Gil Y. Roth11.14.11
John Robson joined Covance three years ago from MDS Pharma Services and currently serves as vice president and general manager Global Early Development. His group contains the Nonclinical Safety Assessment and Analytical Services units, and he’s been involved in Covance’s recent partnership agreement / site transfer with Sanofi. We met up at CPhI/ICSE to talk about that integration, Covance’s expansion of its CMC offerings, its place in the CRO ecosystem, the importance of being able to formulate APIs, and how the preferred provider model is playing out across the post-mega-merger market.
—GYR
Contract Pharma: What’s Covance’s history in CMC?
John Robson: Covance has been in CMC for around 20 years. Mainly through analytical support in our Madison, Wisconsin, U.S., and Harrogate, UK operations, where we’ve been doing methods development, stability testing and release testing for small molecules. For large molecules, we’ve got facilities in Harrogate and Greenfield in the U.S., providing similar services for proteins, as well as biosafety testing, biopotency testing, molecular biology and virology.
Last year, we acquired two sites from Sanofi in Europe: Porcheville and Alnwick. That’s opened up a whole new area of CMC that we weren’t in before. Porcheville gives us API capability: development, characterization, preformulation. Alnwick gives us a formulation center of excellence. These are new service offerings for Covance.
CP: Are other CROs pursuing these sorts of services in their portfolios?
JR: I don’t see it as a trend. Covance has always wanted to be a full-service CRO offering services from Discovery to Late Stage Clinical and Commercialization.
CP: The company did have biomanufacturing capabilities a long time ago . . .
JR: I don’t think we’ll be going back in that direction, namely commercial manufacturing. One part of our portfolio is program management, where we offer an IND/CTA or NDA enabling service to our clients. Over the years, we’ve worked on around 450 different programs, and have progressed about 250 IND enabling packages, around 150 of which have gone to IND.
Historically, if the client wanted API work as part of that package, we had to subcontract, or work with a third party on formulation. Now we can offer that ourselves and we see significant advantages in managing these processes ourselves. The biggest advantage is in saving time, which is one of the most important things in our business.
CP: How smoothly has the Sanofi integration gone?
JR: We’d already integrated Lilly’s Greenfield site, so that gave us some experience. We set an integration plan for the sites that included the development of revenues from external clients or third parties. We’re ahead of where we thought we’d be in that category. We’ve had more than 45 clients approach us and award studies in both of the former Sanofi sites. We’re very comfortable with where we are in the process.
CP: Have there been any cultural issues with the integration? That is, did staff have to adjust to the fact that they were now working at a contract service provider and not a drug company?
JR: Interesting question. People are coming in with very strong scientific backgrounds. The integration, if anything, involved cultivating the client-service mentality. It’s a perfect marriage of their scientific drug development expertise and our client-service background. The sites may not have been client-ready on day one, but by day 150? Absolutely, yes.
CP: What’s the biggest challenge with making that shift?
JR: It is about understanding what the client wants. Scientists tend to look for every single solution, and it is important to understand that they are not always looking for every service possible. Sometimes you have to take a more expedient approach? The transition is about helping our team to understand what the client is looking for and deciding what the right path is, vs. the 30 possibilities they could offer.
CP: What are the terms of the supply agreement with Sanofi?
JR: We signed a 10-year, $2.2 billion agreement that involves all of Covance’s services, not just offerings from the facilities that we acquired. It covers discovery, early and late stage development, all the way to commercialization.
CP: How has the relationship with Lilly evolved since you took over Greenfield?
JR: We have a very strong relationship with Lilly. They work with us in all areas of our portfolio. They continue to use the Greenfield site for a lot of discovery work. It’s a true partnership.
CP: How would you compare Covance’s deals with Lilly and Sanofi to the recent wave of preferred provider deals we’re seeing from other CROs? So far, those other partnerships haven’t involved asset transfers. (I’m thinking of ICON, Parexel, and the like.)
JR: Our CEO has said this, so I’m not speaking out of turn: we’ve turned down more of these agreements than we’ve taken on. We’re very specific about what we’re looking for: a true partnership in which both parties benefit. And if there are assets involved, we want to see them best utilized. We’re particular about the partnerships that we’ve gone with.
CP: Do you see more of those relationships coming with major pharma? Are they growing more comfortable with adopting that FIPNet model that Lilly’s implementing?
JR: More and more companies are looking to reduce their number of external providers. For example, one of our great strengths is in bioanalytical support and DMPK. We recently signed a sole-source clinical agreement with one major pharma client.
CP: Who shall remain nameless?
JR: Yes. But major. It’s a five-year agreement to do all their clinical bioanalytical work. There are more companies looking for these sorts of partnerships.
CP : Have there been a lot of offers in the post-mega-merger environment of the past two or three years?
