Setting High Standards
Deepak Sapra, Vice President and Global Head of Business – CPS
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?
Deepak Sapra: In the pharmaceutical world, the key attributes for mutual trusts are usually quality and regulatory compliance, confidentiality, reliability – particularly the commitment to stick to commitments – and flexibility. A CDMO, which has experience in collaborating with organizations of different sizes – from startups to big pharma – and sets high standards in these key attributes, is more likely to meet the requirements of the acquiring company and is therefore in a better position to facilitate a smooth transition and keep the project going. How big of an issue an acquisition becomes for an ongoing project depends of course on the nature of the merger or acquisition. This plays a key role in decisions on future and ongoing projects. Big pharma, for example, focusses very closely on the strategy of the newly formed entity and on whether the current ongoing projects fits into it. Regular and transparent communication during the transition plays a key role and timely communication can enable the continuation of ongoing engagements.
The purpose of the transaction also holds a key. For example, a specialty generics company recently acquired a dermatology-focused CMO. This was not a positive signal for the existing customers of the CMO, because they were afraid that the acquisition would mean a greater usage of the capabilities and capacity for internal purposes of the takeover company, and external customers would have a lower priority.
Another situation worth considering is when a molecule has been outsourced to a CDMO by a small pharma company, and the CDMO gets acquired by a large pharma company. The dynamics are different in this case. Pharmasource highlights that an impact in the large molecule space is more likely, as the big pharma company might take the asset internally as soon as feasible and less problematic in the small molecule space where the engagements are likely to continue. However, in such situations where the molecule changes hands, the willingness of the acquiring pharma company to fund any modifications or facility expansions is limited, because the pharma company is looking to get the molecule quickly through the clinical phase and realize the returns on the investment.
How can (Pharma and CDMO) outsourcing partners maintain their focus and guarantee confidentiality in their projects during a merger or the following integration phase?
Deepak Sapra: A clear outline of the strategy of the newly formed entity and close communication between the partners is the only way to ensure trust and reliability; there is no shortcut. Organizational practices of the transacting companies are also very important. For instance, certain CDMOs do not disclose the name of the molecule within the project teams but code name them, and the actual name of the molecule is known only to a very small set of people.
Transactions between a CDMO and a pharma / generics company are likely to present greater challenges than those previously mentioned because of differences in business models. The messaging in such cases is often unclear. Often the strategy of the new entity is also unclear, as seen in cases like the specialty generics company’s example above. In transactions of the reverse kind, wherein a CDMO tries to focus on the generic market, the transition is not easy and the experience of some CDMOs which went down that path has not been great. Some CDMOs have lost their traditional client base because of this shift.
Therefore, companies have to work extra hard on the trust factor and on doing more than necessary to guarantee confidentiality. Within the merged entity, clear instructions regarding the importance of client data sometimes needs to be provided on a regular basis. At the same time, the channels of communication with the sponsor need to be further opened up and strengthened to ensure trust is maintained.