Partnering in The Pharma Industry: Is It Worthwhile?
Mathurin Baquié, PhD ?? Life Sciences
Lead – International R&D and Business Development – Biotech, CDMO, CRO, Medtech & Pharma
A journey through the stages of drug development to discover the diversity and importance of strategic partnerships
?
Written by: Mathurin Baquié, PhD
Sections:
- Introduction
- Partnerships to support the pharmaceutical industry
- Partnerships in their diversity
- Getting partnerships right from the start
- Partnering in drug discovery
- Partnering in clinical trials
- Partnering in drug manufacturing
- Partnering in distribution operations
- Conclusion
- About the author
- Conflicts of interest
- Disclaimer
??
Today, following the race against the COVID-19 pandemic, we are all familiar with BioNTech SE, the German biotech company, as well as its successful partnership with Pfizer, Inc., the US multinational pharmaceutical company.
On March 17, 2020, the two companies decided to expand to coronavirus disease 2019 their collaboration previously focused on the use of messenger RNA technologies against influenza. The parties agreed that day to co-develop and then distribute worldwide, with the exception of China, what eventually became Tozinameran, the now famous mRNA-based COVID-19 vaccine. Pfizer contributed through its recognized drug development, regulatory affairs and commercialization capabilities while BioNTech provided its mRNA vaccine expertise. In parallel, on the same day, Shanghai Fosun Pharmaceutical (Group) Co. invested in BioNTech to obtain, in addition to shares, the rights to develop and commercialize the future vaccine in China.
Through this striking example, we understand the importance and complexity of partnership agreements, which have the potential to ensure strong growth for partners and, beyond that, to allow millions of patients around the world to benefit from the rapid availability of innovative, quality medicines.
More than 50% of late-stage pharmaceutical projects originate from partnerships
In a more general way, the observation of the global situation is equally edifying. Today, more than half of all late-stage pharmaceutical projects are the result of external collaborations. Therefore, mastering the mechanisms of partnership is becoming an essential skill to ensure the growth of the companies in the sector.
?
Partnerships to support the pharmaceutical industry
Partnerships are all the more crucial as the pharmaceutical industry has been in transition for some years; from a business model centred on the marketing of large volumes of small chemical molecules, it is shifting towards more personalised medicine where volumes per drug are often low and now concern biological products in addition to small molecules.
To illustrate this, the period from 2010 to 2015 can be seen as the epicentre of the transition that followed the patent cliff phenomenon, the expiration of patent protection for many blockbuster drugs. While in 2010 the top 10 selling drugs in the US targeted a cumulative patient population of around 16 million, this population was down to around 2.2 million in 2015, a staggering decrease of around 86%.
It is also necessary to take into account other elements, as the drugs providing the largest share of revenues between 2006 and 2016 changed dramatically. The top three specialties in 2006 were cardiovascular diseases (#1), psychiatry (#2) and neurology (#3), whereas in 2016 the podium was formed by cancer (#1), diabetes (#2) and musculoskeletal diseases (#3), with the 2006 top three falling far down the list. Rare diseases and immunological disorders also gained in importance. Finally, it should be remembered that drug development remains a complex process with a low probability of success, only one in 25 candidates pass through all phases to reach the market.
This transition is a strategic move as drug development is becoming a more complex and expensive process than before. Although the amounts are still debated, a sort of consensus in the industry identifies the average annual increase in R&D expenditure (before taxes) at around 8%. The calculation takes into account unsuccessful projects, which are, as we have seen, numerous given the highly uncertain nature of preclinical or clinical results, and despite the high level of professionalism of multidisciplinary R&D teams. Drug development requires indeed a great deal of expertise and knowledge to demonstrate superior efficacy compared to the best existing competing drugs (and of course to prove the absence of major adverse effects).
In the case of rare diseases, with few therapeutic options, even though the demand is higher than ever, the resources needed become very high when cumulating the needs to develop, without guarantee of success, a specific treatment for each type of health disorders.
The pharmaceutical industry is in transition, strategic partnerships are part of the solution
Thus, in order to cope with these demands and achieve a long-term sustainable approach, the industry has redefined its global organisation. In this context, externalisation, and particularly partnering, appear to be key elements of the solution, as it would be illusory to believe that a pharmaceutical company, whatever its size, could master in-house all the knowledge and technologies of the industry's myriad sub-fields (emerging or not). The task is a delicate one, but one with great potential; it is a question of finding in the vast field of life sciences the rare expertise that will revolutionise or improve the methods of the medical speciality in which one is interested.
