From the 2011-2012 IVD Technology Buyers Guide
Contract manufacturers are described on FDA’s Web site as companies that “manufacture a finished device to another establishment’s specifications.”1 More than 1500 companies at more than 14,000 locations are currently registered with FDA as contract manufacturers.2 In addition to these companies, many other unregistered firms are also contract manufacturing nonregulated products and offering contract sterilization, repackaging, relabeling, remanufacturing, and preprocessing services. With so many companies available to do almost any type of manufacturing work, it is not surprising that contract work is a continually growing trend.
There are many reasons for outsourcing a company’s manufacturing work. Sometimes it is strategic and related to the company’s long-term focus. Other times, it is a simple margin fix for an internally manufactured product. Other reasons include the following: growing beyond current manufacturing capacity, resistance to capital expenditures required for growth, gaining access to new external technologies, a plant closure of a current vendor, new regulatory compliance required beyond current capabilities, and others. Regardless of the actual reason, IVD manufacturers should take a number of steps when identifying, verifying, and engaging contract manufacturers. While the suggested steps listed below will vary somewhat from project to project, they should contain most of what IVD manufacturers need to do in most situations.
Identifying Contract Manufacturers
The contracting process begins with the identification of possible contract manufacturer candidates. A good place to start is the Medical Device Databases on FDA’s Web site.3 These databases can be accessed via the Device Advice page in the Medical Devices section. IVD manufacturers should start with a search of the Registration and Listing database by selecting “contract manufacturer” under Establishment Type, typing in a product description under Classification Name, and selecting to sort company locations by state. The results of this search are contact listings of all of the companies with registered manufactured products.
After finding all companies with products and/or device listings that are similar to the intended project, IVD manufacturers should additionally screen them on the Recalls of Medical Devices and CDRH Inspections databases. If any major issues with any of these companies exist, they would be found on these databases. By searching these databases, using other Internet search engines, browsing company Web sites, and attending manufacturing-based trade shows, IVD manufacturers can get enough information on the candidate contract manufacturers to begin engaging the best candidates.
After contacting the candidate contract manufacturers, the first step is usually the execution of a two-way confidentiality agreement. Regardless of how much background experience a contract manufacturer has with a product, there will always be better exchange of information by having open communication with a contractor. Such open communication will help to prevent critical issues from emerging later due to someone withholding information that they thought was not important to the other party.
With the confidentiality agreement finalized, good contract manufacturers should be able to demonstrate freely a depth of knowledge about the quality standards and inner workings of their company. They should also be willing to support regulatory submissions and audits, and be able to add their expertise to a project’s success. In addition, they should demonstrate their competence in a similar manufacturing application through a review of previous work that they have completed. Once the initial discussions have begun, it is appropriate for IVD manufacturers to request a copy of the contract manufacturer’s quality manual, any relevant documentation to support the processes described, and a list of references from previous clients.
The quality manual is a complete overview of the contract manufacturer’s organization. It contains information on company history, core products, internal processes, certifications and licenses (e.g., ISO, GMP), quality policies, resource management, mission statements, management responsibility, and other related documentation. A review of the quality manual and other supporting standard operating procedures is a quick way to get a broad based look at a contract manufacturer.
Once the review of the quality manual is complete, a site visit and audit usually follow to verify that a contract manufacturer complies with its stated policies. The initial visit should include a corporate presentation by the contract manufacturer and a site tour of the facility. The visit is followed by discussions on the project’s feasibility and scheduling of subsequent meetings and preliminary audits.
Preliminary Audit and Review Areas
Once the initial discussion of the project’s feasibility has been completed, IVD manufacturers should take a closer look at the contract manufacturer in the form of an audit. The first audit is not intensive and should be a basic overview of the key components of the quality system. However, IVD manufacturers should make sure that all of the items listed on the following page are addressed in the contract manufacturer’s quality system and quality manual:
• Compliance to policies detailed in the quality manual
• Customer complaint files and corrective action/preventative action (CAPA) reports
• Record review and retention policies
• Equipment design qualification, installation qualification, operational qualification, and performance qualification
• Internal monitoring records demonstrating continual improvement
• Employee training records
• FDA or ISO reports from previous inspections
Product Requirement Specifications
Once the initial audit findings have been reviewed and verified, IVD manufacturers should move forward to the next step of contracting: the transfer of product requirement specifications. This is the first time that the contract manufacturer will review the fine details of the project. The information transfer is usually in the form of a document that lists all of the important product-related information, expected timelines, costs, and deliverables. At a minimum, the document should contain the details described below. Addressing each of these areas up front will expedite the transfer of the product and prevent having to backfill the information later.
• Project scope: Synopsis of project with details on deliverables and timelines
• Product claims: Details from product package insert, MSDS, certificates of analysis, and FDA product classification
• Raw materials: Listing of all materials, in-process materials, sub-contractors, and approved vendors
• Component specifications: Description of all component manufacturing and final product specifications, and details from the device design file, including labeling, filling, storage, processing, stability, etc.
• Safety: Manufacturing risks to workers and product end users
• Product stability: Real-time, use life, and accelerated (where appropriate)
• Product performance characteristics: Expected device performance specifications, sensitivity, specificity, precision, accuracy, etc.
• Risk analysis: Manufacturing, product usage, and handling requirements
• Regulatory requirements: FDA, ISO, and CE, depending on the regulatory authority where the product is cleared and manufactured
• Quality control testing: Raw materials, in process, final released component testing algorithms, and acceptance/rejection criteria
• Environmental hazards: Product handling and disposal
The contract manufacturer will also be looking for information on production quantities and annual projections. Using all of this information, the contract manufacturer will develop a timeline for product transfer and manufacture of pilot lots and finished products, resource requirements for timely delivery, and product costs.