JR: Yes, and that’s no surprise. I recently read an article about overcapacity in the API market, but I think there’s overcapacity in a lot of areas. Pharma’s looking to offload its fixed costs and we can take them over. We’re better at treating assets in terms of variable cost; it’s the name of the game for contract service providers. We can operate those facilities much cheaper and more efficiently, bringing in outside clients.
CP: But on the manufacturing side, it takes a lot of time to bring in new business, simply because of tech transfer, regulatory issues, etc. You’d seem to be at an advantage in your area, when it comes to utilizing asset transfers.
JR: Certainly. We were doing new formulation business at Alnwick within five or six months of acquiring the site. It is capital-intensive, but there’s more flexibility to bring in new clients.
CP: Where are you seeing the biggest opportunities for growth? Large pharma companies looking to pare away internal R&D?
JR: We’re seeing new clients from across the board. Major pharma might come with standalone work, needing an individual API or formulation. In addition, we’re really excited about the opportunity that comes from our program-managed clients. For example, we are introducing an API to First-in-Human package that covers everything from API powder to proof of concept early clinical development.
CP: So there’s a definite push to gain more emerging clients, and to use this new basket of services as a “one-stop” destination for them?
JR: One of the things that was really attractive to us about the two Sanofi sites was that they have years of drug development experience. I’ve read that 30% of toxicology studies are delayed because of unavailability of API. Having API capability in house allows us to manage those delays and ongoing studies much more effectively.
CP: What’s next for Covance, from your analytical services perspective?
JR: I think we really want to make a success of the new sites and grow our early development service lines including DMPK, and small and large molecule CMC.
CP: What areas are you most excited by?
JR: We’re really excited about our biotechnology services area. Look at everyone’s pipelines: more and more large molecules. We see that part of the business growing faster than others.
CP: Doing biosimilars, too?
JR: Certainly. We’ll support protein characterization, bioassays, as well as other services that will fit the development of biosimilars. The Harrogate site has been involved in biologics for 20 years and we’ve expanded Greenfield for that area, too. We have very aggressive growth targets for biopharma in the next five years and we are confident that the market will match it.
CP: Last question: that preferred provider trend for CROs, has led to a rollup among majors in the field as they seek greater scale. Do you think that wave has crested, or are we looking at more consolidations in the CRO arena?
JR: I’ve been at Covance for three years, and the strategy has not changed in that time. It’s all about providing superior client service. We are also very focused on selected strategic relationships and have added two strong partners since I’ve been here.
That’s not to say that they wouldn’t look at acquisitions — everyone does — but the senior leadership team is very focused on where they’re trying to go. That’s why so many of us stay at the company.
Gil Roth has been the editor of Contract Pharma since its debut in 1999. He can be reached at gil@rodpub.com.
—GYR
Contract Pharma: What’s Covance’s history in CMC?
John Robson: Covance has been in CMC for around 20 years. Mainly through analytical support in our Madison, Wisconsin, U.S., and Harrogate, UK operations, where we’ve been doing methods development, stability testing and release testing for small molecules. For large molecules, we’ve got facilities in Harrogate and Greenfield in the U.S., providing similar services for proteins, as well as biosafety testing, biopotency testing, molecular biology and virology.
Last year, we acquired two sites from Sanofi in Europe: Porcheville and Alnwick. That’s opened up a whole new area of CMC that we weren’t in before. Porcheville gives us API capability: development, characterization, preformulation. Alnwick gives us a formulation center of excellence. These are new service offerings for Covance.
CP: Are other CROs pursuing these sorts of services in their portfolios?
JR: I don’t see it as a trend. Covance has always wanted to be a full-service CRO offering services from Discovery to Late Stage Clinical and Commercialization.
CP: The company did have biomanufacturing capabilities a long time ago . . .
JR: I don’t think we’ll be going back in that direction, namely commercial manufacturing. One part of our portfolio is program management, where we offer an IND/CTA or NDA enabling service to our clients. Over the years, we’ve worked on around 450 different programs, and have progressed about 250 IND enabling packages, around 150 of which have gone to IND.
Historically, if the client wanted API work as part of that package, we had to subcontract, or work with a third party on formulation. Now we can offer that ourselves and we see significant advantages in managing these processes ourselves. The biggest advantage is in saving time, which is one of the most important things in our business.
CP: How smoothly has the Sanofi integration gone?
JR: We’d already integrated Lilly’s Greenfield site, so that gave us some experience. We set an integration plan for the sites that included the development of revenues from external clients or third parties. We’re ahead of where we thought we’d be in that category. We’ve had more than 45 clients approach us and award studies in both of the former Sanofi sites. We’re very comfortable with where we are in the process.
CP: Have there been any cultural issues with the integration? That is, did staff have to adjust to the fact that they were now working at a contract service provider and not a drug company?
