From The Editor | December 4, 2015

Black Swans In Pharmaceutical Outsourcing

Louis Garguilo

By Louis Garguilo, Chief Editor, Outsourced Pharma
Follow Me On Twitter @Louis_Garguilo

Black Swans In Pharmaceutical Outsourcing

Reading the newest edition of “The Black Swan – The Impact of the Highly Improbable,” while writing a future-looking article, feels, in a word, risky. Author Nassim Nicholas Taleb has some choice words for those who try to write such articles.

Taleb, however, might be somewhat understanding in that here we draw attention to the potential for those rare but highly impactful events – Black Swans – in what currently seems an unstoppable march to more pharmaceutical and biotechnology outsourcing. He might also be more forgiving in that we use real-world anecdotes, and not constructed models of data, to do so.

 The Risk of Static Paradigms

A mislabeling of the here-and-now makes us more vulnerable to unforeseen negative events in the future. In other words … words matter. Sue Wollowitz, president at Wollowitz Associates LLC, and who played a role in the development of enzalutamide (commercially known as Xtandi) while at Medivation, agrees.

“Even the word ‘outsourcing’ to describe how our industry operates is outmoded,” she says. “Twenty-five years ago, outsourcing manufacturing was considered a deviation to a standard business model putting everything under the same bricks-and-mortar, and employee system. Today, our industry couldn’t function without a multi-company format and more advanced models. It’s almost required to have separations within both scientific and business activities. Outsourcing, the word, sounds like an aberration, when in fact it’s the state of things today.”

It is hard to imagine how we could get sidetracked from the pharma outsourcing model. However, all things move in cycles – even if the timing is mostly unpredictable – and those cycles themselves can become Black Swans if we are not attuned. In a recent article in the December issue of Life Science Leader magazine we find this:

“Aren’t there new and larger paradigms to divine beyond improved relationships and partnerships when contemplating a future for outsourcing in the biotechnology and pharmaceutical (biopharma) industry? How about something more comprehensive to better guide the industry through times of thick and thin, economic ups and downs, or disruptions of innovation and regulatory change? Maybe these cycles themselves are a clue … in 2016 and beyond, while the trend to improve and expand outsourcing relationships remains important and (hopefully) positive, those relationships can’t reach their full potential without a shared and full understanding of the timing and times within which they exist.”

M. (Ken) Kengatharan, President, Armetheon, says he hopes we replace the entire current nomenclature of CROs and CDMOs (contract research, development and manufacturing organizations). During the past 15 years, Kengatharan has established five biotechs, developed multiple programs from idea to phase-three clinical trials in ophthalmology, cardiovascular, and neurology, and is an experienced outsourcer. (He’s also an advisor to both Stanford University and University California San Francisco (UCSF).)

“I don’t like the term “contract research organization,” Kengatharan explains. “It denotes negative connotations regarding how to interact with a counterpart. I try to get people to use ‘PRO,’ meaning a ‘partner research organization.’ If we change our attitude, in our lifetime I believe we’ll see the largest pharmaceutical companies able to operate without a single lab. Everything could be outsourced via relationships formed from close interaction, and co-innovation, with partners. This is a vital change that can happen.”

Whether we get that far or not, the point remains: By not clearly elucidating and updating the way we think about and behave in the here-and-now, we affect the future of the industry.

The Risk To Quality

In the new edition of his best-seller, Taleb adds this: “Globalization might give the appearance of efficiency, but the operating leverage and the degrees of interaction between parts will cause small cracks in one spot to percolate through the entire system.”

The BioPharma outsourcing industry knows from experience those cracks lead to supply chain disruptions, and quality issues. Regarding quality specifically, the demand for higher standards – from all quarters – will only intensify. “Quality is an issue today, and it’s going to be a subject twenty years from now,” says Pharmatek President Timothy Scott. “We’re still learning how to outsource as an ecosystem. If you compare us to the semiconductor or automotive industry, we are behind. The assumption is that we’re going to continue to get better.”

What are the risks to that assumption? One can be found in the point Wollowitz makes above regarding the traditional model of having employees under one roof. Many skilled workers have been released from pharma companies, and many end up on the provider side. “It’s somewhat controversial, but we need to recognize there’s a shift in the knowledge base,” says Scott. “Less of the work today is being done at the pharma company and more at the CRO, CMO … PRO, or whatever we call them.”

The onus – risk by another word – of providing adequate training and maintaining talented employees switches to the side of the providers. Perhaps the most difficult element here is sponsors agreeing to follow the lead of the professionals doing the work at their service providers, or at least look to them as equals. Pharma will not and cannot cede ultimate responsibility for the quality of their products, but part of that responsibility increasingly includes elevating partner relationships. And indeed, there is plenty of evidence this has been happening already.

More fundamental, though, is this idea that the act of globalizing itself (i.e., involving more providers and partners in production and distribution) inherently increases risk. Despite the best project management and oversight, BioPharma to a degree releases the control formerly held by one entity to that of multiple ones. Does that mean there will always be an increase in the risk to quality when we outsource?

“The real risk to pharma outsourcing,” says Scott, “is that overall quality doesn’t improve as we go forward. Both sponsors and providers need to focus on making sure that is not the case.” Scott continues: “We are reaching an interesting point where the service provider industry needs to make a decision: Are we going to lead? Are we going to take the reins, or let leadership fall back to big pharma? The pendulum could swing back, and pharma could say, ‘You know what? The quality isn’t adequate. Our partners are not taking a leadership position in this. We need to take it over.’”

Will service providers become a leading force in the pharmaceutical industry? One thing is clear already: This won’t come to pass unless all parties concerned recognize where we are now as an industry, service providers successfully take on an increased role, and sponsors are willing to accept signs of new leadership. Not making these adjustments could cause or add to any negative effects of still unforeseen Black Swans out there.


Some material for this editorial originates from the “Exploring the future of outsourcing” session at Outsourced Pharma San Francisco, November 3-4, 2015. Panel members were: M. (Ken) Kengatharan, President, Armetheon; Timothy Scott, President, Pharmatek; Sue Wollowitz, President, Wollowitz Associates LLC; Paul Wu, Director Upstream Development (Global Biologics), Bayer HealthCare. (Also look for an upcoming article with Wu of Bayer Healthcare.)