Gil Y. Roth10.08.09
Newsmakers: Catalent
A conversation with Scott Houlton, the group president of Catalent’s new development unit
By Gil Y. Roth
In August, Catalent Pharma Solutions announced that it was launching a new business unit: Development & Clinical Services. I was intrigued by the move, given the dynamics of the development industry, so I spoke with the new unit’s group president, Scott Houlton, about it.
Mr. Houlton previously worked as chief operating officer of Aptuit. It’ll be interesting to see how his experience in the development sphere informs his perspective on his new role, spearheading development services at a large CMO like Catalent. —GYR
Contract Pharma: What’s the rationale for launching the new Development & Clinical Services segment?
Scott Houlton: The premise is to give our development and clinical services a greater emphasis and focus within the larger Catalent organization. These services were part of larger segments that also included commercial operations. What we want to do with this new segment is really focus on the different customer within our sponsor companies. That is, the person who is involved in the development cycle of a product. This is often a different customer than the one who we talk to for the commercial stage of the product. We want to make sure we are aligned with how our customers are aligned, and how they utilize our services.
Within the pharma companies, the decision-makers who are placing the work for the various development services are from different departments. It gives us greater focus to put together these services to meet our customer needs in a bundled way so we are coordinated in these service offerings.
CP: Are you positioning the new segment as a feeder toward commercial operations or is it meant to be a standalone business?
SH: In an ideal world, we’d love it if everything we worked on in the development space fed into our commercial operations. But in reality, there’s a certain amount of that work that will, and some that won’t. There’s a time gap between development work and approval for commercial work. We want to make sure we’re aligned appropriately for each segment of work and can be responsive to those needs. If we can, we’d definitely like to offer our commercial services to all of our development customers. We certainly have unique technologies that will help us in developing products and commercializing them. We intend to run this segment as a business unit within the company.
CP: What’s the target client for this segment?
SH: We’re not looking to be exclusive to any segment of the customer base. We have a very broad customer base that we work with, running the gamut from virtual companies to the top 10 pharmaceutical companies. We believe we’re able to support each one of those customer segments appropriately.
The development space is a little different than commercial, in the sense that speed is very, very important. Companies are trying to reach their go/no-go milestones, so we want to be able to react quickly to help those customers. It’s generally the same concern, whether it’s a small, private equity/venture capital-backed biotech or a larger pharmaceutical company; they still want to get to a decision as quickly as possible.
CP: Which facilities will be part of the new segment?
SH: The segment includes three global clinical packaging facilities: UK, Germany, and eastern U.S., plus a network of 18 depots around the world. We have analytical development and testing facilities on the east coast and the west coast. We have a biotech development facility in Wisconsin. And we have our regulatory consulting organization, which is loosely based in the UK, but encompasses consultants in the U.S. and Europe.
CP: Is geography a particular advantage for development, as opposed to manufacturing?
SH: For our clinical services side, it’s much more of a global platform business. Having operations across different geographies allows us to support global Phase III studies across the regions, getting materials distributed across 80 or 90 countries. So geographic reach is definitely a benefit.
For the other part of the development segment, where we can offer the same services in multiple geographies, we have to keep in mind that most customers prefer to work locally. It lets us offer flexibility in meeting timelines. Often, we will have a customer who comes in with a last-minute project, so having multiple operations across the geographies allows us to pull in resources from where they’re available to best meet the client’s need.
That’s not necessarily something we can do with every development offering; some of them are single-source, of course.
CP: Are you looking at expansion opportunities?
SH: We look at this as a growth segment. We’ve grown organically in the past, and we’ll continue to grow it with a variety of mechanisms. But I can’t really make any announcements about our specific plans for growth.
CP: Which area do you think has the biggest potential for growth?
SH: Large molecule work is certainly a space that we like. Our Wisconsin facility is dedicated to the biologics space. We have novel technology in creating cell lines that we believe gives us a competitive advantage. We’ve been successful growing that business, but it’s still a small part of our overall offering currently. It has a lot of potential, starting from a somewhat small base, but we are excited about the customer activity in this portion of our business.