JR: Interesting question. People are coming in with very strong scientific backgrounds. The integration, if anything, involved cultivating the client-service mentality. It’s a perfect marriage of their scientific drug development expertise and our client-service background. The sites may not have been client-ready on day one, but by day 150? Absolutely, yes.
CP: What’s the biggest challenge with making that shift?
JR: It is about understanding what the client wants. Scientists tend to look for every single solution, and it is important to understand that they are not always looking for every service possible. Sometimes you have to take a more expedient approach? The transition is about helping our team to understand what the client is looking for and deciding what the right path is, vs. the 30 possibilities they could offer.
CP: What are the terms of the supply agreement with Sanofi?
JR: We signed a 10-year, $2.2 billion agreement that involves all of Covance’s services, not just offerings from the facilities that we acquired. It covers discovery, early and late stage development, all the way to commercialization.
CP: How has the relationship with Lilly evolved since you took over Greenfield?
JR: We have a very strong relationship with Lilly. They work with us in all areas of our portfolio. They continue to use the Greenfield site for a lot of discovery work. It’s a true partnership.
CP: How would you compare Covance’s deals with Lilly and Sanofi to the recent wave of preferred provider deals we’re seeing from other CROs? So far, those other partnerships haven’t involved asset transfers. (I’m thinking of ICON, Parexel, and the like.)
JR: Our CEO has said this, so I’m not speaking out of turn: we’ve turned down more of these agreements than we’ve taken on. We’re very specific about what we’re looking for: a true partnership in which both parties benefit. And if there are assets involved, we want to see them best utilized. We’re particular about the partnerships that we’ve gone with.
CP: Do you see more of those relationships coming with major pharma? Are they growing more comfortable with adopting that FIPNet model that Lilly’s implementing?
JR: More and more companies are looking to reduce their number of external providers. For example, one of our great strengths is in bioanalytical support and DMPK. We recently signed a sole-source clinical agreement with one major pharma client.
CP: Who shall remain nameless?
JR: Yes. But major. It’s a five-year agreement to do all their clinical bioanalytical work. There are more companies looking for these sorts of partnerships.
CP : Have there been a lot of offers in the post-mega-merger environment of the past two or three years?
JR: Yes, and that’s no surprise. I recently read an article about overcapacity in the API market, but I think there’s overcapacity in a lot of areas. Pharma’s looking to offload its fixed costs and we can take them over. We’re better at treating assets in terms of variable cost; it’s the name of the game for contract service providers. We can operate those facilities much cheaper and more efficiently, bringing in outside clients.
CP: But on the manufacturing side, it takes a lot of time to bring in new business, simply because of tech transfer, regulatory issues, etc. You’d seem to be at an advantage in your area, when it comes to utilizing asset transfers.
JR: Certainly. We were doing new formulation business at Alnwick within five or six months of acquiring the site. It is capital-intensive, but there’s more flexibility to bring in new clients.
CP: Where are you seeing the biggest opportunities for growth? Large pharma companies looking to pare away internal R&D?
JR: We’re seeing new clients from across the board. Major pharma might come with standalone work, needing an individual API or formulation. In addition, we’re really excited about the opportunity that comes from our program-managed clients. For example, we are introducing an API to First-in-Human package that covers everything from API powder to proof of concept early clinical development.
CP: So there’s a definite push to gain more emerging clients, and to use this new basket of services as a “one-stop” destination for them?
JR: One of the things that was really attractive to us about the two Sanofi sites was that they have years of drug development experience. I’ve read that 30% of toxicology studies are delayed because of unavailability of API. Having API capability in house allows us to manage those delays and ongoing studies much more effectively.
CP: What’s next for Covance, from your analytical services perspective?
JR: I think we really want to make a success of the new sites and grow our early development service lines including DMPK, and small and large molecule CMC.
CP: What areas are you most excited by?
JR: We’re really excited about our biotechnology services area. Look at everyone’s pipelines: more and more large molecules. We see that part of the business growing faster than others.
CP: Doing biosimilars, too?
JR: Certainly. We’ll support protein characterization, bioassays, as well as other services that will fit the development of biosimilars. The Harrogate site has been involved in biologics for 20 years and we’ve expanded Greenfield for that area, too. We have very aggressive growth targets for biopharma in the next five years and we are confident that the market will match it.
CP: Last question: that preferred provider trend for CROs, has led to a rollup among majors in the field as they seek greater scale. Do you think that wave has crested, or are we looking at more consolidations in the CRO arena?
JR: I’ve been at Covance for three years, and the strategy has not changed in that time. It’s all about providing superior client service. We are also very focused on selected strategic relationships and have added two strong partners since I’ve been here.
That’s not to say that they wouldn’t look at acquisitions — everyone does — but the senior leadership team is very focused on where they’re trying to go. That’s why so many of us stay at the company.
Gil Roth has been the editor of Contract Pharma since its debut in 1999. He can be reached at gil@rodpub.com.