Term Sheets and Supply Agreements
Once an IVD manufacturer and a contract manufacturer have accepted the product requirement specifications, the next stage of the process takes on a dual path involving contracting and product transfer activities. A good way to keep both of these activities on track is by executing a nonbinding term sheet. This document allows both parties to agree on all relevant major issues, such as responsible parties for the execution of work, resource requirements, product release specifications, timelines, costs, and milestone achievements in an accelerated manner so as to not delay the progress of the project. Once both parties accept the content of the term sheet, work can continue on the product transfer while a supply agreement is negotiated and executed.
Executing a supply agreement is usually the most time-consuming part of the contracting process. This is because both the IVD manufacturer and the contract manufacturer have major responsibilities for various deliverables in the agreement. Supply agreements can be very complex but they should include the information described in the following key areas:
• Project scope: Describe relationship and responsibilities of each party in relationship
• Definitions: Legal definitions of key words in contract;
• Product supply terms: Describe the product rights of each organization in the process
• Purchase price and terms: Volume-based pricing breakdowns, payment terms, and price adjustments based on current market conditions
• Forecasting and ordering: Forecast requirements, general ordering information, delivery details, purchase orders, and best efforts to supply
• Delivery and invoicing: Shipping costs, carrier conformance, invoice terms, interest on late payments, currency taxation, and export control laws
• Manufacturing and quality assurance: Raw material supply, quality system conformance, use of subcontractors, product release requirements, certificates of analysis, product dating, product changes, manufacturing changes and related expenses, manufacturing site, product issues, product safety, screening human- and animal-based materials, and stability (real-time, use life, accelerated)
• Acceptance testing: Acceptance versus nonconforming product, remedy for nonconforming product, and latent defects
• Regulatory matters: Notice of regulatory actions, site inspections, regulatory agency compliance, customer complaint handling, and debarment exclusions by the IVD manufacturer
• Representations and warranties: Misbranding, non-infringement of third-party property and intellectual rights, contractor and IVD manufacturer representations, covenants and warranties, and no warranty pass-through
• Intellectual property rights: Covenant not to sue end users for intellectual property infringement, and no grant of intellectual property implied or issued based on the agreement
• Confidential information: Define confidential aspects of project
• Indemnification and liability: Indemnification of both companies, cooperation and notice requirements, consequential damages, and limits of liability
• Term and termination: Termination for cause, insolvency, business disruption, and survival of contract components beyond termination
• Miscellaneous: Assignability, insurance, waivers, clause severability, party relationships (usually as independent contractors), survivability, compliance with law, governing law, and notices procedures
The downstream effects of omitting any of these key elements from a supply agreement could be termination of the agreement, poor manufacturing controls, costly recalls, and subsequent legal action by the parties against each other. Including all of the key elements described above and having both companies’ legal departments modify the terms of the agreement to reflect their specific needs will allow them to understand the entire scope of the project. Each company can provide the appropriate resources required to manage their individual risks. The result is a balanced agreement that is a win-win for both parties.
While the supply agreement is negotiated between the legal departments, the product transfer can move forward based on the initial term sheet. The product transfer process starts by scheduling weekly group meetings with the responsible parties from both companies. Such meetings are ideal for upper-level discussions and long-term planning and reporting. Meanwhile, smaller groups from each company (e.g., technical, operations, and regulatory) work directly to address the transfer of the project-specific information. These groups use the product requirement specifications, device history, design files, and any other technical resources required to sort out the information transfer.
Once this information is organized as to what needs to be transferred, a milestone-based implementation plan with timelines is developed. To aid in project management, a software program like MS Project can be used to map and monitor the project timelines and milestone achievements. Such timelines and milestones will be used not only for project management but also for basing structured payments to the contract manufacturer.
Once all of the manufacturing information has been transferred to the contract manufacturer and the supply agreements are finalized, an initial pilot lot of product is produced. The first lot is important because it is usually the point at which any unplanned manufacturing issues emerge for the first time. Regardless of the size of the first lot, it is important to use all of the same equipment and procedures as one would for full-scale manufacturing, including any in-process or product release testing that needs to be carried out. From this point forward, the transfer of the product will follow FDA guidelines, which include design reviews, process validations, product verification, and other activities. After the initial first lot, another two to three lots of pilot material are produced, which is generally done using combinations of staff from both companies.
The IVD industry is undergoing a rapid growth phase with new technologies and innovations being developed on a daily basis. To keep up with such changes, many IVD companies have focused on their core strengths and complemented them with externally licensed technologies and capabilities. A good way to accomplish both of these goals is to work with a contract manufacturer. In some cases, an IVD manufacturer gains the use of a proprietary technology that is only attainable externally under contract. In other cases, an IVD company can increase its throughput, decrease the bottom line, and reduce turnaround times for products by adding contract manufacturing capabilities.
To accomplish this, this article has detailed many of the steps that are critical for developing relationships with contract manufacturers. While these steps are all important, none of them will matter without a focus on strong collaboration and open communication, a well balanced contract that benefits both companies, and a project management program that is based on realistic timelines and deliverables.—Gregory Chiklis, PhD, and James C.D. Hengst, PhD, Zeptometrix Corp. (Buffalo, NY)
1. “Who Must Register, List, and Pay the Fee,” U.S. Food and Drug Administration Web site [cited 13 July 2011]; available from Internet: www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/HowtoMarketYourDe...
2. “Establishment Registration and Medical Device Listing Files for Download,” U.S. Food and Drug Administration Web site [cited 13 July 2011]; available from Internet: www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/HowtoMarketYourDe...
3. “Medical Device Databases,” U.S. Food and Drug Administration Web site [cited 13 July 2011]; available from Internet: www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/Databases/default.htm