In 2016, Can Outsourcing Relationships Survive The Biopharma Life Cycle?

By Louis Garguilo, Chief Editor, Outsourced Pharma

When I ask about the future of outsourcing, I get talk of relationships. Firelli “Fi” Alonso-Caplen, senior director, biotherapeutics and vaccines outsourcing at Pfizer, even mentions the “m” word. “There’s no perfect CMO. Neither is there a perfect client! Both have to work at cultivating a harmonious relationship. Both have to own it — no finger pointing when trouble arises. It’s less of a business-driven outsourcing contract and can only be accomplished over time. Like a marriage, it takes two to have a successful relationship, and therefore celebrate many anniversaries.”

To sponsors around the world looking for enhanced outsourcing outcomes, and for those looking for improvements at service providers, Alonso-Caplen’s words are enlightened. For years now, there’s been a focus on improving the sponsor-provider working dynamic. All of the industry experts (from Bayer Pharma AG, Capricor Therapeutics, Pfizer, Shire and Ono Pharmaceutical) I spoke with for this article on the future of outsourcing mentioned improving relationships. I’m sure many readers have your own thoughts on the subject; those of us covering the industry have certainly written our share on this theme.

But that is where we are now. Aren’t there new and larger paradigms to divine beyond improved relationships and partnerships when contemplating a future for outsourcing in the biotechnology and pharmaceutical (biopharma) industry? How about something more comprehensive to better guide the industry through times of thick and thin, economic ups and downs, or disruptions of innovation and regulatory change? Maybe these cycles themselves are a clue.

I Want More Than A Relationship
Over decades now, outsourcing has become tightly intertwined with the broader biopharma industry. Today it has become, if you will, a better union. They do share a similar future. David Lowndes, SVP supply chain management at Shire Pharmaceuticals, makes the point simply: “I expect outsourcing to continue to grow as we grow our business.”

Numbers demonstrate that growth. Various industry analyses currently peg the combined annual discovery and CMC (chemistry, manufacturing, and controls) outsourcing spend at somewhere approaching $40 billion. Whatever the exact figure, what’s clear is that effective outsourcing has become essential for profitable drug development and manufacturing strategies at a growing number of companies. Moreover, outsourcing itself is increasingly a bona fide business model, serving as the organizing principle for startups and their investors. The “one C-corpper- compound” model of a startup like Dauntless Pharmaceuticals in San Diego is an example. There are much bigger examples as well; the majority of products in Lowndes’ global supply chains at Shire are outsourced. Even a historic company like Ono Pharmaceutical in Japan has no facilities of its own for API manufacturing. These are more than strategic relationships with service providers; they are modi operandi — fundamental methods of operation.

This is not to put forth an industry forecast of all outsourcing all the time. Bayer Pharma AG’s Stefan Jaroch, head of external innovation technologies, global external innovation and alliances, says, “While outsourcing will remain an important part of our drug discovery and development, we do not necessarily see a rise in the quantity of work outsourced, but instead, a different quality of working with outsourcing partners. For example, we're involving CROs more deeply in developing and testing compound syntheses in our discovery programs, instead of just approaching them for one-off synthesis projects.”

Alonso-Caplen concurs. “At Pfizer, we rely on outsourcing mainly to supplement any need for capability or capacity. For example, our manufacturing strategy remains to produce in-house first, particularly with complex projects in the pipeline. At the same time, I believe outsourcing will continue to increase, particularly when new biological modalities arise, as in antibody-drug conjugates and cell and gene therapies.”

The point here is that in 2016 and beyond, how well everyone from Big Pharma to virtual companies outsources is the real measurement of success, not necessarily how much. But while both quantitative and qualitative increases in outsourcing will rely on more enlightened relationships as a key component, the future of outsourcing — and thus an increasing part of the future of all biotech and pharma — can’t stop there. In fact, while perhaps still couched in the language of relationship-speak, industry professionals are broadening internal themes and thinking in paradigm shifts in an effort to move the outsourcing industry to a much greater maturity. Let’s take one more step back before diving into these new ideas.

Existential Outsourcing: We’re In This Together
Biopharma industry experts start by walking me back to where we’ve come from before moving to thoughts of the future. If you don’t know your history, you’re bound to repeat it.

The narrative often starts with the recession of 2008, a period when the global economy and stock markets tanked, the “new-drug pipeline cliff” was an obsession, and customer projects dried up at CROs and CMOs. This also led to a period of heightened emphasis on pricing. CROs and CMOs were now just cost centers: the less money out, the better. An intensifying globalization of outsourcing added to those pricing pressures — as it always does in any industry. But there was more to it than that. The new view of outsourcing was as a cost-cutting component within a businesswide and intense focus at sponsors to cut expenditures during an uneasy economic period.

However, the results from emphasizing pricing were uneven and raised questions. Was it helping to advance pipelines where future revenue resided? Were quality and risk increasing in the supply chain? Partly in answer to these questions — as well as a modestly improving economic outlook in general — the pendulum has swung to the other side, bringing us to the modern mantra of relationships over transactions. Providers still need to deliver a competitive price, but today the dialogue centers on developing strategic outsourcing partnerships.

“In my opinion, today there is no reason why outsourcing should represent a more risky option for your supply chain, if you carefully select the right partners,” says Lowndes of Shire. “Your expectations should be the same as if it were internal manufacturing. Crucially, it has to be a win-win: the CMOs also need to meet their business goals for this to be a sustainable business model.”

