Pharma Copycats In CMO Acquisition Strategy

By Louis Garguilo, Chief Editor, Outsourced Pharma

Cambrex of PharmaCore; Piramal of Coldstream Labs and Ash Stevens; AMRI of Euticals and others; Capsugel of Xcelience and Powdersize; Catalent of Pharmatek; these are just a few contract development and manufacturing organizations (CMOs) acquiring brethren that we can cite from short-term memory.

Service providers are following Pharma’s playbook – to a degree – for new technology and innovation. We visited this in our first article with Tony Wood, Senior Vice President and Head of Medicinal Sciences, Pfizer. Here we’ll talk to a pair of CMO dealmakers to further analyze the strategy, and parse some differing nuance.

Warm Reception For A Cold Analogy

Here’s the premise for our investigation:

Big CMOs acquire smaller contract development and manufacturing organizations in the same way as Pharma has historically acquired biotechs and drug developers. This (more than ever) is a strategy to benefit from outside innovation and technologies.

Barry Littlejohns, President, Drug Delivery Solutions, Catalent, agrees with the analogy. Even when I paraphrase this way: Replacing Big Pharma, isn’t a Catalent (or Lonza, et al.) the new “800 pound gorilla” pouncing on more nimble innovators, once they’ve reached a certain level of marketplace success?

“That’s an interesting way to put it,” Littlejohns replies evenly. (So much for attempted provocation.) “I’d say the concept is valid, perhaps more now that we see contract organizations starting up on the fringes of the industry with so many new technologies.”

He continues: “Today, when smaller organizations achieve a certain level, both Pharma and larger CMOs look closely at adding them to the portfolio. But I think there’s been an evolution here. Historically, we saw technologies that weren’t absorbed into a CMO who might have advanced them throughout the industry. They went – at a very early stage – into Big Pharma. The downside was that often the technologies ended up on the shelf, and not taken forward or applied to benefiting other molecules. That’s where we have come in: To ensure good technologies have the capability to be utilized by various customers, and with both small and large molecules.”     

From The Fringes To The Front

Littlejohns borrowed the term “the fringes” from Tim Scott, President of Pharmatek. Some 17 years ago, Scott co-founded a start-up focusing on technologies for early phase development, and it was he who helped secure the negotiation with Catalent to bring the experience of his 200-employee company into that larger organization.

Scott recalls how his start up “became particularly good at handling poorly soluble compounds.” Over the next 15 years, says Scott, “one of the technologies that evolved successfully was this ability to formulate poorly soluble compounds, and then more recently, the ability to create amorphous dispersions, what people in the industry call spray-dried dispersions (SDD). That was the technology we started to work with that was a bit ahead of the rest of the industry. We were willing to commit the resources and time to building an SDD franchise.”

Scott recognizes that Pharmatek’s joining Catalent represents the intensifying trend in M&A among CMOs to further spread technologies and innovation.

“A couple of things are happening here,” says Scott. “One is that outsourcing continues to evolve. We’re still learning how to do it successfully. We’ve seen that with the different models Pharma companies now have with their outsourcing partners. At the same time, you’re seeing technology advance not only on the discovery end of molecules like ADCs, but also in how technology is applied to the development and manufacture of drugs.

“This convergence,” he continues, “doesn’t necessarily create a focus on consolidation. Rather, it’s a view for new shared opportunities so providers and sponsors can bring innovation and technology forward.”

That all sounds good. But we should ask: Is there a point where acquisitions by a subset of “Big CMOs” hinders new company formation in the outsourcing industry? For example, three or five years from now, if the opportunity arose, would Scott be able to again start a new drug-development shop like he did 17 years ago?

“Technology moves forward,” he replies. “There will be interesting opportunities, and new companies willing to take a risk in this space.” He adds: “It’ll be those people on the fringes, doing specialized work like spray drying. Those types of opportunities can become marketable to a broader audience of Pharma, and that’s what inspires a larger CMO to want to incorporate them into their product service line.

“If there are people out there with an idea, and thinking about a start-up, they should do it,” he says, still full of the entrepreneur spirit. “There are innovation and technology holes, and new companies can compete. Pharmatek started with two guys in a garage. That, to me, is one of the fun things about the story. Now that we’re combined with a larger organization, our goal is to be most successful in bringing these technologies to a wider audience and throughout the drug-development phases.”

Partners Spread The Wealth

Towards the end of our discussion, Littlejohns makes a comment echoing a main point that Wood of Pfizer made in our first article, regarding how these technology acquisitions often come about.

“In many cases,” Littlejohns says, “it all comes into focus because you start and then continue to work closely with partners. If you recall the Redwood deal [in which Catalent acquired a biotech for its platform technology in ADCs], we had already been working with them for around two years. Understanding the real potential of their platform, and really understanding their “DNA” as a company, grew through the relationship. You can say the same thing of our relationship with Pharmatek.”

“Perhaps different from Pharma at times,” concludes Littlejohns, “is that when a CMO acquires another development organization, we really do focus on the “DNA” of that company, and on its people. We keep those people with us. Important is whether there’s a workforce of smart people to progress that technology or service with us. Typically, we don’t move people around; we tend to grow where they are. We don’t want to lose that brain trust.”

Keep the acquired, innovative brain trust intact, but more widely (than Pharma) spread the innovation throughout the industry: It does sound like the CMOs are onto a model for a better circulation of advanced technologies through drug development supply chains.

At the same time, we have to be concerned that “Big CMOs” start to get too big, and begin to emulate another, less positive trait of Pharma we’ve seen at times: rising bureaucracy and a resultant lack of innovation. We’ll be watching where this carries the outsourcing industry throughout 2017.