AAIPharma/Cambridge Major: A CDMO With Two Names And A New CEO

By Louis Garguilo, Chief Editor, Outsourced Pharma

Stephan Kutzer took the time to speak to Outsourced Pharma on July 9, the day AAIPharma Services Corp. (AAIPharma) and Cambridge Major Laboratories, Inc. (CML) announced he had become the combined companies’ new CEO. If I said he was excited, it would be to describe him with a word he used repeatedly. He'll need that enthusiasm to meet a two-fold challenge, one immediate and the other to be faced throughout the coming years. First, he must ensure the sum of the parts of the two companies add up to a single, formidable CDMO and brand in the eyes of pharmaceutical customers. In the global marketplace, he must fend off persistent competition, particularly from the East (i.e., China and India), for his Western-based services company.

If a certain stoicism is still generally considered an attribute of Germans, Kutzer may have lost that trait. It might be in part from his long tenure (and citizenship) in the U.S. In fact, after nearly 20 years at Lonza, the Swiss-based global supplier of pharmaceuticals, biotechnology and other materials, Kutzer’s desire to stay close to customers and in the U.S. played a role in his decision to not continue his assent there.

“It is time to do something different and something which is really exciting for me,” he says. “The combining of AAIPharma and CML demonstrated a lot of foresight. I think this is the future of outsourcing. We are amongst, I think really only two or three, who can reliably provide this broad service platform to pharma.”

According to the mirror websites of the two companies, those services are: for CML, process chemistry, solid state chemistry, analytical sciences, and API manufacturing; and for AAIPharma, pharmaceutical development, analytical testing services, manufacturing & packaging, and pharma solutions. Besides a single location in the Netherlands, the facilities are spread throughout the U.S. (more on this later.)

Kutzer, born and raised in Munich, and who holds a Master’s Degree in Chemical and Process Engineering, and a Ph.D. in Engineering Sciences (Chemical Engineering) both from the Technical University of Munich, will be located at AAIPharma’s headquarters in Wilmington, North Carolina. He doesn’t plan to stay there often, though.

“Home base will be North Carolina,” he says, perhaps using a baseball acronym because his son plays on two teams this summer in their U.S. hometown in New Hampshire. “However, my philosophy has always been that I have to be close to my customers. I will be on the road a lot, including at our manufacturing sites and also attending roadshows. I will be in the marketplace to ensure we are represented properly.”

Phase Three: Product-Lifecycle Management

Perhaps an area the marketplace (i.e., prospective customers) might want Kutzer to enlist his energy quickly is in a clearer marketing strategy. A rose by any other name would smell as sweet, we often quote Shakespeare; but that implies there is a name. Officially, AAIPharma and CML have been combined since October of last year when American Capital, Ltd. (Nasdaq: ACAS), a publicly traded private equity firm and global asset manager, committed $391 million to purchase AAIPharma from Water Street Partners and recapitalize all of the existing CML debt. Earlier, in December 2012, ACAS had invested $212 million to obtain Cambridge Major Laboratories from Arlington Capital Partners.

Kutzer laughs when I ask him – semi-seriously – for the inside scoop on a new name for the company. “I certainly understand the question, but I feel for me it is a little bit too early, not having really started yet,” he jokes, and then more seriously, “The first job is to work through all the different integration work-streams, and kick start certain programs. Yes, one of these programs will be branding.”

On April 8, the combined companies announced the resignation of Patrick Walsh as CEO. Walsh commented that “over the last 6 months I was asked to shepherd the two organizations through the first phase of the integration process.” Susan Nestegard, a board member of ACAS and a former executive vice president and president of global healthcare at Ecolab Inc., was named as the interim CEO. Now, just three months later, I ask Kutzer if phase two was officially underway, and if not branding, what was first on the to-do list.

“I would actually call it phase three,” he replies. “The second phase of integration was with Susan, who did a brilliant job over the last few months guiding the companies through a difficult period. Difficult because it was right after the honeymoon when everybody is very excited, but people had to get down to work and sort out a strategy to ensure the ideas behind this merger really work as a new kind of offering to the customer.”

“I see myself now coming in and getting everyone completely on the same systems platform, the same safety, quality and other processes to make sure we are all aligned,” he says. “If we present ourselves as a comprehensive service provider with a flow-through from drug substance to drug product, we want to make sure the premise is fully consistent with the performance. This is definitely number one.”

“However,” Kutzer continues, “as important is fully answering the question, ‘Where do we want to go from there?’ A change of leadership adds value by giving people a vision, something to believe in. This is where I see my phase-three type of role and responsibility: The vision for our future.”

Kutzer’s current vision as outlined in this interview is not unique. It embodies the well-documented, sponsor-provider discussion going on throughout the pharma industry regarding broader partnerships and deeper relationships. What might be the real differentiator is if over the coming months (and years) at AAICML, as Kutzer currently refers to the company, he can fully actuate this new paradigm with pharma.  (click here for related article.)

He certainly has the paradigm description set out. “You have here,” he says, “this brilliant opportunity to offer a solution for pharmaceutical products from early stage development to commercial launch, commercial and generic manufacturing. We are a product-lifecycle service provider. What I would like to do is drive the company exactly to that point, this one-stop service. A company where a pharmaceutical can drop their product or molecule off and say, ‘You handle it from here.’ This is where I see us going: Melting these two pieces together so the culmination is a reliable product-lifecycle management provider for pharma.”

 The Western Approach

AAICML has six locations in the U.S., and a manufacturing facility in Europe (Weert, Netherlands), totaling nearly 800 employees. In 2012 CML, for example, boasted of an investment of $50 million over five years in “Western assets,” including a $40 million large-scale manufacturing facility completed in Wisconsin. I asked Kutzer to talk more about this all-chips-in bet on providing services from the West, particularly in terms of the competition from the other side of the globe.

“Over the last few years,” he starts with a measured delivery, “we have seen the U.S. confronted with quality-related issues for products manufactured abroad and brought into the country. Rightfully so, these events have made FDA, and other regulatory authorities around the world, raise the bar and increase expectations on behalf of patient safety.” Kutzer continues, “This is a development I think each and every one of us appreciates. We all have loved ones who need medication and we want to make sure that these drugs are manufactured safely. Therefore, local outsourcing providers in the US are becoming even more attractive. We see an increasing demand from our customers. I strongly believe that with local manufacturing excellence, high quality, safety and product standards, and a safe working environment for not only the employees but also their families and communities, this is a very important and increasing trend. For this and other reasons,” sums up Kutzer, “we are in a very good position to compete against any low-cost country anywhere, and any other U.S.-based company.”

Will Kutzer’s background help in attracting clients from Europe? “Absolutely,” he says. “We are well positioned to bring European customers to the U.S. to manufacture product for the market here, and vice-versa. This is an opportunity I will definitely keep an eye on.” Kutzer then adds, “As you know, the pharma market, especially the controlled and regulated pharma market, is essentially Europe, Japan and the U.S., all areas in which I personally have been active and have experience. I am very confident.”

Kutzer must now bring that confidence to all parts of the company and the marketplace. It will be interesting to track the integration process, customer acquisition and type of customer relationships formed. With Kutzer, AAICML is adding its spin to the integrated-services-provider play, as a nicely named product-lifecycle management partner. Of course short of that all-inclusive relationship, AAICML can also nicely pitch in at various points along the development-commercial manufacturing chain for both pharmaceutical and biotechnology clients. Either way, for a while longer, Kutzer will live by the credo: “I don’t care what you call us, as long as you call us.”