This expertise can come directly from academic research or, increasingly, from start-ups that take on the heavy risk (and consequently the highest growth potential) of the initial phases of pharmaceutical projects. It should also be remembered that strategic partnerships are a cornerstone of Big Pharma's dealings in all other phases of drug development.
Once contact has been established with the external entity of interest, the conclusion of an agreement with the latter generally allows preferential access to its expertise and technologies. This targeted external information and projects, combined with additional data in the public domain and proprietary in-house expertise, can reduce the risks associated with the sensitive stages of drug development. Pharmaceutical companies are therefore increasingly challenged to accurately assess promising new collaborations, negotiate attractive long-term partnership agreements for each party (or even for the new entity to be created) and then ensure sustainable implementation of the contracts.
??
Partnerships in their diversity
Partnership in the pharmaceutical industry does not refer to the strict legal definitions of partnership in the English language, such as general partnership or limited partnership, found in common law states such as the United States, the United Kingdom and India. In general, a strategic partnership is understood as a cooperation in which the parties, who remain independent, share the benefits and risks of a common project, which is negotiated to become a key growth driver for each partner. However, pharmaceutical companies do not limit themselves to this rigid framework and include a wide range of external opportunities in their partnership approach, the common thread of which is to complement their internal portfolio of innovation and expertise. In an attempt to categorise this and, more importantly, to reflect this diversity, we propose the following non-exhaustive list:
The term collaboration is most often used to describe a very loose cooperation between parties that remain independent. Collaboration usually covers a project that is at an early stage in the drug development process or limited to an exploratory phase. A collaboration seeks to access external talent, innovative ideas and capabilities to jointly advance initially scientific objectives. The scope of the collaboration may therefore extend beyond the pharmaceutical company's core interests as advanced technology intelligence for future growth in research, technology and clinical trials.
Some companies launch competitions, calls for projects or innovation challenges to attract innovative ideas from start-ups, rather than actively seeking them out. The winners get a prize and the opportunity to co-develop the selected project. More recently, as in the case of the Open Innovation Challenge launched on 14 August 2019 by Eli Lilly and Company, this competition approach is being energised by including clinicians, patients and associations in the innovation effort to create a community focused on a disease of interest that can serve as anchors for future clinical trials, for example.
Collaboration Case
Parties :
On 6 July 2020, a new research collaboration between BMS and Dragonfly was signed to develop NK cell-based TriNKETs? therapeutic candidates, this time for multiple sclerosis and neuroinflammation targets. The agreement includes an exclusive worldwide licensing option in exchange for an upfront payment of $55 million, additional milestone payments and royalties on future sales of the approved drugs. Dragonfly, which specialises in cancer and has already partnered with BMS in this area, is expanding the evaluation of its technology's potential while strengthening its relationship with a potential acquirer of its projects.
Licensing appears to be a dynamic and attractive option for the licensee who can gain access to valuable technology without having to make a large initial investment compared to an acquisition. For the licensor, the attraction lies in the sharing of risk and the reduction of resources to be committed, especially when the licensing field is highly competitive. There are other reasons, such as the desire to refocus on another area where the company has a better strategic position.
Licence Case
Parties :
On 6 October 2020, the Phase II ready development programme for M6495, an anti-ADAMTS5 Nanobody? for the potential treatment of osteoarthritis (OA), was licensed from Merck to Novartis. The agreement included an upfront payment of €50 million and potentially €400 million in milestones and royalties on future net sales. The development of the drug had initially been co-managed for some years since 2011 by Merck and the Belgian entity Ablynx (which was acquired by Sanofi in 2018). Subsequently, Merck continued the development process on its own even though its plans for OA did not match its main interest, namely neurological diseases with an inflammatory mechanism such as multiple sclerosis and lupus. For Novartis, M6495 could create a portfolio with its pre-existing drug candidates as well as IL-1beta drug Canakinumab (Ilaris?), which was approved for the treatment of certain rare inflammatory diseases but had potential for OA.
A strategic alliance is an agreement aimed at the coordinated realisation of a project that is beneficial to both parties, who remain independent. The aim of this partnership may be R&D, production or even cooperation in a new commercial market. The parties thus share the risks and benefits of the project while retaining a certain freedom of action; decisions require trust and continuous consultation between partners.
