Pharmaceutical and specialty chemical companies outsource their production for many reasons—to minimize their capital spending, for example, or to shorten a product's time to market or gain flexibility in meeting shifting consumer demands. But for these benefits to be realized it is essential for a firm that is outsourcing to choose a contract manufacturer that is best suited to its needs.

A lot rides on such a choice. How fast a new drug or agricultural chemical reaches the market, and how successful it is when it gets there, often depends on how quickly, reliably and economically an outside manufacturer can produce the compound. If the new product is a pharmaceutical, its manufacturer must also meet stringent certification requirements, such as those of the U.S. Food and Drug Administration (FDA), for the product to be considered for approval.

With the stakes so high, it is vital to evaluate a potential contract supplier carefully. "I think the most important factors to consider in a supplier are the quality of its work, its technological competence, its reputation and reliability," says Nitin Parekh, vice president for business development and technology at DSM Fine Chemicals, in Saddle Brook, N.J. Another key factor, he adds, is the company's "ability to provide support for any kind of regulatory requirements."

Determining whether a prospective manufacturer offers quality service, on-time delivery and quick attention to problems requires a bit of homework. "You can talk to other customers to get their assessment of a company's reliability," suggests Joseph Malik, manager of new business development at Sigma-Aldrich Fine Chemicals in St. Louis. Further clues about a company can be gleaned from data on its size, past clientele and financial history, he adds. Such information, he notes, "tells you whether a company is in the business for the long haul."

Chemical and drug companies looking for someone to improve the yields and economics of their processes should also assess the technical competence of firms they are thinking of doing business with. To be able to make such improvements, "a firm should have at least several chemists and engineers on staff who can help bring your process down the cost curve," says Scott Martin, vice president and general manager of fine chemistry services at Albemarle Corp. in Baton Rouge, La.

"Your custom manufacturer should have technical expertise in the more challenging reactions required for a project," says Malik. "Also important," he adds, "is broad experience across all the areas of organic chemistry so that the custom manufacturer can suggest alternative chemical pathways to a product." At a minimum, a contractor should have competence in such basic reactions as chlorinations, brominations, hydrogenations and nitrations, notes Volker Mirgel, senior vice president for chemicals at Bayer Corp., Pittsburgh, Pa.

People who are considering a particular contract manufacturer should also take into account the firm's laboratory and production facilities. "Already owning the necessary equipment, especially when the process requires specialized apparatus, is a big plus," says Dennis Seagle, manager of business development for Great Lakes Fine Chemicals in Mt. Prospect, Ill., since no further purchases are necessary. If a company lacks some of the essential equipment, "you should evaluate how quickly it can put things in place" to get the project started, advises Mark Sullivan, commercial director at Dow Haltermann Custom Processing in Midland, Mich. Contract manufacturers who work on pharmaceutical intermediates "should have the equipment to supply a full range of product quantities," says Bayer's Mirgel, from gram and kilogram amounts in the development stage to tonnage quantities once commercial production begins.

Customers who hire a contract supplier "should also understand the process they will use to make your product to ensure it's going to meet all your compliance, regulatory or other quality needs," Sullivan says. "If you're a pharmaceutical customer and you're going to ask someone to make an advanced intermediate or an active ingredient, you should check to make sure that they have a cGMP [current good manufacturing practices] certification" from the FDA, says Albemarle's Martin.

Martin also advises customers to check their contractor's record in adhering to safety and environmental regulations of government agencies. "If the company has ISO 9000 or ISO 1400-type certifications," he says, "you can feel fairly confident in what it's doing from a safety and environmental standpoint." He suggests seeking suppliers who belong to such industry groups as SOCMA (Synthetic Organic Chemical Manufacturers Assoc.) and ACC (American Chemistry Council), which encourage their members to follow responsible-care manufacturing policies.

To verify that a manufacturer has the necessary equipment and adheres to all regulatory requirements, it is often helpful to inspect the company's premises. For pharmaceutical customers "it is absolutely critical to audit the manufacturer's facilities," says Parekh of DSM. For agricultural chemical customers such an inspection is not always necessary, he adds. Most pharmaceutical companies, in fact, now use standard checklists to audit a contract manufacturer's facilities.

Speed is another factor to look for in weighing qualifications of potential suppliers. "Drug companies today are trying to accelerate their projects," says Malik of Sigma-Aldrich. "They want to deal with companies that can react very quickly, who have the capacity and people available to put on a project and get it done as fast as possible."

Once negotiations become serious, customers who outsource their production should clarify very early the issue of intellectual property rights. Most drug companies insist on owning all intellectual property rights to a technology, even if their contractor has made improvements in their processes. But "if the contractor is expected to put considerable technical efforts into a process that results in cost savings, there's usually some language in the contract that allows the savings to be shared by both parties," says Dennis Seagle of Great Lakes.

Then there's price. After evaluating the reliability, technical competence and regulatory compliance of many potential contract manufacturers, an outsourcing firm usually winnows its list down to a small group of final candidates. At that point, the fee to be charged for the services often becomes the overriding issue. "While no one is going to sacrifice quality or reliability for the sake of price," says Parekh, "in the end, price is often the critical factor in choosing a supplier."