Pharmaceutical Commerce - November/December 2016 - 13
as clients, a core part of our strategy is that 80% of new
molecules are held by small and emerging companies. Our
strategy is that if you get involved early, it's a very sticky
business. We like you to start here in the developmental
phase and then commercialize for you-that's a fundamental
part of our strategy.
Onboarding starts by getting customers into a room
with the people who are actually going to do the work,
technical people who understand the business from the
other side. If we can't get them to come to us, we go to them.
We pride ourselves in tech transfer, with business and project
managers responsible for all the big-picture things and all of
the details that go into tech transfer. We'll do more than 100
of these this year, two-thirds from outside to inside, and the
other third from our development scale to commercial. This
is core to being effective in this business. We like to say, if you
can draw the molecule, we can figure out how to make it-
synthesis pathways, scale-up, process design.
Patheon promotes "OneSource" as a new and
better way of engaging with a CDMO. Doesn't
this model go against the strategy of contracting
with best-of-breed providers in distinct service stages?
This question comes up all the time. The history of the
industry was that there weren't companies from which you
could obtain APIs, develop commercial services or provide
finished dosage forms. We've chosen to build our business
not where the industry is today, but where it is going to be.
Our customers keep coming back to the problem of supply
chain complexity, which we offer to reduce by putting the
process in the hands of one company.
By the way, if we need to access specialized services
from a third party, we do that too. We can manage that
whole process. Take the example of an emerging customer
that found an API supplier in China; well, fine, but why
should they do that activity when they have only one or two
products, and managing that sourcing is a distraction for
them? We source API for 700 commercial products; we have
relationships everywhere. We have the ability to manage
import and export and all that it entails. They shouldn't be
bothered with the things that we do every day, all day for
Think of us as a general contractor in a construction
project. Customers ask us, can you manage this for me? And
we're happy to do that.
manage the production himself, or to have us run it. The
advantage is that the facility is surrounded by all the other
infrastructure-utilities, warehousing, quality control-
that needs to be validated and approved, which is already in
place in our facilities.
Another broader approach is flexible manufacturing.
Time and again, we sit down with a client to do a forecast
of their product volume, and the forecast is inevitably
wrong, but I know from my experience on the other side
that these forecasts are inherently inaccurate. In the face of
uncertain forecasts, Patheon has the facilities, equipment
and process technology expertise needed for operations
and risk management, in essence flexing to meet forecast
fluctuations. We encourage some clients to, in effect, take
out an insurance policy by reserving capacity, paying us
the opportunity cost, and then benefitting if their forecast
was too low. Conversely, if the forecast was too high, they
pass the excess capacity back to us, and we put it to use
elsewhere. A related aspect of this insurance is to address
business continuity concerns. If you currently have a sole
source production arrangement, you're only one fire or
flood away from a bad day.
A final aspect of how we look at capital and where we
invest is the internal networks of our customers. At today's
Big Pharma firms, their internal networks are great for the
products that they have, but not necessarily for the future.
The question is, can we help them migrate their network
in a responsible, cost-effective way that maintains business
continuity? This could be everything from selling us some
of their capacity, or having us optimize their capacity,
closing some things down and moving products around, or
any variation on that theme. I call this the "hotel model":
hotels like the Ritz-Carlton are typically not owned by
them, but they manage the property for the actual owners.
Overall, we encourage our clients to look at their
business in new ways, and to take what are fixed costs
and variabilize them. For example, I've had a discussion
recently with a client at a good-sized company with a
dozen products in development, who was challenged on
what resource levels and skill mix he needed. But on our
side, we had 500 such development programs in 2015-
for us, it's not that much of a variable. With so many
programs, we don't have to deal with the peaks or valleys
in commercialization. His problem of great volatility isn't a
problem at all in our network. This was a win-win situation
for both of us.
I'm assuming downstream manufacturing-
encapsulation, fill & finish, packaging, etc.-are lowermargin businesses for Patheon. Will you be investing
in this area? In particular, does Patheon have a program for
enabling serialization/traceability on its packaging lines?
We have a platform that makes it as easy as possible for a
client to go from a developmental program to commercial
shipments-draw me a picture of the molecule, and tell me
what package you want, and we'll take it from there. The fact
is, for packaging alone we're the No. 2 or 3 contract packager
in the US today. It's an important core service we offer. All
of our capabilities have different margins, but if you can run
them at scale, you can make an adequate margin.
It's still early days on serialization; I think we are going to
see a version 2.0 or 3.0 as everyone converges on the market.
Nevertheless, we are actively putting serialization capabilities
on more and more of our packaging lines. In global context,
we had to be ready for early adopters like Turkey, where
serialization is required today.
Serialization is an interesting data management problem.
For us as a contract packager, the challenge is that each
customer has a slightly different vision of what they think
they need. I absolutely believe that eventually, it will be a
source of insights into commercial channels, but that's yet
to be seen. Besides the compliance requirement, the value
will be to tap into your computer and find out where your
package is-that will be valuable for inventory management
as well as field recalls and sales data.
You've seen many changes in the pharma industry
overall, and the CMO business specifically,
during your career. What do you see in the
future, given the growing criticism of pharma profits and
drug costs on healthcare systems and consumers?
I'll cite three vectors of change that I see. One is the
importance of innovation in pharma and the ability to
create value. New products with patent protection, great
clinical outcomes and the ability to support these products
commercially is what will make pharma successful in the
You've commented on parts of Patheon's business
being capacity-constrained. What can you say
about capital investment in Patheon going
forward, in API, development or commercial production?
Our capital investments are aimed at areas that are
growing rapidly and have strong future growth. Today,
this is in aseptically filled injectables, whether in
vials, lyophilized prefilled, cartridges or drug-device
combinations. The good news for us is that we have a lot
of ability to expand capacity in this area. To my surprise,
capacity is very tight for small-molecule API capacity in
North America and Europe. For years, this capacity has
been moving to Asia; but as the chemistry has become
more complex, and the production scale has shrunken,
manufacturers are more at ease locating their capacity
closer to home in the West. So we have made incremental
We are also expanding in what we call our "condo"
capacity. This started with some sterile-fill products, and
now is becoming popular with biologics. The concept
is straightforward: every year, there are a handful of
projects that require highly specialized equipment or
manufacturing processes, and the drug owner wants a
high degree of control over production. So, we offer to
locate that equipment in one of our facilities. We can help
build, validate and run it, and the owner can choose to
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