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    “CDMOs are modern day kings that attract investments like safe AAA rated bonds”

    “CDMOs are modern day kings that attract investments like safe AAA rated bonds”

    This week, Frédéric Gaussens, VP Business Development and Strategy, Eurofins CDMO Europe, is back on SpeakPharma. Eurofins CDMO provides drug development and manufacturing services. Gaussens talks about the recent trends in the CDMO industry, their importance in the drug supply chain, ways to select the right CDMO for your drug company, and the way forward. Excerpts: — What’s your view on CDMOs? What importance do CDMOs hold today in the pharmaceutical supply chain? The concept of CDMOs is rather new because until 15 years ago, the outsourcing market was driven essentially by contract research organizations (CROs) that were witnessing the end of a decade of consolidation. Until five years ago, contract manufacturing organizations (CMOs) were offering their production capacity, and at that time contract development and manufacturing organizations (CDMOs) were still marginal. All of a sudden, we have seen an increase in the number of companies calling themselves CDMOs. They have become more technology driven and capital intensive and offer a mix of complex expertise (formulation, manufacturing, analytics, clinical packaging with cold conditions) and different quality levels depending on molecule toxicity (highly potent, cytotoxic). Today, in the outsourcing industry, CDMOs are like modern day kings and a good CDMO offers gold value. It attracts investment money much like the safe AAA rated bonds. The costs of entry for newcomers within the CDMO arena are huge, especially in the field of fill and finish or for building capacities for gene therapies. — Aren’t there too many different kinds of CDMOs in the market today? Yes, there are a number of players with different focuses. For instance, some CDMOs are active within the drug substance field, while others work only within drug products. Some have a biological focus, while others have a chemical API focus. Some have development capabilities, while others are manufacturers only. Some focus on the earliest phases of drug development, while others rely on later phases and on huge commercial production volumes. Similarly, some have innovative niche technologies, while others are still focusing on conventional forms of molecules. However, as the CDMO acronym becomes the new standard, there is a huge difference in the offerings and competencies depending on whether the company is a CdMO or a CDmO. A big “D” small “m” versus a big “M” small “d” are not the same kind of entities (with the capital letter denoting more focus given to “D” and “M” i.e. development and manufacturing). As far as I’m concerned, I differentiate CDmOs with CdMOs. While the CDmOs are leveraging their limited capacity of manufacturing to fully support the development pathway of their clients with efficiency, the newly converted CdMOs are looking to penetrate the earliest phases of the supply chain to offer end-to-end services or to fill their free capacity, normally dedicated to larger scale of production. — Why is the valuation of most CDMOs so unrealistically high? Post the sub-prime crisis of 2008, like other industries, the pharmaceutical industry also focused a lot on cutting costs. As a result, outsourcing became the preferred choice for the industry and a lot of employees were made redundant and facilities were shut down or sold to CMOs. The industry’s focus shifted to the most promising molecules with a higher probability of success. The outsourcing policies also created a new wave of startups where some started without a molecule but perhaps a brilliant idea, while others acquired molecules which were no longer a priority for their former employers. And then there were virtual companies of just one or two individuals. However, all of them needed support from a CDMO to help progress their molecules to the clinic. The development of the outsourcing industry combined with accommodating policies from central banks across the world, who supported financial institutions through quantitative easing (QE), resulted in a massive flow of incremental money in the most promising gold nuggets throughout capital development or private equity. CDMO traction became an attractive proposition for those investments as well. Combining this