Strategic Alliance Case
Parties :
On 27 April 2020, Harvard and Astellas agreed on a three-year partnership focused on R&D of innovative therapies and technologies of common interest. While the university receives funding to accelerate its scientific projects according to specific common criteria, Astellas is able to strengthen its pipeline as well as launch clinical trials in a focused manner to boost its future growth.
In a joint venture, the companies involved create a third entity by pooling resources, thus creating a strong commitment between the partners. The negotiation to establish the JV can be laborious because the percentage held by each party defines their respective ability to control the project. On the other hand, to guarantee the agreement in the long term, an exclusivity or non-competition clause is often included between partners. This type of cooperation is often used to access a new market by joining forces with a distributor that is well established locally.
Joint Venture Case
Parties :
On 25 October 2019, Elevar and Neopharma formed a joint venture in the United Arab Emirates, each providing 50% of the new company's capital. The objective of the local project was to establish a sales network for an oncology drug and oversee clinical trials of other drug candidates.
Like venture capital funds, pharmaceutical companies can build up a portfolio of investments to dilute the risk of failure, with the success of a start-up covering the cost of other less promising projects. In the specific case of a pharmaceutical company, its investments are generally intended to support the overall vision of the group and to fit within its existing areas of interest.
In other circumstances, an investment in a company located in a target country may facilitate a strategic move, such as entering that target market.
Equity Investment Case 1
Parties :
The investor group, led by Roche Venture Fund and 5AM Ventures, contributed $42 million in Series A funding on 17 May 2021 to support Soteria's development. Since its incorporation in 2018, the start-up has focused on immuno-oncology T-cell engagers technologies that modulate T-cell activity through the oral administration of a small molecule activator. As both Novartis and Roche are heavily involved in CAR-T cell therapy and similar developments, an investment in Soteria will strengthen their respective positions in the field.
Equity Investment Case 2
Parties :
On 31 October 2019, Amgen announced the payment of approximately $2.7 billion to acquire a 20.5% stake in BeiGene. The latter was granted rights to co-develop and commercialise a portfolio of cancer drugs from Amgen's pipeline in China. The agreement gives Amgen access to the Chinese oncology market.
The gradual divestment may be seen by some as a short-term partnership. The pharmaceutical industry is very dynamic and companies may divest some of their assets to refocus on areas where they have a better strategic position.
Divestment Case
Parties :
In exchange for an upfront payment of $350 million and subsequent payments of $40 million, AstraZeneca transferred its worldwide commercial rights to a portfolio of cardiovascular medicines to Atnahs on 2 March 2020.
Although acquisitions go beyond what one would expect from the definition of a partnership, this category is sometimes mentioned. And potentially, it is the ultimate goal of a partnership or at least a realistic exit.
Acquisitions are the direct option to take full control of a business and its assets. It may be the most appropriate way to quickly get both feet into a new area of interest, access a disruptive technology, enter a key market, secure supply and infrastructure, use a new distribution channel or expand one's existing drug portfolio. The obvious major disadvantage is being at the mercy of the previous imprudent actions of the entity to be purchased. In order to avoid these unfavourable situations, thorough and confidential due diligence is crucial during the negotiation of the deal, even if competitors put pressure on the acquisition process. Depending on the size of the parties, the process may require significant resources over a long period of time. A common way around this is to precede the acquisition with an equity investment to assess the opportunity.
Acquisition Case 1
Parties :
On 28 April 2021, Pfizer acquired Amplyx. This transaction, which strengthens Pfizer's infectious disease portfolio, follows a Series C financial investment that took place in December 2019.
Acquisition Case 2
Parties:
The Japanese joint venture Amgen Astellas BioPharma K.K. was acquired on 1 April 2020 for an undisclosed amount by Amgen, through the purchase of the remaining 49% of shares it did not already control. The joint venture was originally formed in 2013 by Amgen and Astellas. The acquisition allows Amgen to look forward to a reduced dependence on the US market and a strong presence in Asia in the areas of cardiovascular disease, cancer and bone disorders.
This category is best known for industries such as automotive where outsourcing of supply chain is extremely high. It involves using the global supply network of a contract manufacturing organisation (CMO) in exchange for significant co-investment in new assets to meet rapid and high demand for a number of products that need to be adapted to various local markets. The CMO with end-to-end manufacturing capabilities in the supply chain can provide the other party with a global service.
