Both Positive and Negative Effects
Simon Edwards, Vice President Global Sales and Business Development, Cambrex
Does the consolidation in the pharmaceutical industry affect CROs/CMOs, e.g. does it create a necessity for outsourcing partners to consolidate, too?
Simon Edwards: It is somewhat obvious that consolidation to fewer customers means fewer suppliers. In addition, when pharma companies merge there is usually at least a temporary slowing down of clinical development and a longer term reduction in the number of products in the pipeline. This can lead to products that the CRO/CMOs were working on being delayed or worse discontinued just based upon new selection criteria of the new company rather than whether they would have got to the market or not.
Drug development/manufacturing projects between pharma companies and CDMOs are based on mutual trust and a focus on success. How big of an issue is a merger or an acquisition for ongoing projects?
Simon Edwards: There are both positive and negative effects of acquisition on pharma/CDMO or pharma/CMO relationships. In terms of negatives, consolidation ultimately means a reduced customer base for CMOs, while existing projects can get delayed, either due to personnel changes, or as project decision-makers become reorganized. Additionally, projects already outsourced prior to any merger can be terminated during strategic reviews, once the portfolio is reassessed in the merged company. Alternatively the outsourcing strategies of the two companies may be different i.e. one outsources routinely and the other does not. It can therefore happen that a product that was outsourced is now brought back in-house to the new combined company. (Then I moved this sentence up here) If a merger gives the company access to idle manufacturing capacity there will be less need for outsourced service providers and inevitably, for a period of time, the new company becomes “less easy to do business with” and discussions for new business / projects will take time as roles are allocated.
Pharma companies tend to have their own preferred supplier lists, and will look to consolidate their use of CMOs. (Is this the same as when the consolidated list of suppliers is drawn up that you might find yourself not on it?).
Simon Edwards: On a positive note, incumbent CMOs can potentially gain access to a new pipeline of products that they previously were not involved with. This occurs for example when the CMO is working for a customer who might be big or small but after the merger the CDMO is exposed to a new pipeline of opportunities it had not had access to before. So it can sort of go both ways.
Also, if the pharmaceutical company grows in market share as a result of the consolidation, then they might require more volume from their CMO partners.
How can (Pharma and CDMO) outsourcing partners maintain their focus and guarantee confidentiality in their projects during a merger or the following integration phase?
Simon Edwards: Confidentiality is not an issue, as most CMOs will have adequate CDAs and contracts in place with provisions that cover eventualities such as M&A. For a period of time post-merger, which could be weeks or even years, CMOs will need to adopt patience and empathy as the merged company takes time to adjust., During this time the CMO needs to continue to ensure product delivery and, in some cases, could be left managing the project completely, as personnel adjust on the customer side. This is where the choice of CMO can pay dividends, and if the merged organisation has chosen the right CMO, with the right experts, this can be leveraged during the transition.