We interviewed Scott Houlton in October 2009, following his appointment to lead the newly formed Development and Clinical Services business at Catalent (go read it!), and decided to catch up with him to find out how the DCS unit has progressed and how DCS will integrate Aptuit’s CTS business. —GYR
Contract Pharma: You and I last spoke three years ago, just after you’d been appointed to run the newly launched Development and Clinical Services business unit at Catalent. Can you give me an update on how the business has progressed?
Scott Houlton: It’s gone very well. We had set it up with the premise that Catalent had some very good development service offerings in this space that were underleveraged, since they were included as part of the commercial operations. It has the same customer base but different buyers and needs. With my background in development, we thought it made sense to split it out as a separate offering. so that we can have more focus on these services and better support our development customers’ needs.
For the past three years, we have been investing in automation, expanding our service offerings and capacity. This strategy seems to be working since we’ve been growing by double digits year on year. Growth has been on both the top line and the bottom line, so we’re showing both growth and profitability.
The other thing we’ve been able to do was acquire Aptuit’s CTS business, which will help us continue to grow as we go forward and expand our footprint globally. The Aptuit CTS acquisition nearly doubles our segment’s business.
CP: What role did your previous job as chief operating officer at Aptuit play in assessing the CTS purchase?
SH: Knowing the industry as we do, there’s not a lot of players in the clinical packaging space. Knowing that business from the Aptuit side, I understood how well it could fit in with Catalent’s organization, in terms of the culture, the process, the talent and how we could leverage the combined asset within the company.
So my background was an important part of the transaction. It was also important that I knew the people who would be coming over to us, and how we could build out our organization. I’d like to say my role was instrumental, but I’m more concerned about being instrumental in making it a success.
CP: What’s going to be necessary to pull that off?
SH: When we look at the customer mix, it’s been very complimentary. Not a lot of overlap between CTS and Catalent.
As the fastest growing part of Catalent, we’ve been hiring a lot of people in the past three years. It’s a people business, so our challenge is talent. Bringing in talent is an important part of success. Leveraging the people who are coming in with the acquisition is an important part of making us successful.
Both CTS and Catalent have their best practices; by leveraging both organizations, we improve the overall operation and make the business better for our customers.
CP: How difficult is it to proliferate best practices in such a large organization? Do you have a lot of silos to break down?
SH: We’ve been careful not to slam our process onto the new entity. We want to make sure that we keep the best of both. There have been a lot of opportunities since we closed the acquisition a few months ago to start cross-pollinating and look deeply into how both groups do their process. It’s probably not going to be an either/or situation every time, but rather a blending of things like project management, or sales.
There will be some things that need to be standardized, of course, like IT systems, but there’s a tremendous cultural fit between Catalent and the CTS organization.
CP: How big a contribution do you think Development and Clinical Services will make to Catalent overall? Pre-CTS, it looks like it contributes about 10-12% of Catalent’s revenues.
SH: The good news is that what we’ve picked up with CTS is more of what we’ve been doing. We didn’t pick up a business that’s completely new and outside of our realm of expertise. It’s completely additive to what we’re already doing.
Post-acquisition, we’ll account for approximately 25% of Catalent’s top line revenues, and we’ll be the fastest-growing business unit as we integrate the CTS business. We’ve been increasing in importance to the company.
I think we’ll continue to grow nicely in the next several years; there’s lots of runway in the industry and more opportunity for us to gain share.
CP: How sticky is the development business? How well do development customers feed into Catalent’s commercial manufacturing business?
SH: Development business for oral solid and biologics are relative sticky. Catalent has the broadest set of capabilities with outstanding technical expertise and high quality standards. Customers are happy with Catalent’s service and tend to stay with Catalent throughout the compound life cycle.
When it comes to biologics, we have global capabilities for dosage forms. We don’t have big tank manufacturing or bulk biologics manufacturers. We have made significant investment to expand our GPEx® cell line technology, that will give us larger scale production. This enables us to work with customers early on, getting their cell lines through development and then helping them through the final dosage form.
We do have some customers who buy a la carte services, who need specific offerings but have in-house capacity to handle their own commercial launch. We support those customers, but a lot of our work is tied into development projects that, if they make it through the clinical trial process, we hope to scale up and manufacture in our network. We’re seeing growth in that space, doing product manufacturing at a larger facility and doing analytical support and trial support, and going through to launch. Catalent has broad drug development expertise, advanced drug delivery technologies, and reliable commercial manufacturing capabilities, we are supporting our customers for approximately 100 new product introductions this year.
CP: The CTS move puts Catalent in the #2 spot for the clinical services market. Is there an Avis “we try harder” approach to the market?