flow of money with the scarceness of attractive targets on sale created a very narrow funnel of acquisition opportunities leading to a price inflation on valuation. Added to this was the evolution of low interest rates, which made cash available for investing rather than for saving. Consequently, the combination of the flow of money, few opportunities and negligible interest rates have pushed up the M&A valuations with huge multiples on EBITDA (earnings before interest, taxes, depreciation, and amortization). — Do you see the valuations coming down in the medium term? In my view, the medium-term outlook does not suggest any cooling down of this trend to “buy at any price”. Despite the economic downturn created by the recent SARS-CoV-2 virus outbreak, I do not expect a significant impact on the well-established CDMOs in the market. Nevertheless, considering the limited number of ‘potential’ high-value targets, lack of capacities at a global level, and high demand for their services, I am not sure how much money will be pumped in by investors, given the overall gloomy outlook for investments. Would they challenge the “build” concept or the “buy” concept? Whatever be their answer, the fact is that building extra capacities, getting them up and running as well as getting them approved by regulatory bodies is a time-consuming exercise.  — How can customers choose the right CDMO? Clients need to remember that a CDMO is akin to a baby-sitter for their project. There are a lot of small companies that need support and coaching to bring their clinical compound to the proof of concept level, while there are others that need full support under tight timelines due to their funding constraints. Customers invariably need expertise and flexibility that only a real CDMO can offer. Then there is the issue of cash flow management. A majority of biotechs get funded if they continue to respect the deadlines, they have with their investors to achieve key milestones. Clients need to speak with CDMOs to get a feeling of whether their project will be a priority or not, as low prioritization could result in extended timelines and delays. These delays can affect a client’s short term cash position as it increases the cash burn which eventually starts killing them softly. A high quality, human-orientated CDMO with the expertise and flexibility to achieve key relevant milestones should rank high for a biotech trying to choose a partner. A real partner like us, Eurofins CDMO, works on educating clients on what is feasible, and what is not. It’s worth mentioning that although important, price is a secondary consideration for well-funded customers. Short-term cash and cash flow management still remains the number one consideration (and constraint) for a majority of biotechs. As far as I’m concerned, the cash-flow management for the small biotech is my biggest fear for the period 2021-2022 due to the collateral impact from the SARS-CoV-2 crisis. There has been so much focus on the coronavirus that raising funds for any other kind of disease might become even more difficult.  — Can you talk about some of the emerging opportunities within the CDMO space? Clearly, there is a shift towards biologics, which now accounts for almost 35 percent of the pipeline in number and boasts of a big share of the US$ 188 billion R&D spending in 2020 (as per a recent report by Evaluate Pharma). As a result, the attractiveness of those (clients and subcontractors) positioned on the more conventional dosage forms for small molecules (such as oral, liquids and capsules) has been impacted. While biologics or injectable forms are showing double-digit growth, the conventional dosage forms for small molecules have shown low, single-digit growth rates (2 to 3 percent per annum). Overall, innovative technologies, services from drug substance to fill and finish, especially for biologics, parenteral for small scale manufacturing, highly potent and cytotoxic capacities are drastically missing in the market. The scarceness of CDMOs offering these services is linked to a significant barrier to entry — the huge cost of investment and timelines needed for being ready to operate. The boom in personalized medicine for the treatment of various kinds of cancers and genetic disorders is also increasing, but the lack of combined development and production capacities are creating a bottleneck, fueling the fire for buying at any price.  

