From The Editor | September 16, 2014

Unifying Theory Of Outsourcing From Pharmatek President

By Louis Garguilo, Chief Editor, Outsourced Pharma

Timothy Scott, president and co-founder of Pharmatek Laboratories, a San Diego-based CDMO focusing on services from assessing “druggability” to clinical supply for small molecules of peptides, has put it all together. Not quite Einstein's quest for a theory of everything, but his synthesis of the outsourcing industry is alluring. Here’s why.

Throughout 2014, Outsourced Pharma has provided analysis and at times gently challenged trends said to be influencing our industry.

  • When certain declarations about providers in the East are made, we balance them with other perspectives.

Now Scott, a born-and-raised Californian who loves Cooperstown, NY, home to the Baseball Hall of Fame and the origins of the game, hits a home run by touching all bases of the pharma outsourcing industry.

As we will see, Scott does this by first dissolving the rhetoric of larger and fewer relationships into the reality of a proliferation of smaller providers and sponsors. He then places us in a global-market reconciliation that includes “pharma learning from the little guys.”

More Of Everything

Timothy Scott, president and co-founder, Pharmatek Laboratories

As a fundamental premise, Scott believes providers do better by focusing on what they are good at. In a classic volte-face, instead of CDMOs bolting on services or expanding through M&A, he sees the outsourcing market trending the other way. Instead of fewer players and relationships, he sees more.

“Strategies are evolving. The outsourcing that is happening right now is fairly new,” he says. “We have hundreds of small and virtual companies with their quick-to-clinic strategies. They are not interested in validating everything to the nth degree before they take the next step. They are VC-backed and need to get in the clinic and get an answer as fast as possible. They think differently than companies 30 years ago. So now we have hundreds of CROs and CDMOs in response to this, adjusting their own strategies.”

Scott says the real trend to focus on is pharma’s adopting these strategies of the start-ups and virtual companies.

“Pharma is coming around to this out of necessity. With the recession that occurred, the hundreds of thousands laid off in the industry, they’ve changed how they want things done. Now they say, ‘We need to do things like these virtual guys, to be faster, make quicker decisions and use phase-appropriate strategies.’ This is something we are currently dealing with as an outsourcing industry.”

Scott draws an analogy. “When you enroll your kids in elementary school, they are set there and within a certain group for the next 6 years or so. It just is not that way in the outsourcing industry today. People move projects around depending on what they get. They will take a little bit of this and that anywhere in the world the offer is best for them.”

Bits and Pieces of The Supply Chain

Scott says a major consequence is that now more groups participate in the supply chain. For all the talk in the industry about streamlining, “if you take a hard look at the supply chain, there may well be 20 partners. If this is the reality, how does pharma manage it and still get the quality, productivity and reliability it needs?”

The initial answer seems to be reverse the process: Simplify outsourcing by working with fewer vendors even while contracting for more services. But this seems like swimming upstream against a current fed by the industry’s own making.

“There are pros and cons to all these strategies,” Scott says. “The key is to understand the differences. Regarding vendor consolidation, there is definitively a trend on the clinical management side that makes sense. Pharma are dealing with a huge amount of data, and the communication has to be excellent. To place pieces of 20 clinical trials with 20 different CROs would be troubling.”

Does this translate to other segments of the industry? Particularly in the development process, Scott mentions, for example, pharma has taken steps to consolidate analytical work. This can bring an overall cost discount, and a comfort in data consistency. Productivity and better outcomes should be the result.

However, according to Scott, there are more areas in the development process where pharma are willing to go wherever they can find the CDMO who best does the job. He points to formulation. “A lot of people come to us because we have a particular expertise in developing poorly soluble compounds and finding solutions for that. There are other formulation groups who concentrate on different areas. A savvy CMC manager or development director today says I have to pick and choose the right skill set just like I would in hiring the right employees to do this internally.”

Global Collaboration Model

Today, many of those expanded choices are in China and India. I asked Scott about competition from those countries specifically, and the whole East-vs.-West calculus for sponsors.

“Again, I think this is centered on different aspects of the process,” he replies. “The competition is stronger and there is more of it in China and India if you are a CDMO developing APIs, or on the other end, a CRO doing medicinal chemistry.”

Scott dives into the quality and price debate. “We are seeing quality improving all over the world. We have to plan for the fact that down the road quality will be what it needs to be everywhere. However, the cost of services is basically going to end up about the same everywhere as well,” he says.

Scott supports his assertion with the classic developing-economy model. “Because these economies will provide higher quality services and products, they bring the right people in and train correctly. These skilled workers want the best living environments, more consumer power and salaries have to become more equitable.”

“I really believe you will see in 10 years good quality and reasonable pricing globally,” he iterates. “And that brings the industry full circle to sponsors basing decisions on the best customer service and competency.” If he is correct, this levels the playing field for the global pharma outsourcing industry and should be a win-win for sponsors and providers.

Moreover, if all these providers are transferring sponsor projects in and out of each other’s shops, by necessity won’t they have to work collaboratively? Scott says this is a key question pointing to a lesson for big pharma.

“We still have customers that will not let one provider talk to another. They transfer the data and manage independently of their partners,” he says. “However, the fact of the matter is there is a knowledge shift going on. The number of people thinking about their project is now more heavily grouped on the CDMO side than internally.”

Scott says providers are more experienced in terms of the number of drugs they have seen, the analytical methods and formulations they have developed, and the number of manufacturing processes they have run. “That amount of work and experiential knowledge is not growing that fast at the pharma companies.”

“Pharma is used to building silos, and maybe there were good reasons for that” he continues. “They would now do better letting their formulation CDMO work directly with their animal testing vendor. The animal testing director might ask a question that spurs the formulations person to say, ‘That’s interesting because we just learned this.’ The pharma manager in the middle might not know to ask that question or make that connection. We need to break down those barriers and allow companies to communicate for a more effective process.”

“Some of it is also checks-and-balances,” adds Scott. “At times, Pharmatek will receive something from another vendor that we point out as not at the quality level the sponsor wants, or that frankly is not the best strategy. The group after us may in turn check us on something. This should be one of the positives of a new, open system.”

Scott sums it up this way: “If you have one-hundred of the best brains thinking about all parts of your drug discovery and development process, that has to be better than a closed, internal process. They key is understanding how to effectively connect different knowledge points. This should be the management and industry challenge that we are addressing as we develop these more sophisticated supply chains.”

More participants not less. More competition but on a more level global playing field. More communication throughout the supply chain. To be clear, Scott’s view of the industry hinges on rising salaries and quality in the East. Historic examples are there, Japan being the most obvious. Another key factor is the adaptability of pharma, and here, too, historically we’ve seen an industry that has made adjustments over the years in all areas from drug discovery to drug marketing, with none bigger than those already made in the outsourcing industry.

(Editor’s Note: Timothy Scott will be featured as a panelist at Outsourced Pharma West in San Francisco Nov 10-11. To learn more, click here.)