Hard to argue with the categorical proposition that no single entity has fundamentally influenced the growth and shape of global pharma outsourcing as has WuXi of Shanghai. What has been debated is the nature of that impact on the industry.
I sat down with Todd D. Nelson, Ph.D., VP of Operations, Alliance Management and Business Development, WuXi STA, ostensibly to discuss a subject Outsourced Pharma recently initiated in an article titled, “Pharma Asks: Who Manages What At Advancing Service Providers?”
However, when meeting one of the newest executives of WuXi, moreover one who comes directly from 18 years at big pharma, the conversation flows naturally to deeper waters of global industry dynamics and dynamism, and the waves of rivalry.
We can, though, put structure on our discussion by starting with the original focus on leadership needs at service providers.
From Pharma To Provider
Nelson left Merck as executive director, global process chemistry, and joined WuXi STA, in March. STA—officially Shanghai Syn-The-All Pharmaceutical Co. Ltd., founded in 2010—is the wholly owned API development and manufacturing arm of WuXi AppTec (NYSE: WX), the collective operating divisions of parent company WuXi PharmaTech.
Six months into the position, Nelson couldn’t have formed the habit of careful calculation before speaking at his new company, but he may have honed it there. He’s sure to start answers on the right strategic syntax to make the company’s point.
Regarding recruitment for leadership positions, he says: “CROs/CMOs are becoming opportunistic in the hiring market. Quality and innovation are such key attributes, and without that talent base are hard to obtain. Hiring people from pharma who understand how to successfully outsource, and what the standards within pharma are, can be a differentiator for providers.”
Like with Nelson, a mid-Western American, who says he couldn’t honestly call himself multi-cultured in any significant way, Chinese providers particularly are looking to the West for talent. But doesn’t that demonstrate a need that Chinese companies are trying to disprove?
“WuXi continues to bring in Western leadership, and that sets the bar for knowing what the client wants. When I started, my guidance was to think like a client because I have been in that role.”
So Western talent is brought in to understand customers better, not particularly for the level of science?
“The two are not mutually exclusive,” he replies. “Western talent plays a key role in terms of driving leadership. At WuXi, a significant number of leadership positions—held by Chinese or others—have Western experience, either from an education or training background, or pharmaceutical experience abroad. You can think of bringing in Western talent from a managerial perspective, but also scientists to augment the scientific or technical acumen.”
He continues: “We focus on and invest in our employees. Some attrition in any organization is healthy, but not if you are losing the wrong people. There is significant training, education and benefits to entice good employees to stay. It’s not just bringing people in from afar, but also focusing on home-grown talent to lead.”
Nelson offers advice should others find themselves in a similar situation of moving from pharma to provider. “When I was with pharma we had a single strategy and way of doing things. Now I’m in an environment with a host of clients doing things their own way. They each have strategies and communication mechanisms. It can become a complicated space,” he says.
Outsourcing And Geopolitical Considerations
The early years of WuXi brought an intense rivalry with the West. Executives at Western-based service providers said China could never reach the level of SAR and intellectual input in the medicinal chemistry arena, for example. WuXi became a symbol of greater geopolitical implications, labeled most derogatorily as “cheap labor.”
Nelson, faced with this historic analysis, draws his longest pause of the interview.
“From my perspective, WuXi made significant changes and advancements in outsourcing, first from a regional perspective and particularly in China. Look back 14 years. WuXi was really the first modern chemical group to do chemical synthesis. It was a leader in this field. With Ge Li, our founder and CEO, the long-term vision of committing to customers was strong.”
“Early on, he wanted to broaden out. Move horizontally from laboratory chemistry to tangential areas, and vertically to development and manufacturing. I view it as changing our industry from a positive perspective. It has opened channels to get drugs to patients in a more facile and economic sense. We facilitate the discovery and development of drugs for academia, biotechs and non-profit organizations, as well as pharma.”
A second geopolitical concern is the lucrative—some say anti-competitive, anti-capitalist and unfair—benefits handed down from Chinese government at various levels, including subsidizing facilities and tax breaks.
“If you look at the U.S., for example, there are state, regional, and city incentives, including tax breaks and deferments to attract businesses. I think it’s similar.” While this is a logical but perhaps not wholly convincing analogy, others have said that the future, via a gradual balancing of pricing and quality, and general progression of economies and societies, will place global competition on a more level playing field in time.
Of course the current government mandate that new drugs for the Chinese healthcare market be manufactured domestically is a major trump card for Chinese service providers. Here we may very well point to a bestowed advantage not found in most other free-market countries. Nobody seems to know if this policy will change. For now, Nelson says, “We offer global quality standards. Anyone around the world can work with us confidently and have an extra dividend of assistance getting into the Chinese market.”
The Strategy of Integration
Nelson and I enter the ever-present topic of broadening relationships between sponsors and providers.
“Pharma companies have comprehensive strategies, but it is easy for these to fall by the wayside if there is a critical event. Suddenly, tactics override strategy,” he says. “However, I have not heard of any overarching significant change with our relationships. Things ebb and flow. We may see flux in FTE numbers, but that is what we are built for.”
Historically, and underestimated by global rivals focused on the large numbers of (relatively low-cost) FTEs, there has always been a larger strategy at WuXi, one of comprehensive service integration. Nelson iterates, “this starts at our founding in 2000 by Ge Li and continues with him.”
Indeed, a look at WuXi’s playbook for it’s first decade alone is to witness service-stacking extraordinaire, with an early IPO and M&A mixed in to catch—or set—global industry trends.
Nelson, though, is upfront in his assessment of pharma’s taking full advantage of integrated providers. “Some large pharma do everything, but the organizations may be positioned for distinct business units and autonomous decisions. Does it make sense to bundle services and solutions, or does it make sense to do what is most appropriate for that specific business unit? At times you try the former, at others you go with the focused intent.”
Service integration may be most appreciated by smaller customers. “You find a lot of benefit with the smaller or virtual companies that don’t have the infrastructure. A one-stop service and solution provider fits in well. It is a nice option for pharma, but becomes more of a driver for smaller companies.”
“However, it is important for pharma to have a particular partner to go to,” Nelson continues. “We also know it’s imperative in the early stages for WuXi to guide the relationship through the range of services and capabilities. Developing the relationship is mutually beneficial: From pharma’s perspective, that level of engagement can continue to pay dividends, and it has helped us to move from a service to a solutions provider.”
Where STA—And Wuxi—Is Headed
STA is headed towards strengthening customer relationships by building an integrated CRO/CMO campus north of Shanghai that will hold a 500-person R&D center and a suite of nine pilot and commercial plants. The plants will be completed in three phases, with the first—two commercial and one pilot plant—planned for an end-of-2015 completion.
“The other six plants are not rounded out yet,” explains Nelson. “We want our customers to tell us what we should put in there. We ask them: ‘Do you think you will do more continuous than batch manufacturing? Are you moving towards even more potent compounds?’ We’ll take that into consideration as we design that space. It can be to the level of specificity of vessels and reactors.”
“And so,” he concludes, “the dogma really is engagement and relationships. Major pharma should be engaging CRO/CMOs in dialogues like this now to have a stake in directionally aligning where we all are heading.”
Where WuXi has been heading its first 15 years is to pronounced customer relationships, increasing services and strategic integration … and industry respect for its leadership and accomplishments. There have been bumps along the way, but already these have been reached in large measure.