Global Enterprise Case
Parties :
On November 12, 2018, Carbon3D and Core3dcentres expanded their partnership to produce customisable and traceable end-use dental prosthesis parts faster through additive manufacturing and then market them at an affordable price to dental laboratories worldwide. With Carbon technology, Core3dcentres has a complete supply solution from design to manufacture - a global enterprise.
领英推荐
??
Getting partnerships right from the start
The partnership cannot be successful if its foundations are not solid. Particular care should be taken in the initial phase, which does not yet include an exchange with the partner(s); it consists?of the multi-scenario analysis of the project's profitability and the alignment of the project with the company's internal vision. This is followed by the internal planning stage of the partnership model (including the business model) where the selection of partners takes place.
Then the interaction with the other parties starts, the next step being the negotiation of the terms of the agreement and the design of the project operating model (including an update of the business model). In important cases, especially in the manufacturing field, due diligence of the subcontractor is required. On the other hand, the framework agreement should offer some flexibility while covering the key elements of the partnership. The agreement should also specify in particular the contributions of each party, the division of responsibilities and the conditions for resolving conflicts. Finally, the last phase, the supervision of operations, continues throughout the existence of the partnership.
A subtle balance must be found, especially when the parties differ in size, culture or expected return on investment. Negotiation should be unhurried and should lead to the emergence of clear common objectives by establishing a strong bond of mutual trust between the parties. The senior managers of each partner must initiate this movement, which is crucial for the sustainability of the project, and their presence at the meetings must be regular in order to reinforce the will to cooperate. The main goals agreed by each partner in the framework agreement will serve as a beacon when the clouds of dissension appear. A common end-of-partnership strategy should also be considered in order to define clear timelines and projections. This will also pave the way for better risk management, as the necessary adjustments during the life of the project will be based on the initial overall vision.
Future operational managers should also be included in the negotiations at an early stage, as they will bring their experience from the field in recommending staffing, equipment and working methods. With regard to the latter, if the partnership is complex, the contract will not be sufficient to specify the working methods. It is therefore strongly recommended that future managers draw up playbooks for practical day-to-day operational use. These documents should cover as many aspects as relevant, including quality standards, the regulatory framework, financial limits, acceptable degrees of flexibility and actions requiring further approval from the hierarchy. Managers will then be asked to convey the agreed vision of the partnership to the teams. Within the joint staff, sharing of tasks and recognition of each other's skills will also ensure success.
Communication between partners builds trust and promotes success
Communication between partners is therefore a key factor in avoiding misunderstandings later on or, more critically, a potential premature end to the project. Regular meetings of a "senior coordination committee" including senior officials from both partners should be planned from the outset, and this committee should periodically evaluate the implementation of the project.
However, the interests of the partners may change over time and the initial objectives may no longer correspond to the expectations of one or more partners. Co-managing a joint project and detecting early on the difficulties that arise over time can be tricky as partnerships are by nature give and take between parties who have their own expectations and working methods. Partnerships can sometimes even be perceived as secondary because they are not focused on the core operations of a company. In other cases, conflicts of interest may emerge or one of the partners may be acquired by another company with a different view on the partnership.
In order to better anticipate hazards, the establishment of performance indicators becomes an interesting tool at all levels of management. However, establishing these indicators proves delicate in practice. Indeed, it is often difficult to determine the precise financial value of the costs and benefits of each contribution. For example, one party may wish to keep its real costs of producing an intermediate product vague, or the partner's structure of many subsidiaries may complicate the calculation by additional internal costs.
Jointly defined performance indicators provide a common basis for dialogue
It is therefore necessary to consider the establishment of performance indicators according to the main needs. These can be defined in three points. First, the partnership managers will want an internal analysis of the project with advance planning of the transfer of information to the parties. Secondly, the analysis will need to be regular in order to adjust the project and especially its budget. Finally, the analysis will check the order of priorities, starting with the general objectives and ending with the less important ones.
As the expected results are often not limited to a simple and direct increase in the value of the project, the analysis will take into account, according to their relevance, many parameters which can be classified into the following 4 categories:
To facilitate the general reading of the project's progress and to make the analysis realistically usable, a sort of balanced scorecard can be established, with a number of key performance indicators (KPI) often reduced to about 5, each of which can be weighted differently. These major (and minor) indicators thus allow the dialogue between the parties to be maintained on a common basis.?
