Roundtable Wrap-up: Selecting and Contracting with a Manufacturer
At the October 2013 Medical Device Roundtable session, Jay Reilly of Saul Ewing LLP led a discussion on best practices for selecting and contracting with a manufacturer. The top takeaways from the discussion were:
- Choose your CMO wisely. The relationship you have is extremely important. Make sure you will be able to work together effectively, especially if/when things go wrong. Consider exclusivity – will your CMO be working with your competitors? A good way to find a reliable CMO is by word of mouth and seeking references from organizations like MD&M. However, do additional homework by checking LinkedIn and other sources for references.
- Communication is key. Understanding who is responsible for which pieces of the process and maintaining open lines for communication will drive the process forward. Meet regularly and often. Don’t just rely on a quarterly schedule to stay up-to-date on the progress being made.
- Negotiate your supply agreements with an eye toward the product that is being manufactured, and the concerns particular to this product. Don’t rely on boilerplate provisions. Pay close attention to your specifications, as this can be the most crucial piece of the contract. Negotiate access to the manufacturing facility, based on when you want information and how much detail you want access to. Consider your exclusivity with your CMO – will you want the ability to walk away down the road? Spell out exactly what the exclusivity means.
- Pay close attention to the failure to supply provisions in your contract. Failure to supply can be caused by a number of factors, such as manpower issues, the CMO getting a bad batch of raw materials, or FDA issues. You may not be able to avoid this threat completely, but certain language will keep your CMO on its toes. Termination as a remedy for a failure to supply is typically an inadequate solution . Be creative. Include consequences if your CMO does fail to supply, such as liquidated damages – this will ensure that your manufacturer will do everything possible to avoid failure to supply. In addition, to mitigate the risk of a failure to supply scenario, you can require that the manufacturer keep a backup supply, or “safety stock,” on hand at all times.
- Bear in mind the term and termination of your contract. Carefully consider the length of the term for your agreement. Think about your notice period – if the contract is terminated or you walk away, how long would it take to get your next manufacturer up to speed? If change of the manufacturer’s ownership is a concern, make sure you have the option to walk away if this occurs.