Accomplishing that win-win equilibrium — and specifically that sustainability — will require a new component of vigilance and guidance through times of both internal and external challenges to sponsor-provider relationships. Here are some current examples of those challenges:

When the iShares Nasdaq Biotechnology Index (IBB) drops 25 percent in a quarter as it did in Q3 of this year, biotech service providers hear a loud bang. Which customers of theirs might tighten budgets, cut programs, or within an elongated downturn, face existential risk?

When politicians browbeat the pharmaceutical industry on commercial pricing for innovative drugs and threaten to enact less-than-logical legislation, service providers brace for tougher negotiations with sponsors. Will relationships save them from intense pricing pressures this time around?

And when the Trans-Pacific Partnership Agreement (TPP) for international trade hinges on negotiation of IP protection for biologics and the timing of biosimilars to enter markets, some in the outsourcing industry revisit their five-year business plans. Will global affairs increasingly send waves of concern over service providers?

The future state of outsourcing, then, has a lot to do with … well, a lot. And attitudes, economies, markets, companies, and products — and science and technology itself — all work within their respective life cycles. And come to think of it, what is more familiar than life cycles to the biopharma industry?

Coexisting In Life Cycles
The world of biopharma understands its pipelines, products, markets, and patients in terms of their respective life cycles. Our biopharma executives are as attuned to broader economic and business cycles as those in any other industry. The suggestion here is to apply this understanding more directly and rigorously to outsourcing. More precisely, the life cycle of an individual drug discovery or development program or franchise, a business unit or entire company business-model, or more macro spheres like national or global economies becomes the guiding principle of interaction and communication between outsourcing companies and their service providers.

Bayer Pharma’s Jaroch explains that before embarking on strategic outsourcing, for example in research, “the CRO’s client needs to define precisely which value generation it expects from the CRO at that point, and which work packages are best suited to be pursued by the CRO at that time. The client has to define whether it is at the point of needing just capacity to enhance its flexibility in resource allocation, looking for access to specific technologies and capabilities, or being interested in bundling resources with a CRO to share risks.”

In fact, if you listen closely, you start to discern the advance of the life cycle arc in the comments of various executives. Denise McDade, VP of quality at Capricor Therapeutics and whose career has spanned positions at companies such as Genentech, Novartis, and Amgen, says she’s learned it’s best to let your service provider know exactly where you are in your product and entire business life cycles. “Some decisions get made for you simply by where you are as a company,” she says.

For example, Capricor was formed through a reverse merger in which it inherited an existing peptide product that was in the clinic and outsourced. “It was a no-brainer to keep that outsourcing model for that product,” says McDade. “I believe it will always remain outsourced.” If information like this on the outsourcing life cycle plan is openly shared with service providers — not always a common practice today — we may get to a win-win for both sides … and the ability for both sides to understand risk and weather any life cycle forces that might buffet the trajectory of a drug development program. McDade continues: “We also have an internal product nurtured by ourselves in clinical trials. The manufacturing process is complex and strategic for us, and we’ve kept it in-house. When we commercialize this product, do we want to outsource manufacturing? We’re in the middle of answering that, and our partners should know clearly where we are in terms of that whole process.”

Lowndes speaks further in terms of transparency. “Shire and our partners operate as if we were one company. We work together to drive process capability and quality by exchanging process data each day and jointly reviewing performance to drive action. This has delivered significant improvements in process capability, quality, and supply performance, yielding benefits to both Shire and our partners. Apply the same standards and expectations to yourselves and your CMOs that you would if it were a vertically integrated model. The only difference should be who owns the facility!”

Alonso-Caplen has considered advanced approaches to her outsourcing. “The stage of R&D maturity in a specific area might call for a kind of ‘lease strategy,’ for example potentially with cell and gene therapy,” she explains. “There’s an increasing demand for CMOs in this landscape because of more early signs of efficacy in the clinic. Since currently the majority of these projects are small-scale, correspondingly small cGMP modular suites using single-use systems are being built to meet this demand. Leasing a suite, say for a year if there are several projects, might be the better strategy for outsourcing. It may not necessarily be cheaper in the midterm, but it might be the better approach to meeting tight timelines in this arena.”

We mentioned above that Ono operates with no API manufacturing facilities. CEO Gyo Sagara tells me that for the past few years Ono has also focused on finding ways to utilize resources outside the company earlier in the drug discovery and development life cycle. Sagara and Ono have come up with a new paradigm in which outsourcing per se is subsumed. To describe this — and ensure it is enacted upon — Ono has coined the term, “Orientem Innovation,” taken from the idea of a holistic “therapeutic-area oriented” approach. Sagara says this is an “open research network” targeting future partnerships with academia and including outsourcing collaborations as needed. “Outsourcing should be seen as providing complementary solutions along the product continuum, as an integrated part of a business’ continuity plans, and as a function of an overall business plan,” he says.

What Will We See In 2016?
As we know and have discussed here, in the biopharma industry, those business plans Sagara mentions above are contemplated with various life cycles in mind. Perhaps all we have been saying then is that in 2016 and beyond, while the trend to improve and expand outsourcing relationships remains important and (hopefully) positive, those relationships can’t reach their full potential without a shared and full understanding of the timing and times within which they exist. The professionals quoted in this article — and so many others around the globe — are entertaining new concepts for approaching outsourcing. For lasting success, they must include some form of win-win even in times when some life cycles are on the decline. Let’s see which new paradigms are introduced in 2016 and which ones we’ll be talking about much further into the future.