In some cases, it may even be possible to have a neutral third party collect the data, generate the performance indicators and facilitate negotiations to improve the co-management of the partnership.
Thus, the management of a partnership is complex and requires long-term professional guidance. For example, in 1999, Eli Lilly and company established the Office of Alliance Management as a unit specialised in monitoring partnerships in their operational phase. This newcomer complemented the activities of two pre-existing units: the Research Acquisition group, which targeted cooperation candidates upstream, and the Corporate Business Development group, which carried out negotiations and due diligence. This structure, which has since proved its worth, continues to inspire many other pharmaceutical companies.
In the case of major partnerships, it is recommended that a legal advisor be called in to carry out an assessment of the project, particularly from the point of view of competition law, i.e. restriction of competition. For example, a company planning to be active in the European Union should assess the case under, among others, Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) and the (numerous) corresponding European Regulations, Guidelines, Guidances and Notices.
??
Partnering in drug discovery
The growth of a pharmaceutical company often requires access to new projects or technologies in their early stages, in this case drug discovery and preclinical testing. Many of these technologies of interest are generated by other companies, so partnering is usually the obvious choice. Among all the emerging technologies, we will take a current example that is driving a frenzy of investment and cooperation in the pharmaceutical industry. As you may have guessed, this is artificial intelligence (AI) and digital transformation.?
Compared to other sectors, the pharmaceutical industry is still in its infancy in adopting IT and database management tools. Initially, the industry envisaged a general use of these tools, but disappointing experiences have demonstrated the need for a targeted approach to a clinical area with the help of specialist partners.
In this context, scientific and clinical data have become a new vector for monetising a company's activities.
For drug discovery, digital transformation through the use of advanced algorithms and analysis can accelerate, automate and make reliable many steps in the identification of a therapeutic target or the design of a drug candidate.
For preclinical testing, digitisation has the potential to automate the clinical-level production of small quantities of drug candidates. Other tools can provide learning and data management to anticipate, for example, toxicology assessments and reduce the need for animal experimentation.
Strategic partnerships facilitate access to game-changing technologies and data monetisation
However, there are some difficult constraints on the use of data. On the one hand, it is necessary to guarantee the interoperability of systems and standards in order to convey the information without error. Secondly, it is mandatory to apply data protection regulations, especially those concerning patients, at all stages of their use. Finally, users must be trained in cyber security.
In this context, one of the first examples of the use of AI dates back to the conclusion of a strategic research alliance in September 2014 between the British company Exscientia, which specialises in AI for pharma, and the Japanese pharmaceutical company Sumitomo Dainippon Pharma Co, Ltd. Exscientia's platform enabled the identification of a molecule optimised for the treatment of psychiatric diseases in less than a year compared to the usual 4.5 years. The result seems to be conclusive as on 30 January 2020 the two companies jointly announced that the selected molecule was entering phase I clinical trial to treat obsessive-compulsive disorder, as its first indication.
Since then, partnerships have multiplied and the big names in IT have entered the sector. For example, on 1 October 2019, Novartis partnered with Microsoft in a multi-year digital transformation collaboration (AI and databases) to accelerate drug discovery as well as development and commercialisation.
Another, even more emerging area of digital transformation is quantum computing. Its unparalleled computational potential is attracting interest, particularly in molecular dynamics simulations, even if practical applications are not yet on the agenda, partly because of the high maintenance costs. Nevertheless, some partnerships are being formed, such as the one agreed on 28 January 2021 between Boehringer Ingelheim, a German multinational pharmaceutical company, and Google.
?
Partnering in clinical trials
Today, clinical trials are like a bottleneck in pharmaceutical projects. They are long, expensive and not very successful. Analysis of the limiting factors shows that the greatest difficulty is in identifying volunteers, recruiting them and following them through to the end of the clinical trial.
Improvements are therefore focused on enhancing the quality of the tests to increase their statistical power. There are many areas for further improvement, for example: better selection of volunteers according to the expected clinical end points, reduction of the heterogeneity of the volunteer population through the determination of more targeted biomarkers, better characterisation of patients responding to the treatment tested. There is also a potential for improvement in the selection of sites and personnel in charge of the clinical trial, in the remote monitoring of the treatment or in the overall management of the data generated during the clinical trial.
