How do biopharmaceutical companies handle CMO and supplier relationships that stem from M&A activity? In reply, one might recall the old refrain, “Very carefully.” Actually, with a healthy dose of nuance, that’s not far from accurate.
Who better to provide that nuance than Shire? The folks there know M&A and outsourcing as well as anyone in the global biopharma industry today. For them, CMO integration, management and assessment traverses three dimensions: quality, process and supply performance.
First, It’s An Acquired Taste
“We’re a very acquisitive company,” says Mani Sundararajan, Shire’s VP & Head Global Pharmaceutical Technology, in what might be one of the understatements of 2016.
How acquisitive? One indication is the need for a separate section on Shire’s website: Proposed Acquisitions. Included there is the over $30 billion combination with Baxalta now in negotiation; there’ve been two dozen integrations since 1997.
All this activity adds up to Shire working with some 60 separate service providers. Srini Tenjarla, Head Global Pharmaceutical Sciences, provides an initial nuance to help us learn how the company manages these acquired partners and supply chains.
“For example,” he begins, “if we in-license an asset – let’s say a phase II program –we immediately accept the quality systems, agreements and contracts in place with the company we are buying, and their CROs and CMOs. We work hard in the background to ensure deadlines and milestones are reached. Also at this early stage, we clearly identify a date when everything associated with the acquired program will have been moved under our company’s systems and policies. It’s our plan to take full responsibility.”
Tenjarla says Shire assembles a cross-functional team to begin QA audits, site inspections, and face-to-face meetings, including with service providers. On rare occasions, Shire may identify risks post-acquisition. These are immediately brought to the attention of management, along with mitigation plans. “We have to react on a case-by-case basis,” he says.
These few cases aside, both Sundararajan and Tenjarla say, Shire carefully acquires companies with products to assimilate within its overall supply chain as fast as possible.
“The easiest way to do that is stick with the existing network,” says Sundararajan. “However, there are always other considerations that factor into our thinking when acquiring CMOs, suppliers or an entire supply chain. There are subtle ways in which we operate that I think are different from the way the mainstream operates in this particular space.”
One such subtlety is the supplier summit. Shire prefers to have two of most everything for certain products in their portfolio: API manufacturers, registered starting materials suppliers, drug product partners, packaging companies. To manage this, it holds summits that bring all the service providers face-to-face to share strategy, best practices, and challenges. “Our CMOs should be comfortable reaching out to each other and saying, ‘I’m seeing this problem, are you? If so, what’ve you done about it?’” explains Sundararajan. “I think that’s mostly unheard of in the industry. Most CMOs feel, ‘Why am I giving away my secrets?’
“We’ve emphasized there are no secrets,” says Sundararajan.
Additionally, says Tenjarla, Shire recognizes it’s not possible to know everything. “In cases where Shire lacks the necessary knowledge with a particular product or target, we don’t hesitate to reach out to expertise within the company we acquired, or bring in the right outside experts,” he says. “An example comes to mind where the cooperation between a CRO, CMO, and external consultants we brought in, resolved a major processing issue in a matter of days.”
The Three Dimensions Of CMO Performance
No matter how a CMO ends up within a Shire-sponsored supply chain, it’ll eventually be judged on three, fundamental performance dimensions: Quality, Process, and Supply.
“Suffice to say, from a quality system perspective, we want to be able to quickly understand how each CMO is performing,” says Charlene Banard, SVP Quality. At the Outsourced Pharma Boston conference, she presented a slide that included examples of detailed scorecards, that when taken together, formed a “Supplier Quality Index.” Banard says dashboards Shire uses provide a clear indication of where a CMO needs help.
Of course not all biopharma have the human and financial resources that may be available to Banard, and she addresses that. “The answer to that is you can’t afford to not be involved as much as you possibly can, right? We are accountable for the performance of each supplier and that shared relationship. We use tools to measure CMO quality performance, but in actual fact, these are tools to understand how we are doing, as the provider of that contract. Often, when a supplier is not performing as would be expected, we find we can do something to help improve that performance.”
To boil down all the ingredients that go into the process performance pot for products manufactured at CMOs, we’ll use Sundararajan’s concept of “process robustness.” “We’ve built the capability to get near real-time data on processes running at outside facilities,” he says.
Sundararajan estimates he obtains real-time data (or near real-time data) for over 70 percent of all the batches of small molecule products manufactured externally. Since 2011, Shire has used a platform for this data collection called Discoverant. “By near real-time, what I mean is that overnight data is downloaded from our CMOs. First thing in the morning, my team is able to understand how processes are running across even complex networks. Process robustness, then, is predicated on the ability to obtain this data, and react quickly.” He concludes here: “The essence for understanding is primarily to prevent failure.”
Sundararajan says supply performance has improved significantly since he joined Shire in 2011. Along with traditional measurements (performance indexing, deviation rates, lot acceptance rates), he talks a lot about what he calls “ product velocity.”
“We didn’t always have robust process capability, but we’ve now improved to the point where our current lot acceptance rates for small molecule products are 99.8 percent,” he says. He estimates that for the thousands of batches Shire will have manufactured in 2016, actual deviation rates will be at an all-time low.
Continuous efforts to improve lot acceptance rates have “driven product velocity through the entire network,” says Sundararajan. Past cycle-times of 200-plus days for the conversion of API to finished goods now average between 30 and 40 days. “With some CMOs, we’ve put platforms in place to give them, as well as Shire, better visibility to how products flow through each of their unit operations.”
There are additional benefits. “Driving velocity also reduces the amount of trapped working capital for a CMO,” says Sundararajan. “It helps CMOs increase their available capacity, allowing them to do more business with Shire, or bring in additional customers.”
Finally, the entire industry took note recently when Shire’s CEO, Flemming Ornskov, publically stated it was time for a pause in M&A activity. “The priority is to get internal growth drivers to succeed,” he said. With the supply-chain efficiencies Shire’s put in place, I’m sure many are assuming that initiative also gets done at a rapid velocity … and Shire will be back at adding relationships before too long.
This article is based on the session, SHIRE'S APPROACH: The "golden rule" in outsourcing partnerships, at Outsourced Pharma Boston conference, Westin Copley Place, April 20-21, 2016. Part one is: The Creation of Shire’s Outsourcing Model.