What is contract manufacturing and how does it work?

What is contract manufacturing and who can benefit from it? How does the cooperation between an entity wishing to market a medicinal product and a company providing contract manufacturing proceed? We have prepared a set of the most important information on contract manufacturing – what it is, how it works, and what its conditions are.

Contract manufacturing – what is it and how does it work?

Contract manufacturing is an agreement between a company that has created a given product and another company that agrees to manufacture it. This type of production is becoming more and more popular in Poland and around the world. The goal of companies offering contract manufacturing services is to enable small and medium-sized companies to produce a larger quantity of a given product, even if internal resources do not allow it. It is worth noting that small companies, despite their potential, often do not have the conditions (production hall or equipment) to produce medicines. In such a situation, outsourcing manufacturing to a trusted external company is often the best – also economically – solution.

Conditions of contract manufacturing

Although entrusting such an important task as manufacturing a medicinal product or medical device may seem difficult, companies offering contract manufacturing regulate their activities on the basis of an agreement with the product owner. All terms of cooperation are included in the signed contract and are legally binding. What is most often found in a contract when undertaking contract manufacturing?

• quantity of product in a given batch,
• the deadline for the delivery of finished products for distribution by the contract company,
• amounts and dates of payments,
• consequences associated with non-compliance with the contract on both sides.

The client is fully protected by these provisions, so they can rest assured.

Advantages of such production

Why is it worth using contract manufacturing instead of investing in your own production line?

• Easier start – the drug manufacturer does not have to invest large amounts in production resources, but only hire a company that will be responsible for producing a batch of a given product. All you need to do is sign a contract and after a set time, high-quality preparations will be ready for distribution.
• Expert knowledge – many things cannot be predicted during manufacturing. There are equipment failures or natural technical problems. The use of contract manufacturing transfers this responsibility to an external company that efficiently solves problems and bears the generated losses or costs of this situation itself (unless the contract provides otherwise – be sure to check this before signing it).
• Access to the hall, machines, equipment – creating an entire production line from scratch or expanding the existing one is a huge one-off expense. Using the services of another company allows you to invest in aspects of development that are more important to the manufacturer.
• Testing opportunity – the contract with the manufacturing company is concluded for a specific period (or for a specific batch), which allows you to stop further production without major consequences. In the case of your own production line, abandoning a given product may result in significant losses.
• Expenditure stability – the final cost of manufacturing a given batch of the product is fixed and known in advance. Any cost fluctuations after signing the contract (e.g. failures and other possible complications) are the responsibility of the manufacturing company.

How to choose the right company for contract manufacturing?

You already know a lot about contract manufacturing: what it is, how it works, and what benefits it brings. So what about the disadvantages or threats? It is good to pay attention to:

• choosing a safe company – before deciding to sign a contract, it is good to find out what reputation a given company has on the market: whether it fulfills the terms of the contract and what conditions of cooperation it offers;
• cost calculation – own production is sometimes cheaper than contract manufacturing, but it does not allow for safety, quality assurance, and trouble-free increase in production volume without the need for investment. Therefore, it is necessary to calculate exactly which option is more profitable.
• being bound by a contract – in the event of abandoning a given product, it is not always possible to stop production before the deadline specified in the contract; it is worth bearing this in mind, although such situations happen extremely rarely and still generate less loss than stopping your own production line.

If you are interested in the topic of supplements or medicines, we encourage you to read other articles published on our blog. Find out more about regulations on titanium dioxide (E171) as a food additive.