Again, digital transformation can contribute to these improvements. Among other possibilities, the exploitation of anonymised (or de-identified) databases can generate information beyond the scope of a clinical trial and be useful for the development of treatments for other diseases, i.e. repurposing approach. In this regard, consider the Novartis CANTOS clinical trial targeting the use of the drug candidate Canakinumab (Ilaris?) to reduce the risk of recurrent cardiovascular events. Analysis of data from 10,000 volunteers with a history of heart attack showed that patients taking the drug had half the number of total knee or hip replacements compared to placebo.
The use of information technology in a clinical trial is relatively new. The first U.S. case of patients being recruited and managed from their homes in order to evaluate a pharmaceutical product approved by the US Food and Drug Administration (FDA) dates back to 2011 and was sponsored by Pfizer.
Strategic partnerships contribute to the acceleration and decentralisation of clinical trials
Regulatory authorities are following this trend, with the gradual planning of live licensing where pharmaceutical companies are required to provide every piece of data on their ongoing clinical trials as soon as it becomes available. The European Medicines Agency's Adaptive Pathways programme and the FDA's Real-Time Oncology Review (RTOR) pilot programme are leading the way. The latter was used for the first time in the follow-up of the phase III clinical trials of the anti-cancer drugs Ribociclib (Kisqali?) from Novartis and Pembrolizumab (Keytruda?) from Merck Sharp & Dohme (MSD).
As regards partnerships in this sector of activity, they are very numerous, especially since the COVID19 pandemic has stimulated cooperation. For example, on 29 March 2021, Syneos Health, Inc., a US multinational contract research organisation (CRO) specialising in clinical trials, joined forces with Science 37, a US CRO, to use its decentralised clinical trial management and telemedicine system. In another case, on 15 April 2021, the US CRO Parexel International and Veeva Systems, a US life sciences cloud-computing company, also entered into a partnership to standardise the former's operations with the latter's applications, i.e. clinical trial launch, real-time project management and document management platform.
It is worth noting that these tools bring, to the same extent, an undeniable advantage to the product launch phase:
??
Partnering in drug manufacturing
Here we look at drug manufacturing, one aspect of the supply chain, which is defined as the operational management of the manufacture of products and their delivery to the customer.
Pharmaceutical companies of all sizes face a dilemma when planning the drug manufacturing phase. Should they externalise this key process? A few years ago, the general answer was no. However, today more than 20% of these activities are outsourced.
An increasing number of companies are looking to the expert support of a contract manufacturing organisation (CMO) as a means of reducing the risks of the operation, for several reasons. Firstly, the CMO is fully conversant with the strict regulations of the industry and may therefore be more competent in this area than the company that owns the intellectual property rights (IPR) of the drug to be manufactured.
Secondly, in the case of a drug candidate that is still in clinical trials, the pharmaceutical company may prefer to use a CMO that will quickly make its capabilities and skills available for limited production of the drug candidate for efficiency reasons. In another case, a company with a drug already on the market may prefer the support of a CMO to secure additional capacity in a flexible manner without investing in real estate or equipment. A pharmaceutical company may also anticipate the support of a CMO in the extreme case of accidental destruction of its own production facility.
Note that building a facility and obtaining the appropriate certification for a cleanroom (or sterile drug filling facility) requires significant resources and years of expert work. The company that controls the drug's IPR may not be willing to delay market entry and lose a few lucrative years of its IPR. Executives are sensitive to the argument that partnering with a CMO provides almost immediate access to qualified personnel and an already audited facility. In addition, the trend towards personalised medicine tends to reduce the attractiveness of owning a large monolithic manufacturing facility that may not be optimally utilised, whereas a CMO can attract enough different customers to continuously bring in new production projects.
Thirdly, partnering with a CMO can guarantee access to new manufacturing technologies, whereas an ordinary contract with a supplier would not include such a transfer of know-how.
Fourth, outsourcing the manufacturing of a product based on old, low-value-added technology to a CMO frees up internal capacity. This capacity can be used to develop higher value-added technologies.
Fifth, in some cases, local regulations make access to the often emerging, local market conditional on local manufacturing and technology transfer. The pharmaceutical company interested in this market then decides to use the services of a local CMO to meet the regulatory requirements.