SH: It’s a relatively small market, and the industry is mature enough, with good global providers that allow companies to outsource with confidence. If there was only one major, or if there was a weak network of providers, I think companies would be reluctant to outsource, because of the perceived risk involved. Our focus is on operational excellence and high quality standards. As we continue to deliver outstanding services, we will grow as the industry becomes stronger.
CP: What client base has been pushing growth at Catalent Development and Clinical Services?
SH: We’ve seen a fairly healthy growth from large pharma, and the next largest has been mid-tier pharma. We’ve always had a fairly broad customer base, with a lot of small biotechs, small pharmas and emerging companies, but the growth has been driven by larger organizations leveraging us more across our network.
CP: Have they been pursuing strategic partnerships in this area?
SH: Some companies are looking to get to true strategic partnerships, picking one or two providers to work with. Others are narrowing their vendor base, because they have to. It’s just too much work to manage, say, 5,000 vendors overall. The focus is has been to work with fewer larger global providers with outstanding delivery levels.
CP: What areas are you looking to build up?
SH: We’re focused on drug development and advanced drug delivery technologies. We’ve been adding technologies that help us solve customer drug development challenges, and we’ll continue to look at those. Geographically, it would be logical for us to expand in China, Latin America and other growing markets.
When we look at our five-year growth plan, we always look at adjacencies and areas we could expand into. We want to make sure we’re not just reacting to opportunities that pop up in the marketplace, if they don’t fit our strategy. We are investing proactively in automation and leverage new systems/technologies.
CP: Is there anything appealing from redundant or rationalized large pharma assets?
SH: Those sorts of assets have been around for a few years now. I think that there are fewer and fewer of those deals actually happening. We haven’t really pursued those as a company. They tend to be in non-differentiating technologies and not necessarily part of that core strategy.
CP: Where do you see the Catalent Development and Clinical Services unit in five years?
SH: When we started, we had the objective of doubling the size of the business and tripling its profitability within five years. Organic double-digit growth the last three years has helped us along that path. With the combination of that business and the CTS acquisition, we’ve exceeded that objective.
As we continue to grow, we think there is further share for us, and that the market will leverage companies of our scale. There’s a lot of ongoing need for development and clinical services. I don’t think there’ll be a sudden flip-of-the-switch back to in-sourcing those activities. There’ll be fewer providers, but they’ll be deeper and more trusted.
CP: How do you think the industry has changed culturally in, say, the past five years, back when you were at Aptuit?
SH: I think the customer base is fully onboard now with outsourcing of these services and recognizing the importance of global scale. The providers, perhaps, may have been a little ahead of the curve, in that respect.
In the traditional CRO industry, we’re following the consolidation wave they engaged in 10 to 15 years ago. We may be around seven years behind that sector. I think it’s matured along the path I projected back then.
Certainly, increased regulatory scrutiny and quality concerns have been a big change. There’s been a premium for quality supply. I think our customer base is looking more in the longer term, rather than a tactical, short-term view. Short-term concerns still come up sometimes, but in general they seem to understand that some of the companies that they selected for tactical reasons a few years ago simply aren’t there today. They may have been penny wise and pound foolish.
CP: How difficult is it to court smaller development-stage clients? Is there an “intimidation factor” because of Catalent’s size and large pharma client base?
SH: It takes a different approach. A top 10 pharma has a big infrastructure and procedures in place. They interact differently than an emerging pharma. With the smaller companies, as long as we show them that we can be flexible and reactive, then they’re very happy to have access to the scale, expertise and wherewithal of Catalent to support them.
I do hear from customers, “I’m a small company, am I really going to get your full attention?” Our employees are driven by the engagement of solving problems. So whether it’s two people and a molecule, or the number-two pharma company, if we can have an active dialogue, we can provide value.
CP: What have you learned in the three years since Catalent Development and Clincial Services launched?
SH: Catalent was a larger organization than where I was at Aptuit. What’s proven out is that breadth of service is important. You don’t want to be limited in terms of what you can provide your customer base. I think that reliability of supply, high quality standards, operational excellence are things you can’t invest too much in. That requires the Resources of an organization of a certain size.
Scott Houlton has served as Catalent’s group president, Development and Clinical Services since August 2009. Previously, Mr. Houlton was most recently chief operating officer of Aptuit, responsible for Scientific Operations, Business Process Improvement, Human Resources, Clinical Operations and Capital Development and served as a director for Aptuit Laurus. Prior to Aptuit, Mr. Houlton held a variety of leadership roles in other companies including vice president of Clinical Supplies at Quintiles Transnational Corporation. Earlier in his career, he was with Cardinal Health, Inc. where he served as director of International Business Development. Mr. Houlton holds a B.S. degree in both International Business and Finance from Ohio State University.