Contract Consulting & Pharmaceutical Services—Part 1
To assess current trends in outsourcing, BioPharm International turned to Mark Douglas, PhD, strategic business development manager, Avecia Biologics Ltd; Geoffrey M. Glass, senior vice president of strategy, corporate development and business integration, Patheon Inc.; Rob Gustines, director of marketing, KBI Biopharma, Inc.; Jon S. Kauffman, PhD, director, method development & method validation and biopharmaceutical services, Lancaster Laboratories; Roger Lias, PhD, president, Eden Biodesign, Inc.; John A. McCarty, vice president, formulation sciences and drug delivery, Azopharma; and Michiel E. Ultee, PhD, vice president, process sciences, Laureate Pharma, Inc.
Q: Has the recession, or recent developments in the industry itself, changed the way biopharmaceutical companies approach outsourcing? If so, will any of the changes be long-term?
Douglas: The overall approach hasn't changed, however, we have noticed that some companies have been titrating their cash during the last 12–18 months and looking for smaller programs. This has not been a dominant feature of outsourcing for most companies we work with though.
Glass: In the short-term, most companies are hoarding cash. The good news is that the global economic events of the past year have put a new level of pressure on all companies, including biopharmaceutical companies, such that they will be forced to look at radical business model changes. I predict this will lead to much more long-term outsourcing and partnering relationships.
Gustines: The recession may have deepened and accelerated changes—including increased outsourcing to subject-matter or technology experts—that were already underway. The recession has forced a prioritization of programs. The absolute number of programs may have decreased, but the relative percent of outsourced activities has likely grown and the trend of increased percentage of outsourced programs should continue as we emerge from the recession.
Kauffman: We have seen an increase in project delays and price sensitivity.
Lias: In certain instances yes, but it's a complicated market dynamic. We have clients who are now considering outsourcing more to control headcount and conserve capital. These include some of the major pharmaceutical players who are taking advantage of the opportunities caused by the global economic situation to acquire small biotech companies or products. In general, however, the approach has not changed significantly.
McCarty: Many smaller VC-backed companies are putting things on hold; however larger, well financed companies have for the most part not cut back on outsourcing activities. When monies become available, outsourcing activities will most likely pick up for smaller companies.
Ultee: Companies are more cost-conscious and cash conserving. Thus, they may elect for fewer runs, or delays in their production. Such changes are not likely to be long-term, as the need for new biopharmaceuticals is still strong.
Q: Are companies today more strategic about how they approach outsourcing, or do most still handle it in a tactical fashion, oriented around specific tasks, functions, or capacity?
Kauffman: Smaller companies appear to be still handling outsourcing in a tactical fashion. Larger companies are becoming more strategic and looking to form partnerships.
Lias: Bigger clients are becoming more strategic in their approach (and later phase and commercial products tend to drive a more strategic approach), but in the early clinical phase market and for smaller clients with a limited pipeline, it still tends to be tactical.
McCarty: Companies are in general looking to outsource projects to companies that can provide a full range of capabilities, thereby consolidating their need to manage multiple service providers.
Ultee: We haven't seen a trend one way or the other in this aspect. Their approaches appear to be a function of their company's culture and tolerance for risk.
Douglas: We usually see a semi-strategic approach from most companies; they tend to look for a number of services even in the clinical trials context. However, we see a clear move to a strategic approach where companies are looking for long-term relationships to supply API for use in launched drugs. This is driven by the need for a range of services at one site plus the ability to grow with demand as a drug is marketed.
Glass: To date, outsourcing in the industry is still very tactical and often times reactive to skill or capability gaps. I believe strategic outsourcing is on the way, but it's not here yet.
Gustines: Both approaches (strategic and tactical) to outsourcing still exist, although companies are behaving in ways that signal more strategic selection of their service partners, especially when a particular service is on the critical path, comes with increased levels of risk, or requires specialized technical or regulatory expertise.