From The Editor | November 16, 2022

Who's Afraid Of Their CDMO Getting Acquired?


By Louis Garguilo, Chief Editor, Outsourced Pharma


“It seems as soon as a new boutique or smaller CDMO – especially in the biologic space – can get established, one of the big guys is eating them up.”

Some professionals, such as experienced drug development and manufacturing executive Kelly Creighton, Executive Vice President, Head of CMC, Citius Pharmaceuticals, Inc., can surmount even serious outsourcing challenges while maintaining a smile and upbeat attitude.

Our second editorial with Creighton again provides our readers a hard-hitting but positive assessment of challenges they may face, and as importantly, solutions to overcome them.

On the one (and positive) hand, he says, “It does seem like we're seeing new, smaller CDMOs emerge, which I really like, especially for our early phase work.”

Kelly Creighton
Depending on the project, Creighton often prefers to work with these smaller partners and try out new service providers.

“We get more flexibility and more personal attention,” he says. “They tend to focus on providing us exactly what we need for an early phase program, versus the potential upselling to a bigger, ‘top-development model’ some of the larger CDMOs often push.”

On the less positive side, even for an upbeat Creighton, “The acquisition of these smaller CDMOs can be frustrating.”

“Unfortunately, we've had multiple, smaller CDMOs [in the U.S.] that have come in to work with us, but then were bought by the big guys, including an API manufacturer that was acquired by a large French provider,” he says. “So, we've had to adjust to the M&A activity in our industry.”

Within some of those “adjustments,” CDMO integration and transition can in fact progress rather smoothly, and work out for the sponsor for the most part. Larger companies can introduce options for more services, and expanded capacity. Many times the acquired company gains additional resources and knowhow. And the integration can go smoother than many might expect.

But sponsors should stay vigilant. Even with a smooth start, “all of a sudden, they flip the switch to the ‘big-company model,’ and things can kind of go sideways.”

That big-company model altering the relationship may get played out as a certain disregard for smaller or mid-sized customers.

“We've had to learn to navigate those M&A acquisitions to ensure our programs don't fall through, that things keep moving forward, and we continue to get the services we need,” says Creighton.

Here’s how he’s done it.

Advice To The Outsized

Citius is a late-stage biopharmaceutical with a diverse pipeline that includes anti-infectives in adjunct cancer care, oncology, stem cell therapy, and unique prescription products.

We learned in an earlier editorial the company operates on a fully outsourced model. Creighton and one other CMC professional directly manage 10 CDMOs across the entire development and manufacturing continuum.

Whenever one of his CDMOs is going through a merger or acquisition, he says:

“Having a good project manager at your CDMO who’s an advocate for you, is worth their weight in gold.”

If you don’t have that golden internal support to begin with? 

“You never try to be a difficult customer,” Creighton replies, “but there are times when we don't feel like the project manager is stepping up for us. We request meetings to discuss the relationship, and to manage expectations and contractual obligations. We will not hesitate to request a new PM if we feel it is necessary, because again, this is key to successfully advancing our programs."

Creighton believes biotechs require somebody on site who will advocate for you while you're not there, especially during times like the recent COVID restrictions when sponsors had limited CDMO access. (We learned in part one, Creighton really likes to be on site.)

“Having an advocate during an acquisition or merger, someone keeping communications open, understanding what their own internal transition plans and timelines are, and how they're approaching the change, is vital,” he says. “That advocate [usually the project manager] should know what's coming internally, what the changes will be.”

If your PM in fact doesn’t know what’s coming, "that’s a red flag and might prompt you to agitate for some action on your part."

"There is no further red flag needed to raise concern and potentially agitate action on your end. Be aware at the first sign of trouble,” says Creighton.

“Don't be afraid to speak up. You may have to say, ‘We're seeing this on the horizon with regards to changes in services, or in how you are operating based on this new company structure.’ Those discussions should branch out to all those involved with your project at the CDMO, and particularly the technical professionals.”

Less Of A Delay

Prior to joining Citius, Creighton experienced one of the worst manifestations of a service-provider acquisition. A CDMO his company was working with suddenly attempted to delay a manufacturing run by over a year because the CDMO had to integrate new clients with existing clients in a new facility it had just purchased.

Creighton wasn’t going to simply accept the delay.  “We went in there and sat down with their management team to explain the exact impact this would have on us – their existing customer. We made sure they were listening,” he says. “Ultimately, we were able to renegotiate, and get back in the queue in six months instead of a year.”

“I’d advise even the smallest biotech: don't be afraid to voice your concern; schedule meetings with the folks at the CDMO. Make sure they know you are there.

"At the same time, don't be afraid to also listen to their side. Learn what the situation is. Ask what options can be mutually worked out,” adds Creighton.

And, don’t be afraid of pursuing outsourcing’s relational paradox:

While ensuring the CDMO knows how important they are to your programs and company, make them also aware, in Creighton’s words, “you are not beholden to them, and you will pursue other options.”

“Usually, they do not want to lose you as a client, M&A or not.”