Strategic partnerships make manufacturing more flexible
Beyond the benefits, the relationship with a CMO can reach a delicate and costly phase if demand fluctuates drastically and sales do not match expectations. A compromise has to be found in the remuneration (fixed and variable amounts depending on the predefined targets achieved) with an understanding of the financial interest of each party. While the pharmaceutical company earns revenue from the product through a margin on the sales price, the CMO earns a margin only on the manufacturing cost. To anticipate this risk, the agreed establishment of performance indicators can allow each party to observe any deviation in projections at a very early stage. The definition of milestones also provides a means of subdividing the project into well-defined successive stages.
In this context, partnering with a CMO can be considered under various options:
We see that the production area is also affected by digital transformation. Among the many interests, we can cite that of helping to optimise the quantities of ingredients needed, or that of reducing the number of steps in a manufacturing process, or that of improving the traceability of the products generated.
From these explanations, it becomes clear that the diversity of partnerships with a CMO is growing steadily. As an example, we can cite the agreement of 27 February 2017 between Sanofi S.A., a French multinational pharmaceutical company, and the Lonza Group, a Swiss multinational company specialising in biotechnology and chemistry. The joint venture agreement, including an equitable shareholding, involved an initial investment of CHF 290 million for the construction and management of a large-scale cell culture facility in Switzerland for the production of monoclonal antibodies. Lonza provided expertise in setting up and running such a facility, while Sanofi provided a wealth of pipeline.
Another example is Bushu Pharmaceuticals Ltd, a Japanese CMO and Suzuken Co, Ltd, one of Japan's largest pharmaceutical distribution companies. Bushu and Suzuken joined forces on 27 April 2021 to establish manufacturing and logistics centres in Japan, and in parallel launch joint business activities in the US to attract customers in the Japanese market.
?
Partnering in distribution operations
The field of drug distribution is an integral part of the supply chain. In this field of activity, the players are diverse and may differ according to local regulations. Nevertheless, as a general rule, these stakeholders include manufacturers (who may or may not have outsourced manufacturing), wholesalers/distributors, retailers/providers (i.e. pharmacies), pharmacy benefit managers, patients/consumers and payers.
Manufacturers may be required to distribute medicines themselves directly to certain users, as in the case of large volumes ordered by international organisations' programmes, but in the vast majority of situations, wholesale distributors are irreplaceable intermediaries in ensuring impeccable logistics throughout the territory for which they are responsible. Distributors may or may not specialise in the distribution of certain types of medicines for which transport can be demanding, e.g. cold chain. Thus, wholesale distributors' deliveries are targeted, depending on the case, at pharmacy chains (the largest retailers) as well as hospitals, clinics, nursing homes, specialty pharmacies and independent pharmacies, to name but a few.
Among the other stakeholders in distribution operations, the least known are the pharmacy benefit managers. They act as facilitators for all the above players to better manage orders, optimise costs and facilitate negotiations on purchase prices, which are often revised downwards if the volumes ordered are large.
The pressure on prices is intensifying, particularly with the increase in the number of generic drugs on the market. This leads some wholesale distributors to no longer consider their field as distribution per se but rather as a subtle management of low price margins. The number of distributors has tended to become increasingly concentrated since the 1980s, with 3 companies controlling 85% the US market in 2016. ?
Strategic partnerships redefine distribution standards and interactions between stakeholders
Other factors are making the situation more complex. Personalised medicine and its short-lived drugs or those requiring an ultralow cold chain pose serious logistical problems. In some cases, new supply chain and delivery methods must be developed.
In addition, distribution is affected by the change in orientation of pharmaceutical companies. They are gradually shifting from pure product marketing to communication about the disease of interest, giving priority to exchanges with the patient, the physician, the payer and the associations concerned by the subject. Distributors and retailers are thus losing some of their influence.
Finally, live licensing, which has already been discussed, is leading to a rethinking of the supply chain because conditional marketing authorisations for medicines can be obtained much earlier. But, on the other hand, if health authorities have live access to clinical data, they can regularly review the conditions for reimbursement of medicines. The supply chain will then have to become much more flexible.
