The ongoing pandemic is putting pharmaceutical R&D strategies to the test and also challenging manufacturing planning and supply chain management. Particularly in this industry segment, the supply chain is global, complex and interconnected. Each link must be strong enough to ensure that the road from lab to final drug product is as smooth as possible, even under the most difficult circumstances.

In addition to the pandemic, the growing threat of a no-deal-Brexit amid old and new trade conflicts and increasing protectionism, is putting even more stress on companies operating in the pharma sector.

In cooperation with Wombat Capital, a cross-border investment bank, CHEManager asked executives and experts of CMOs, CDMOs and CROs operating in the pharmaceutical sector to share their opinion on current challenges for their industry and how these challenges may influence changes in their market.

What in your opinion and from your perspective are the main impacts of the coronavirus pandemic on the drug supply chains?

Mark Quick: Recipharm has significant operations in Northern Italy, Spain, and India, which are all areas that have been heavily impacted by the outbreak of Covid-19. I am pleased to say that we have managed to keep our operations by and large running throughout, with limited impact on our business. However, one of the main challenges has been the need to operate with a smaller workforce, with many employees absent either shielding or caring for children. From an early stage we put measures in place to ensure our employees could continue to do their jobs without compromising their safety. This included keeping teams/shifts separate and increased distancing.

Initially we saw some challenges around continued access to raw materials and APIs due to the disruption, but we were fortunate to have had good safety stock levels already in place, so this did not prove to be problematic. As early as January we were assessing this, and our preparedness gave us a real advantage in this.

Since the start of the pandemic we have also seen strong demand for antibiotics production as these are critical to treat the secondary bacterial infections that are common in severely ill Covid-19 patients. This includes the production of potent antibiotics such as Piperacillin/Tazobactam, Ampicillin, Sulbactam, and Ceftriaxone, as well as standard penicillin. We will without doubt soon see sharp growth in the development and manufacturing of biologics. As Covid-19 vaccines progress through clinical trials the next challenge will be achieving the necessary scale-up of processes to meet the required manufacturing volumes. The ambitious annual capacity target for these vaccines in 2021 is in the region of 1 billion doses, which will have a huge impact on supply chains over the next 12 months and beyond and will undoubtedly feed through into sterile fill/finish demand.

Many Western CDMOs have already shifted operations back to the USA and Europe as intensive business activity in China has driven up labor costs. In addition, national policies, trade-related developments such as Brexit and the US-China dispute and impacts of pandemics are likely to require repatriation of at least part of the supply chain in many countries. Could CMOs/CDMOs be beneficiaries of restructured supply chains?

M. Quick: Since January 2020, with shortages of key antibiotics, anesthetics and even paracetamol drug products, the Covid-19 pandemic has served to further highlight Europe’s reliance on drug products, and particularly APIs, manufactured outside of the region. Consequently, it is likely that the industry will look to diversify their supply networks to avoid over-reliance on any one market. European CDMOs have played an important role so far in retaining pharmaceutical production on the continent by using their capabilities and skills to maintain and extend production capacity. Should API production be repatriated, CDMOs with these capabilities will be vital in supporting development and meeting the needs of complex compounds. I would anticipate more partisan approaches to drug supplies going forward which will serve to benefit companies with a global footprint.

What do you think the impact of the repatriation of the drug supply chain will have on the M&A activity in the CMO/CDMO industry? Do you think that this would create an impact on valuations?

M. Quick: The CDMO industry has on balance benefited from the pandemic and has been able to adapt in a very flexible manner and at relatively short notice to put capacity in place. This I believe bodes well for the future of the sector which is now a truly strategic and vital part of the supply chain for many pharmaceutical companies. It has been somewhat surprising that M&A activity has held up well during the pandemic and this is likely a reflection of the robustness of the business. It is clear that repatriation and localization policies will support valuations and in particular API businesses where much of the production has already moved east. Companies that can support businesses in multiple territories are in the best position to take advantage of this.

Has the inability to hold face-to-face meetings with prospective clients and conduct client visits to sites affected your new business development since the outbreak of the coronavirus pandemic?

M. Quick: Covid-19 has unavoidably had a huge impact on the way that we interact with our customers and we have had to adapt to ensure that we can continue to fulfill our responsibilities to them. We have not seen any slowdown in our pipelines, and in fact, in areas such as antibiotics and sterile fill/finish we have seen an increase in demand for our services. In terms of securing new projects, whilst the overall number of enquiries seems at the same level, the decision-making process seems prolonged.

However, we have invested significant effort to minimize the impact of the pandemic on the relationships with our customers and prospective customers. We took the decision early on to provide full and open virtual access to our facilities which has allowed potential customers to continue to audit and inspect our operational environment. This initiative has not only made it possible for customers to virtually experience our facilities and capabilities but has meant that we have been able to allow them to continue to review the robustness of our processes. This is not unique to us or the CDMO industry, but I think the circumstances have dictated a much more holistic approach to using video conferencing than I thought possible – and I am pleased to say with great success. It will never replace face to face interactions, but it is a good second best.

