New Business Models Attract Virtual Pharma

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Virtual companies have become a major presence in the pharmaceutical industry, developing more of the new drugs in the pipeline. Their needs are quite different from those of traditional large and even mid-sized pharma companies, and contract manufacturing and contract development and manufacturing organizations (CMOs and CDMOs) have been adjusting their service approaches to better meet their requirements.

Although some virtual companies may aspire to become full-fledged manufacturing companies one day, many do not, but focus on milestones and licensing deals. Vertex Pharma is an example of a virtual pharma company that thrives in its virtualness. Since the company was set up in 1989, it has launched three new drugs, and in 2015, FDA approved its drug Orkambi, manufactured via a continuous process (1). Over the years, the company has worked with partners on new applications of process analytical technology and quality by design.

Vertex is collaborating with one of its strategic contract partners, Hovione, on a continuous manufacturing process at Hovione’s East Windsor, NJ facility, which will include continuous blending, wet or dry granulation, fluid bed drying, tableting, and coating operations. Hovione invested $24 million in the facility, which is expected online in 2017, and Filipe Gaspar, vice-president of R&D, said that the new approach will allow manufacturing and process development to run in parallel with clinical studies to speed commercialization.  When the facility was announced in 2015, Hovione managers said that it would offer use of spare capacity to third parties interested in manufacturing medicines continuously (1).

As this example suggests, service providers have had to approach virtual companies differently than they do their traditional Big Pharma clients. The CDMO Patheon, which launched an initial public offering (IPO) in July 2016, articulated some of the approaches being taken with virtual pharma in its Flexible Manufacturing services platform, which was formally introduced in March 2016, at the Drug, Chemical and Allied Trades (DCAT) conference in New York City.  The company is working on flexible manufacturing with Amgen, but also includes a number of virtual pharmaceutical companies with innovative technologies among its clients. Joe Principe, vice-president of global alliance accounts for Patheon, discussed the platform, and the thinking behind it, recently with Pharmaceutical Technology.

Different needs

PharmTech: When did you first see virtual pharma companies becoming a factor in pharma outsourcing?

Principe: Virtual pharma companies have always been an important part of the CMO base, and they are a growing part of our revenue and client base. Virtual companies are developing about half of all the pharmaceuticals in the development pipeline now, but their needs are very different from those of more fully integrated pharma companies, which have well-defined procurement organizations to support the spend around outsourcing. Virtual pharmaceutical companies are more susceptible to fluctuations in the capital market than most mid- to large-sized pharma companies.

Contracts emphasize flexibility

PharmTech: Are contracts structured differently for virtual pharma companies?

Principe: Generally, we are not restructuring contracts, but we have been developing new offerings around flexible manufacturing. These are not specifically targeted to virtual pharma, but many virtual companies find them more attractive because they offer a more complex approach to sourcing than the traditional transaction-based approach based on predefined capacity.

Our approaches stem from more strategic conversations that we’ve been having with the market, broadly. It is very clear that clients, especially virtual companies, would want suppliers to share in that risk because of the significant capital associated with preclinical, pre-commercial, pre-launch, and Phase III clinical manufacturing phases. Flexible manufacturing approaches offer a way around the ‘take-or-pay’ rigidity of legacy contracts, so that contracts can bend and stretch a little based on real-world demands. There are instances, for example, in which a virtual company may have a unique manufacturing process that doesn’t suit using a CDMO’s standard assets. Their only option is to build out.

We’ve developed a condo model--actually, the concept was in place long before we gave it a name--that allows a smaller company to come in and take advantage of our infrastructure, engineering, and facility design expertise, so that they can build within our infrastructure something that would be a dedicated plant for their very specific opportunity.  This approach is typically attractive to companies that don’t have products on the market. It can be riskier for the CDMO partner because they don’t yet have a clear understanding of the products’ chances of success. We tend to work with companies that have generated stable revenues.Currently, we have four active condos in place.

Other flexible models

PharmTech: What other types of services are you offering with umbrella terms such as the condo model?

Principe: All of these models have come out of more strategic dialogue over the past few years. We asked clients how we could solve their supply-chain needs, instead of focusing on the old requests for proposals (RFP)-driven approach.  
Their responses eventually became product offerings within our Flexible Manufacturing platform. They include:

• Dedicated facilities, built specifically for the client to use for their own purpose. The client can change the product mix from one day to the next. This is a more capital intensive offering than the condo model, because it involves construction of a facility specifically for that client. We have a number of requests for this type of arrangement, especially from Big Pharma.

• Fractional ownership, or facilities that are built for a finite group of clients that are working in the same technology area, providing visibility over multiple clients and products. Currently, we have three strategic clients that are asking for this type of approach, which is especially attractive to small to midsized clients. We manage complexity around demand forecasting. This approach provides dedicated assets that are less expensive than a custom facility.

• Global network assets, in which clients’ requirements are satisfied by multiple sites in our network. We guarantee access to a certain amount of capacity within the network. Clients can qualify multiple sites. They give us their schedules, and we work out planning around those schedules, and build an offering that gives them access to capacity over certain time periods. It’s a low-risk approach that allows us to use existing assets.

• Enterprise model, in which we help our clients look at their internal networks and get the best value from their own footprint (e.g., manage their facility, close and move facility). In some cases, we acquire bits and pieces of, or all of, their networks along the way. Since we’ve launched this model, we have had two or three conversations with different manufacturers around it. We are enjoying continued strategic dialogue with clients around all of these offerings.

• Keeping an eye on innovative technologies

PharmTech: As a CDMO, how are you facilitating innovative processing?
Principe: We keep an eye on technologies that are in play and where the industry is heading. Our acquisition of Agere a few years ago, for example, was targeted at helping us solve solubility issues, a major industry challenge. We are investing in continuous manufacturing technology and discussion potential applications with clients, either for new products or for existing processes.

Reference

1. “Hovione and Vertex Partner on Continuous Manufacturing,” Press Release, March, 2016.

Article Details

Pharmaceutical Technology Outsourcing Resources Supplement
Pages: 12–13

Citation:

When referring to this article, please cite it as A. Shanley “New Business Models Attract Virtual Pharma," Pharmaceutical Technology Outsourcing Resources Supplement 2016.