The existence of this complex and competitive microcosm encourages innovation to improve market share and margins. Partnerships with companies offering innovative solutions become very attractive. And, as elsewhere, digital transformation appears to be the solution of choice to facilitate these changes by optimising costs, deadlines and quality. The most strategic tool for the sector's stakeholders is the data management service offered by distributors, i.e. sales, stocks and returns. Manufacturers try to better forecast needs in order to produce the minimum stock. The same applies to wholesale distributors who want to avoid pharmacies returning unsold medicines. Keeping stock to a minimum is a general watchword. Orders are therefore placed using standardised electronic data interchange (EDI) technologies and storage management is handled by warehouse management system (WMS) software and robotic tools.
The demands of payers, i.e. patients, governments and private insurers, are also increasing. As a result, risk management is becoming an important component of supply chain management. This pressure for better risk management combined with the growing scourge of counterfeiting represents nevertheless an opportunity for companies specialising in tracking technologies such as bar coding, radio-frequency identification (RFID) and full supply chain tracking. Regulations (e.g. the Drug Supply Chain Security Act in the USA, the European Falsified Medicines Directive and the Global Traceability Standard for Healthcare at international level) are further pushing in this direction. And, in the end, supply chain specialists will undoubtedly define the new working methods through practice.
An illustration of distribution operations partnerships is the following example between EMC Pharma, LLC, a U.S. pharmaceutical manufacturing and distribution company from Missouri, and Sonoma Pharmaceuticals, Inc., a Georgia-based global healthcare leader specializing in the development and production of stabilized hypochlorous acid for medical applications. On March 31, 2021, Sonoma granted EMC exclusive and non-exclusive rights to its dermatology and eye care, and wound care prescription products, respectively. In exchange for royalty and transfer payments, EMC gained control of the management, marketing and distribution in the USA of these products for a minimum term. In addition, EMC was required to purchase inventory and guarantee back orders or risk losing exclusive distribution rights. The reason for the transaction was the lack of profitability of Sonoma's direct sales approach to prescription dermatology products. By shifting the marketing burden to EMC, Sonoma can access strong distribution channels, reduce its sales force and potentially lower its overhead costs.
?
Conclusion
The growing number of partnerships in the pharmaceutical industry reflects the attractiveness of this flexible approach. There is no doubt that partnerships stimulate the overall growth of companies in the sector.
Although there is a wide variety of ways to cooperate, the main elements of success and value creation remain the same: a clear common strategy adapted to the needs of each partner, convergence in planning and action (between partners but also within each of them) and finally a dialogue maintained at all levels of the partnership to share competences in confidence and to boost the commitment of all. In this respect, middle-level managers remain the linchpin of partnerships, as they are sometimes faced with conflicting objectives between the expectations of their respective employers and the necessary measures to be taken for the independent functioning of the cooperation. Pre-agreed performance indicators can help to facilitate the exchange of views and reduce these tensions.
Strategic partnerships are a tool of choice for the pharmaceutical industry
In this article, we have not discussed partnerships in product marketing, medical communication, pharmacovigilance or patient support, but there too the various forms of cooperation between companies are a major asset. Partnerships between companies in the field of diagnostics are another extremely promising field. And, clearly, digital transformation is a driving force.
Thus, our overview of the different stages of drug development shows the importance and diversity of strategic partnerships. As a reminder, more than half of all late-stage pharmaceutical projects are today the result of external cooperation. It is therefore with a convincing statement that we conclude our evaluation: definitely yes, partnerships are a tool of choice and of the future for the pharmaceutical industry.
?
About the author
Mathurin Baquié, PhD, is an expert in Strategic Partnering. His professional activities cover global project management from R&D to Business Development in the Biotech, CDMO, CRO, Medtech and Pharma fields. He relies on 10 years of experience in the biotech management and consulting environments with triple expertise in Biomedical Sciences, Law and Business Development. He shares with great pleasure and ex gratia his knowledge through this article, without any malicious intent against anyone.
For more information on the author : www.dhirubhai.net/in/mathurin-baquie
Conflicts of interest
The author has NO affiliations with or involvement in any above-cited organization or entity with any financial interest, or non-financial interest in the subject matter or materials discussed in this article.
Disclaimer
All the information provided in this article are strictly for informational purposes only. It is not intended as a substitute for advice from a professional even if the author is himself an expert on the subject. The information provided in this article cannot be used to take a decision of any kind. This article contains general information about the life sciences industry, the pharmaceutical industry and the healthcare industry in their broadest sense. The information is not an advice, and should not be treated as such. Any information in this article is provided “as is” without any representations or warranties, express or implied.