EU regulatory authorities and the FDA have issued guidance on conducting clinical trials during the Covid-19 outbreak. Have you as a CMO/CDMO been affected by these changes?

M. Quick: To date, this has not had a massive impact on our business despite the fact that anything non-Covid seemed to be initially placed on hold. However, I think things are now easing up and the initial focus has now subsided.

The race is on to develop treatments and vaccines against Covid-19, and so is the need to assure supply of these potential drugs and vaccines. Pharma companies are leveraging their internal manufacturing networks but also partnering with CMOs/CDMOs. What supply and manufacturing strategies/alliances are in play?

M. Quick: Recipharm is certainly in discussion with several pharmaceutical companies on various aspects relating to this. It is important that we work with them to ensure that we have the right structures in place to optimize our resources to support their efforts. This means ensuring we have spare capacities in place when and if they are needed and have the right commercial arrangements to support this. There is almost a “land grab” on securing capacity in certain areas which may not all be required.

The CMO/CDMO industry has managed to support efforts to develop vaccines and therapeutics for Covid-19 despite already being at a high level of utilization. What made that possible?

M. Quick: The CMO/CDMO service sector is uniquely positioned to address many of the challenges that drug developers are facing amid the Covid-19 pandemic. We understand the additional pressures being placed on customers to maintain the supply of medicines and the processes which are necessary to accelerate the development of safe, effective drugs and vaccines at this time. We are well versed in offering customers capacity according to their changing needs, and this pandemic has been no different. Our global manufacturing footprint, access to a broad range of expertise, regulatory experience and technologies have all made it possible for us to provide support at short notice. We are currently navigating a complex landscape, but we are well placed to manage this complexity. I believe the key to being in this position is to have the flexibility and alacrity to be able to respond. The pharma industry has demonstrated this and is challenging many of the paradigms on the times lines required to develop drugs. CDMOs must be efficient and flexible, so this has come naturally.

“Emerging”, “virtual” and other small (bio)pharmaceutical companies are driving the discovery and development of new drugs but are mostly dependent on the availability of financing – which could become more restricted due to the economic downturn caused by the economic and epidemiologic disruptions to the global economy. As emerging biopharma companies are important customers of CMOs/CDMOs, how is this going to affect your business?

M. Quick: It is true that this could affect our development business and we certainly witnessed this back in the late noughties. While Recipharm is not over-reliant on one sector, more concentrated providers would likely see a bigger impact.

For the biopharma CMO/CDMO industry, the pandemic crisis has created great opportunities. What is your opinion on whether and to what degree the CDMO industry will enjoy long-term benefits from its role in tackling the current crisis?

M. Quick: The CDMO industry will continue to be a crucial support for pharmaceutical companies and that has been demonstrated over the past few months. Operations have continued in some exceedingly difficult areas of the world and supply chains by and large maintained. When the time comes, CDMOs have demonstrated they are able to step up to the challenges presented and be ready to help. For example, from the moment a successful vaccine is identified, the necessary quantities of vaccine required can be produced as quickly as possible. Furthermore, the need for fast turnaround of products may lead pharmaceutical companies to outsource more elements of their development and manufacturing to CDMOs who have the necessary capacity and expertise already in place. This could have a long-term effect and may change how many pharmaceutical companies choose to work with their CDMOs in the future. Overall, challenging as it is, the pandemic has allowed the CDMO industry to really showcase its abilities in the best possible light and that can only be a positive thing for the sector.

Recipharm claims to have a business model that differs from most other global CDMOs. What are the major differentiation elements of your business model compared to those of your competitors?

M. Quick: At Recipharm we have a lot of strength and depth in our organization and can offer second to non-pharmaceutical expertise to solve customer problems. While our customers often have complex technical or supply chain issues to overcome, our resources and capabilities have been established to help them address and manage these. For example, our inhalation offering through Recipharm Inhaled Solutions is unique in that it combines the device development/manufacturing expertise of Bespak along with the pharmaceutical development and commercial filling capabilities we have in the US and UK.

By being able to offer a full service from supporting discovery through to development, commercial manufacture and supply across a wide range of pharmaceutical forms, we enable our customers to concentrate on other aspects of their business knowing that they have outsourced their projects to a reliable partner. We also provide a high level of transparency across our operations. Our ownership structure and the fact that we are listed means that customers are aware of our financial health which allows them to manage their risk profile in a more robust way. This is not the case with many of our peers. Overall, we believe that Recipharm offers unapparelled value for money to customers.

www.recipharm.com

This interview was conducted in cooperation with Wombat Capital, a cross-border investment bank providing mergers and acquisitions and strategic advisory services. With offices in New York and Paris, Wombat Capital focuses on the CDMO/CRO and pharma outsourcing sectors.