Outsourcing Lessons From A Biotech Mixologist
By Louis Garguilo, Chief Editor, Outsourced Pharma
M. (Ken) Kengatharan, PhD, MBA, is an accomplished mixologist. We’re not talking about prowess at the wet bar in his San Francisco Bay Area residence (although he mentioned co-inventing a variant of vodka-martini named “CaliFlorida” at a bar in Palo Alto).
What Kengatharan mixes professionally is biotech business models, drug researchers and developers, private and venture capital, entrepreneurs and investors … with a large shot of strategic outsourcing. “My family still doesn’t really understand what I do,” Kengatharan says. But we can benefit from the lessons he’s learned for improving sponsor and service-provider dynamics while setting up five biotechs (to date)
Currently, among other activities, Kengatharan serves as president of Armetheon, Inc., a privately held clinical-stage biopharmaceutical company. I first met him at an Outsourced Pharma Conference in San Francisco, where it was immediately clear he’s been thinking about outsourcing for a long time. For starters, he wants to replace the terms CRO and CMO with CPO, for Contract Partner Organization.
Below are two anecdotes that reveal Kengatharan’s fundamental philosophy, and the ingredients in a healthy concoction, for increased outsourcing success.
Falsely Inflated Balloons
U.S. biotechs outsource abroad looking for cost advantages, just like their Big Pharma brothers and sisters. Nowadays, not looking worldwide for the best options seems like sticking your head in the (domestic) sand. Nonetheless, Kengatharan starts us off with a fair warning: Selecting service providers based on price can turn what appears a magic potion into a vile poison instead.
“The first lesson is don’t focus on the lowest cost bid,” says Kengatharan. “Let’s take a step back and think about this: What we’re doing as ‘company starters’ is taking on risk, and often riskier projects, that most established pharma companies would not pursue. Focus instead on the skilled people at any potential partner organization. Specific expertise at all levels of the hired team matters most to biotech entrepreneurs. And to adequately validate that expertise, you have to take those international trips to the specific sites where the work would be done.”
I’m sure you’ve heard similar advice. Kengatharan’s, though, comes with vivid visualizations. Early in his career, while vice president of pre-clinical R&D start-up OxoN Medica, Inc., Kengatharan was tasked with developing NCEs for angina, vascular complications in diabetes, and neuro-protection in glaucoma. The company was ready to contract with an offshore partner whose RFP and pricing, website, headquarters, and the first face-to-face meetings at those headquarters, were picture perfect. However, after insisting to be taken to the actual site and labs where experiments were to be run – a few hours drive away from the headquarters – Kengatharan and team walked into a very different scene.
“While inspecting what looked like an active chemistry lab, we asked about a reaction that appeared to be ongoing. Sometimes for a reaction involving hydrogen, you might capture gas in a balloon set atop the equipment. We looked closely at this particular apparatus and discovered somebody had actually blown up the balloon, tied the end, and put it on top of the reaction chamber! They were trying to simulate a real reaction was in progress.”
I’ll politely interject here that this is certainly an extreme case, and one that happened in the early 2000s. Yet the moral of the story remains. “People fail in outsourcing when they don’t take the responsibility or make the efforts to look over their prospective partner,” says Kengatharan. “Again, biotechs should not be focusing on the cheapest price. One could argue that the premium a company has to pay for a CPO is an insurance premium.”
In the end, Kengatharan selected a different offshore partner after more rigid inspections. He still works with that CPO some 16 years later.
Super-Hero Deliveries
It’s said that biotechs don’t run out of money, they run out of time. And with initial success, biotechs find themselves in the unfamiliar position of “drug developer,” depending on external service providers to deliver API on time. The CMOs (or CPOs), for their part, are often asked to create and scale up difficult APIs still with many unknowns related to scale ups and equipment, reliable sourcing and availability of starting materials.
“What is known,” says Kengatharan, “and becomes a defining element in the sponsor-partner relationship, is the specific time period both companies have to deliver. CPOs have to deliver API to the biotech; the biotech has to deliver results to investors. Nothing is more important in a biotech-CPO relationship than understanding and meeting time constraints.” Kengatharan experienced this firsthand at Athenagen, Inc. (subsequently CoMentis, Inc.), when the extraordinary efforts of a CPO helped lead to an eventual large payoff and partnership with a global pharmaceutical company.
According to Kengatharan, the CPO worked weekends and through winter holidays to deliver API to CoMentis to meet the starting date of a crucial trial. “They were on the East Coast and CoMentis was in South San Francisco,” he recalls. “It was a Friday and we were starting our IND enabling studies on Monday. I remember this so well: One of their senior managers physically carried the API to us for the final part of the delivery. It was raining hard and this guy turns up at 11pm and says, ‘Here is your material … it’s on time.’ Now that’s a contract partner organization … not a CMO.”
It wasn’t until years later CoMentis realized the full importance of this act. “Without that API for those IND enabling toxicology studies, I believe our funding would have stopped,” says Kengatharan. “We wouldn’t have met the IND date nor timing for the next set of clinical studies. Those results became the main reason we concluded a deal for the project – including a $100 million upfront payment – from Astellas.”
True partners – CPOs – are indeed out there. Kengatharan attests to their being worth the extra efforts to find and retain, and the prices they ask for their services. Something to think more about over your next cocktail (or mixed fruit juice).
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In a following article, M. (Ken) Kengatharan, serial biotechnology industry entrepreneur, will share a few more best practices for biotech outsourcing.