ONLINE EXTRAS
CP: What impact do you think pharma mega-mergers will have on the development outsourcing space? SH: Whenever you go through mega-mergers, there’s typically a period of inward reflection by those companies. They assess the products in their pipeline and how they want to go forward developing those products, so typically you see a pause as they figure out who’s going to develop what in the combined company. But once they release the floodgates, things move pretty quickly. So I imagine that we’re going to have that ongoing concern over the next several years as the pharma industry consolidates further. But that’s why we have a broad base of customers that work with us at each stage of their lifecycle. CP: Do you see it as an opportunity for development service providers, or do you think we’ll see more projects brought in house by these combined companies? SH: Ultimately, it will lead to more outsourcing, as the companies get to the point of consolidating. You’ll certainly have the big companies that will do some development work in house, but I think the macro-trend over time is having discovery and marketing as the two ends of the large pharma company. Those are the areas where they’ll focus their activities, in a broad sense. I think the outsourcing industry continues to mature very nicely and offers an increasingly compelling argument to those companies to look outside rather than in house. It’ll continue to be a gradual migration toward that, but I think it’ll continue as it has in the past several years. CP: Do you think the mega-merger shakeout will lead to development labs being sold off to providers, the way we see with manufacturing sites? SH: I think we’ll see some of that, but not anywhere near as often as with commercial sites. I think we’ll see more strategic relationships between pharma companies and providers when it comes to development. That may include taking out facilities lock, stock and barrel, similar to Covance’s agreement for Lilly’s Greenfield facility. CP: Within manufacturing, that hasn’t always been a recipe for success. How would such an arrangement be different with development? SH: Frankly, we’re going to see a hybrid of all kinds of models. It’ll depend on the partners. It’s obviously very dependent on the terms of the deal. If we see transfer of development facilities, I think we’ll see a period of time where there’s a committed volume. I would not be surprised if, more often than not, the facility itself doesn’t survive long term. The hypothetical acquirer would use the time to integrate the particular service into its existing facilities, and would slowly wind down the acquired site. |
Our clinical packaging business has performed very well over the past several years and is poised for significant growth. The industry dynamic is continuing to push more of the clinical trial supply work to global outsource providers such as Catalent from smaller, regional providers and in-house capability.
CP: Do you think there’s a market leader within the development sphere, or do you consider the field wide open?
SH: It’s a very diverse crowd of companies. There are some that offer a diverse number of services, but then there are some that have single-service offerings or have a single location. There are a lot of competitors, if you look at it broadly.
Catalent is a very large company overall, and we want to make sure that we can tap into the global presence that we have and the capability to work with customers across multiple geographies and multiple service centers to give them greater flexibility and leverage our competitive advantage.
CP: So the field is ripe for consolidation?
SH: Yes, I think it will consolidate. It’s part of the maturation process. We’re going to see some of the leading players continue to get bigger, both by acquisition and organic growth. They’ll play an increasingly important role as they develop unique strengths in financial position and broad service offerings. They’ll be able to reach customers in lots of different ways.
I think the customer base wants to see that consolidation, too. The downside of working with contractors is that, if you have a lot of providers, then you have to do a lot of project management. Working with a global, integrated provider of a full range of development services greatly facilitates process and promotes an opportunity to leverage a broader strategic relationship between the sponsor company and the service provider.
CP: How do you respond to the notion that development services nested within a large-scale CMO don’t matter enough to really affect the bottom line? To put it another way, how important can the “D” be within a CDMO?
SH: The fact that we’ve dedicated a separate business unit to it, and that we’re bringing such a focus to it, I think those are fairly strong indications of the importance of the development segment. If you look at commercial operations within Catalent, obviously those are bigger operations. That’s just the nature of that kind of work. But it doesn’t mean that the development space isn’t important and that it’s not mission-critical to our ongoing success.
The name of our company is “Catalent Pharma Solutions,” and this is part of providing those solutions. We really want to work with our customers at every stage of their product life-cycle, and we think that this structure enables us to do so in a meaningful way.
CP: Oh, one more little thing! How’s that world financial crisis affecting business?
SH: It goes back to the benefit of having such a broad customer base. We’re somewhat protected by the fact that we’re not dependent solely on VC-funded biotech companies. Certainly, we want them to survive because it bodes well for the outsourcing of their work. We’ve been able to meter out our service offering and our resources to meet the demand of those customers and work with those others that are moving some of their work faster.
One aspect of the credit crisis is that it’s made speed even more important, because companies are trying to get to their milestones faster, before they run out of money. We’ve seen some of that. We’ve also seen some that are growing very cautious with their spend.
CP: This interview is running in our 10th anniversary issue, so I’d be remiss if I didn’t ask what you think the biggest changes or trends in the pharma outsourcing arena in the past decade have been.
SH: I believe that the outsourcing market in general requires a very customer-centric focus. I think the industry has come a long way in being able to respond to customer needs and provide high-quality service offerings with good turnaround times. Those things are part of the maturation process. It’s evolving along that path. I want to do my part in helping lead the industry to mature further. What I want to do is make sure our development service offerings are well integrated, interact well with customers, and allow us to be very timely in this space.