From The Editor | September 11, 2023

Tales Of Outsourcing Woe (Are Good For You)


By Louis Garguilo, Chief Editor, Outsourced Pharma

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A drug development and manufacturing stalwart recently relayed some heady outsourcing advice, and a certain tale of outsourcing woe, which I’d like to bring to Outsourced Pharma readers.

Why bring forth the latter?

Because woe warns, woe informs.

Frankly, it can be cathartic – it’s comforting to know you aren’t alone in facing challenges at contact development and manufacturing organizations.

Let’s christen the professional I spoke with as Sir William of Woe.

He once worked at a big pharma, but most of his decades-long career spanned start-ups and virtual biotechs.

He also spent time at a CDMO. That experience provided insights he’s applied to contracting with providers for the development and supply of clinical-trial material.

Most importantly, he says, “I learned about how the money is involved.” Herein lies his cautionary tale.

Behind The Response

What Sir William means is he understands “how CDMOs must make up for their costs and expenses, how they need to carefully strategize to prepare pricing for customers, and their real financial pressures and drivers for bringing in new business.”

When it comes to outsourcing, we like to talk relationships, partnerships, and communication. But biotechs survive on investment dollars, and CDMOs on winning some of those dollars.

As many wise folks have advised, understand your counterparts needs when negotiating to bring teams together.

Most recently, perhaps instigated by relatively newer fields (e.g., cell and gene therapy), there’s renewed talk about strategies such as risk-sharing or milestones.

Fine, but again, the bottom line is CDMOs need to receive enough of your money presently to be profitable in the here-and-now, or they cannot operate at the highest levels, and some would soon perish.

None of this is exactly novel. However, bad things happen when there’s a contrived imbalance, and the wrong financial terms end up spoiling the relationship for both sides.

Seems To Work

Sir William fights off bad outcomes with the above thought process.

“Essentially, though,” he says, “most CDMOs will tell you anything to bring in those first tranches of money.”

He accepts no quote from a CDMO on its face value; instead, he analyzes it to pieces.

“I’ve seen what goes on behind the formulation of the quote on their side. If you squint, you can read between the lines.”

Sir William suggests readers use a higher level of scrutinization of not only pricing, but timelines, scientific and technical assumptions, and “options” that influence the potential costs put forth by the CDMO.

Forget “partnership” for that moment. Think what the CDMO is telling you economically.

Peering into pricing can lead to the realization “there is a lot of miscommunication that can go on in the beginning.” This can affect the economics on both sides, and in the longer run, harm any budding relationships."

To begin with, what you put in your RFP as potential customer is absolutely critical. Our outsourcing guru says, “just as the proposal that comes out of the other side is paramount.”

“Both the economics, and the real scientific and technical needs of the customer, can get lost in translation between the RFP and the response."

In other words (mine):

Follow the money. Ensure it is applied in the right places. Work upfront to understand what’s fair on both sides. The economics of the deal is an overall indicator; it establishes that the understanding between potential partners is valid, and you are on the right path. 

But woe be those who overlook this.

We Moved, They Got Bought

Not too long ago, Sir William joined a biotech to help develop a new formulation for a drug; he needed also to distribute material to widespread clinical trials. He quickly realized the large, name-brand CDMO his organization had selected before he arrived was, as he puts it, “actually pretty hopeless.”

Was it a matter related to what we've described above? "Partially," he says.

But he’s a bigger tale to unwind.

“So we moved to another CDMO,” he continues. “This time, we wanted to move away from the ‘big guys.’ We felt the small-to-medium boutique providers were a better fit.”

That proved correct.

However, he laments, “Next thing we know, a much bigger organization buys them out.”

Ecomonics, if you will, strike again.

The transition to new ownership "was a painful process,” says Sir William. “We had a dedicated group in Europe that was excellent, but when the new owners came in, most all those professionals left.”

The new owners brought in other professionals (and bothersome new processes), “but in fact they are still resource-short.”

That's meant the project managers assigned to Sir William's project are “working all sorts of hours.”

“I don't necessarily get the service I want, which makes my job harder. I'm constantly chasing them up.”

What sticks in Sir William’s craw more than anything else is that while the actual manufacturing, labeling, and distribution is all being done in Germany, the new owner's newly assigned project manager is located in the U.K.

“It’s a fundamental flaw,” he says. “I need my project manager to be on the shop floor, for when something goes wrong. I need him to go the warehouse to find or check on something for me. If he's an hour-and-a-half plane flight away, that doesn't work.”

The CDMO tells Sir William their operating systems are the same globally, so no sweat. Such arrangements work well, they say.

“I don't believe it does,” he retorts, “and I'm constantly communicating that, and escalating concerns. I'm not necessarily getting answers, or the service delivery that I'm anticipating.”

Woe be Sir William.

What recourse is at hand?

Depending on the timing and many other circumstances, he tells me, smaller customers like his organization may not have immediate actions they can take to remedy the situation – other than never give up on registering that you are not a satisfied customer.

Continue to fight the good fight until you can affect change, and the CDMO in fact does the right thing by you, the customer.

And if necessary, when the timing is right, take your money ... but don't run. Pay (no pun intended) attention to the finances in all respects of your next destination. Sooner or later it'll work out.  Sir William is still a big believer.