independent person or organization (contract acceptor or principle manufacturer). Manufacture in this context is identified as the act of processing or packaging a medicinal product or device to a given specification.(Shah, D.H., 2000)
Contract manufacturing should be consideration as an extension of the principal manufacturer’s operation. Consequently the principal manufacturer should require the same standards of good manufacturing practices (GMP) for a contractor’s operation as he would his own. In addition, the customer must ensure that the principle manufacturer holds the relevant legal authorizations for the work to be carried out.(Shah, D.H., 2000)
The responsibility and activities undertaken by each party need to be clearly stated in a formal agreement, separate from but additional to the legal business contract formed by the placement of an order. Commercial matters need to be appreciated as being distinct from technical matter and need to be detailed separately with due consideration for compliance with local legislation.(Shah, D.H., 2000)
Reference Id: PHARMATUTOR-ART-1497
Contract manufacturers can be classified into two types, i.e., those who ‘‘supply’’ and those who ‘‘toll.’’ Regardless of type, all contract manufacturers have the common denominator of providing one or more services for a fee. (McVean, D.E., 2007)
A contract manufacturer is one who supplies manufacturer’s materials for inventory. This supplier sells products from its inventory to one or more companies for their use or disposition. This type of contractor is sometimes known as an ‘‘original equipment manufacturer.’’ On the other hand, a ‘‘toll manufacturer,’’ or ‘‘toller’’, “contract accepter”, “principal manufacturer”, is a manufacturer who contracts to:
· Receive a raw material from another company.
· convert that material into another form, and
· Return the converted material to the contracting company for its use or further disposition.
The basic difference between these two types of contractors is that one manufactures for its own inventory, while the other manufactures according to a custom order. To cloud this picture, either type of contractor may provide both functions. (McVean, D.E., 2007)
1.2.1. Type of Contract Accepter (toller):-
220.127.116.11. Sellers of excess capacity:-
Companies that engage in toll manufacturing can be further classified into three fundamental types. First are companies that have more capacity than they need to produce an established product line. Rather than let that excess capacity stand idle, the companies use it for toll manufacturing to reduce the burden of salaries and overhead attached to the excess capacity while concurrently producing additional income. Pricing for services from these manufacturers are usually quite favorable, since their product line is absorbing their fixed costs. Only variable costs associated with the excess capacity are incurred. (McVean, D.E., 2007)
18.104.22.168. Providers of niche services:-
The second type of toller is comprised of companies that, rather than marketing an established product line of their own, have concentrated on a niche service. Their facilities, equipment, and personnel have been designed only to accommodate specialized operations such as lyophilization and production of parenterals. Their success is dependent upon being able to lease their facilities and technology for the production of products for one or more customers. Their focus is on making products without having to worry about heavy R&D and marketing. A positive advantage for the use of this type of company is that they are less likely to compete with their customers. (McVean, D.E., 2007)
22.214.171.124. Academic institutions:-
The last type is comprised of academic institutions that provide assistance with custom synthesis, dosage form development, pilot-scale production, and production of clinical supplies in order to obtain additional income to support their academic programs. They have no interest in, nor are they equipped for, commercial production. Companies seeking outsourcing should be aware that students and faculty could form part or all of the staff of their operations; this may be a disadvantage when considering using this type of contract manufacturer. (McVean, D.E., 2007)
1.2.2.Contract Giver: - General responsibility of Customer
The customer ultimately bears the general responsibility for ensuring that:
· The product specification used by the principal manufacturer comply with the relevant legal requirement such as the marketing authorization and label declaration
· The product, as manufactured, meets the specification
· The required quality is maintained during transport, distribution and storage
· All aspects of the contract arrangement are carried out in accordance with good manufacturing practices and with the requirement of the marketing authorization and any license that the principal manufacturer holds for manufacture and assembly
· All work is carried out in premises covered by appropriate license granted by appropriate local authorities
1.2.3. General responsibility of principal manufacturer:
The principal manufacturer bears the general responsibility for ensuring that:
· There is continued compliance to the agreement
· Compliance to regulatory and statutory requirements relating to warehousing and distribution practices is maintained.(Shah, D.H., 2000)
1.3. How To Determine When A Contract Manufacturer Is Needed:-
The need for the services of a contract manufacturer can occur at any time during the developmental phases and/or commercial manufacture of a product’s life cycle. Such situations occur when
· Specialized manufacturing capabilities are required that are not available in-house.
· Assistance is needed with product and/or process development.
· The need to establish the market potential of a new product is required before investing in specialized capabilities.
· Difficulty is encountered in breaking into the manufacturing schedule in a timely manner to produce small research, clinical, or commercial batches.
· Production requirements cannot be accommodated when sales exceed capacity. (McVean, D.E., 2007)
1.3.1. Advantages of Working with a Contractor
Developing companies especially can gain many advantages from working with a contract manufacturer. First, they gain access to production facilities without having to invest any of their own limited capital. Second, they instantly add a breadth and depth of expertise in pharmaceutical manufacturing to their operations that would have taken years to develop. Third, they gain the use of the contractor’s operating personnel. Depending on the special niche of the contractor, the contractor’s personnel will be experienced in one or more pharmaceutical specialties. These include custom synthesis; production of intermediates and active pharmaceutical ingredients; formulation development; lyophilization cycle development; aseptic processing; sterilization process development; regulatory assistance; sourcing of excipients; analytical methods development; validation of processes and methods; package development; and storage and testing of stability samples. (McVean, D.E., 2007)
1.3.2.Disadvantages of Working with a Contractor
But, a company seeking to outsource must also be familiar with negative aspects associated with working with a contract manufacturer. A major disadvantage to developing companies is that the client is entrusting to another entity its valuable intellectual property that before was a closely guarded secret. Clients also must consider that they are but one of the contractor’s many clients. As a result, due to competition for the contractor’s resources, projects may not move forward as fast as a client may desire. Finally, clients incur the costs of at least a portion of the salaries and overhead of the contract manufacturer. (McVean, D.E., 2007)
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