    Impressions: 5940

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    https://www.pharmacompass.com/speak-pharma/cdmos-are-modern-day-kings-that-attract-investments-like-safe-aaa-rated-bonds-speakpharma-with-eurofins-cdmo

    #SpeakPharma With Eurofins CDMO
    25 Jan 2021
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    “Competitors in the outsourcing world have come together to fight the pandemic”

    “Competitors in the outsourcing world have come together to fight the pandemic”

    This week, SpeakPharma interviews Frédéric Gaussens, Vice President, Business Development and Strategy at Eurofins CDMO Europe which provides high-quality, customized drug development solutions for chemical and biologicals drug candidates in the earliest phases of their development pathway (from API to clinical packaging). Gaussens tells us how CDMOs, CMOs, CROs and third-party laboratories that may have been competitors in the pre-Covid world have come together to fight the unknown virus by providing unbridled support to its clients. CDMOs like Eurofins are shuffling their schedules to support clients who are holding clinical trials on treatments for the novel coronavirus. Gaussens also talks about some of the challenges the pharma industry is likely to face in the near future, while specifying the crucial role being played by regulatory bodies across the world. Excerpts: How has Covid-19 impacted the pharmaceutical industry? We are facing a challenge that none of us were prepared for. The sudden outbreak of the virus has impacted the molecule pipeline, R&D and the pharmaceutical supply chains across the world. The pandemic has sent shockwaves across the pharmaceutical industry. But I think we have shown more resilience than most other sectors, and we owe that, in large part, to the outsourcing partners within the drug industry. CDMOs, CMOs, CROs and other third-party laboratories who generally compete with each other, have made fighting the unknown virus their common cause. We have seen a huge number of partnerships being announced, some of them built under incredibly short notice. We have seen small biotech getting associated with the Big Pharma. The virus has brought CDMOs, CROs, institutional and public partners, big and small pharmaceutical companies together. Over the last few months, we have seen production lines of cosmetic and retail companies getting reshaped to produce millions of liters of hydro-alcoholic gel. Overall, we have seen a fantastic surge of solidarity across many industries. In fact, the human race has come together, and workers around the world have shown a lot of determination in fighting the pandemic. What role have various regulatory bodies played in addressing the pandemic? The regulatory bodies, such as the EMA, ANSM and FDA, have played a crucial role . They have worked hard to further reduce the timelines for validating protocols or for authorizing the launch of new clinical studies. They displayed both flexibility and speed. This was truly unprecedented. What role did Eurofins CDMO play in fighting the pandemic? Despite being affected by a resource shortfall due to the lockdown and delays in payment from our clients, we succeeded in implementing our crisis management plan to handle increasing demands from our customers. We met their needs within the framework of our quality standards. Within the outsourcing industry, the situation today is quite intense. The response strategies of CDMOs are driven by two factors. First is to safeguard ongoing clinical trials for the current molecule pipeline (for oncology, infectious diseases, CNS or any other pathologies) that is in various stages of development. Those molecules cannot be put aside if we want to save millions of lives. The second strategy is to be flexible and to take on new projects, triggered by the rally against Covid-19, at a very short notice and under tight timelines for execution. Our response strategy has been a mix of both these factors. For instance, we implemented new services like “Direct-To-Patient” in order to ensure the continuity of ongoing clinical trials. This service took care of the fear of catching the novel coronavirus amongst patients who had to visit hospitals in order to be a part of these trials. Our service ensured that the study remained active, as we delivered the medication directly to the homes of patients who were participating in the trial.  We also ensured manufacturing slots to all our repeat clients, albeit by juggling our own planning in order to respect their production deadlines. What about clients who want to develop products to fight the novel coronavirus? How did you address their needs? We took on such clients on high priority. We shuffled our already busy schedule to support clients on developing the clinical phases of their product against Covid. While showing such flexibility, we also did not apply a rush fee or inflate our rates. We considered it our duty to take up their work on priority. We also increased production to provide hospitals with our pyrogen-free, ready-to-use products, such as our Pyrofree® vials. We hope our approach will help saving lives. In our view, being associated with such initiatives is an accomplishment on our part. What are some of the challenges the industry may face in the short term? The industry is likely to face several challenges in the near term, such as those pertaining to finances, capacities, meeting environmental norms and challenges pertaining to technology. By our industry, I mean pharma/biotech, outsourcing partners, suppliers of equipment and consumables. Some of these challenges are not easy to handle, especially when they exist in combination with others. In the near future, many biotech firms may face cash shortages, and may not be supported by their investors. Some investors may re-assign the financing round or may postpone investments. There are also challenges pertaining to a significant lack of facilities or capacities to produce new innovative drugs or vaccines. This challenge could get worsened with postponement of capital expenditure by the investor. The rush against Covid-19 also has an unanticipated collateral impact. There is a risk on supply chain disruption for consumables or other types of materials such as vials. We are already feeling some tension on the timelines for delivery at clinical stage development. You can well imagine what will be the bottleneck if a vaccine is found and needs to be produced in large scale. While the Western world may have resolved to reduce its high dependence on countries like China for APIs, masks, respirators or testing kits, it will be difficult for them to achieve this as the demand for these things are at its peak at the moment, and may continue to be high for sometimes. The other challenge the industry is likely to face is in the management of the ‘Green vision’ of the world, if it wants to reduce its dependence on China. Whether we like it or not, the production of APIs causes pollution. This is one of the reasons why production was outsourced to China, where “green” standards are far lower than the West.  

    Impressions: 8644

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    https://www.pharmacompass.com/speak-pharma/competitors-in-the-outsourcing-world-have-come-together-to-fight-the-pandemic-speakpharma-with-eurofins-cdmo

    #SpeakPharma With Eurofins CDMO
    20 May 2020
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