Expert Interview: Andrew Thompson, J-Star
The Coronavirus Crisis: Challenges and Opportunities for CMOs, CDMOs and CROs
The ongoing pandemic is putting pharmaceutical R&D strategies to the test and also challenging manufacturing planning and supply chain management. Particularly in this industry segment, the supply chain is global, complex and interconnected. Each link must be strong enough to ensure that the road from lab to final drug product is as smooth as possible, even under the most difficult circumstances.
In addition to the pandemic, the growing threat of a no-deal-Brexit amid old and new trade conflicts and increasing protectionism, is putting even more stress on companies operating in the pharma sector.
In cooperation with Wombat Capital, a cross-border investment bank, CHEManager asked executives and experts of CMOs, CDMOs and CROs operating in the pharmaceutical sector to share their opinion on current challenges for their industry and how these challenges may influence changes in their market.
What in your opinion and from your perspective are the main impacts of the coronavirus pandemic on the drug supply chains?
Andrew Thompson: While J-Star is not really involved with supply chain for commercial products as we are doing mainly R&D, but if I had to speculate, from a global perspective, I don’t think there has been much disruption. The impact was more on a local level. Let’s say that a pharma company is getting APIs or drug products from a manufacturer in Northern Italy, Spain or in a region where there have been serious Covid-19 infections and shutdowns, you may have to shift your supply to the second supplier. So, a pharma company that is getting ingredients or products from a severely hit area, they would have to rely upon second suppliers to get them. This does not affect the supply chain but the suppliers involved. The pharma companies had to find the suppliers to fill the gaps but these situations ended up being temporary.
Many Western CDMOs have already shifted operations back to the USA and Europe as intensive business activity in China has driven up labor costs. In addition, national policies, trade-related developments such as Brexit and the US-China dispute, and impacts of pandemics are likely to require repatriation of at least part of the supply chain in many countries. Could CMOs/CDMOs be beneficiaries of restructured supply chains?
A. Thompson: As of now, I haven’t seen any change in the amount of outsourcing that is going on to China. From my perspective the amount of work that is being sent to China is the same amount. But if there was a change and supply would shift dramatically back to the US, then US players would benefit greatly from it but I have not seen it happening yet.
What do you think the impact of the repatriation of the drug supply chain will have on the M&A activity in the CMO/CDMO industry? Do you think that this would create an impact on valuations?
A. Thompson: Yes, if the work is shifted back to the US or Europe, the valuation of that local asset would go up. This phenomenon should increase cross border M&A for foreign entities looking to buy locally to produce locally for their clients.
Has the inability to hold face-to-face meetings with prospective clients and conduct client visits to sites affected your new business development since the outbreak of the coronavirus pandemic?
A. Thompson: I don’t think the business development people are able to bring as much business now as they were when they could meet face-to-face. It has an impact. As people adjust to Zoom and Microsoft Teams meetings, there should be an increase in productivity, since instead of traveling all over the country, you can set four meetings in one day, at four different Biotech hubs in the USA, so potentially it should be more.
Fewer trade shows have an impact on business development. It is hard to measure as it is difficult to quantify your interaction during a conference, but the fact that people are not interacting face-to-face, without yet adjusting to any new paradigms in conducting business development has a negative impact on the amount of business.
EU regulatory authorities and the FDA have issued guidance on conducting clinical trials during the Covid-19 outbreak. As a CMO/CDMO, have you been affected by these changes?
A. Thompson: Since we don’t interact with the people setting up the clinical trials, I don’t have a clear answer about that.
The CMO/CDMO industry has managed to support efforts to develop vaccines and therapeutics for COVID-19 despite already being at a high level of utilization. What made that possible?
A. Thompson: If I had to speculate what made that possible, I would say, if you were working with a customer that had a Covid-19 related product and you have been working with the same customer on something else, you may have to stop working on that other project and focus on the Covid-19 product as a top priority. You would be shifting resources on what you are working on. You stay at same capacity but work on something different. This is how I think you make it possible despite the high level of utilization.
“Emerging”, “virtual” and other small (bio)pharmaceutical companies are driving the discovery and development of new drugs but are mostly dependent on the availability of financing – which could become more restricted due to the economic downturn cause by the economic and epidemiologic disruptions to the global economy. Since emerging biopharma companies are important customers of CMOs/CDMOs, how is this going to affect your business?
A. Thompson: I don’t think that the funding has been cut for biotech. I think that they have as much money as they ever had. If funding was cut, this would of course impact our business, but I have not seen a cut in their funding.
For the biopharma CMO/CDMO industry, the pandemic crisis has created great opportunities. What is your opinion on whether and to what degree the CDMO industry will enjoy long-term benefits from its role in tackling the current crisis?
A. Thompson: We learned about the vulnerability of the supply chain. When you have so much stuff being made outside the country, people didn’t know how vulnerable we were, and they start to realize it now. An effort to bring more API and manufacturing back to the US just to mitigate supply chain interruption in a crisis like this is a good thing for us.
Once there will be a vaccine, the dire need for products and medicine for Covid-19 will go away and a lot of projects will disappear, and work will be done on other diseases. However, the Covid-19 pandemic has revealed new processes, technologies, which will benefit the industry in the long run. For example, I believe that mRNA technology will blossom, as people see what it does and how fast we can develop vaccines. There should be more emphasis in developing that technology for all kinds of viral infections, etc.
J-Star Research is a CDMO that provides services in complex organic synthesis and crystallization for a variety of pharmaceutical clients. How is your expertise integrated in the services from Porton Pharma Solutions, the Chinese CMO that acquired J-Star in 2017?
A. Thompson: When Porton purchased J-Star, they had no Crystallization R&D services or polymorph screening. These services generated great benefits to them and were a valuable addition to their catalog of services and expertise. Following the acquisition, we were able to build a similar group in China to what we have here in the US with strong R&D and crystallization capabilities. Porton in China is now capable of tackling more early stage product research and development.
This interview was conducted in cooperation with Wombat Capital, a cross-border investment bank providing mergers and acquisitions and strategic advisory services. With offices in New York and Paris, Wombat Capital focuses on the CDMO/CRO and pharma outsourcing sectors.