
Public opinion about the effectiveness of the US Food and Drug Administration in overseeing drug safety shows ground for improvement. A  recent poll that was conducted by Harris Interactive and Health Day finds that although the reputation of FDA has improved, the agency is still receiving low marks for its role in regulatory oversight and monitoring drug safety. The survey was conducted online in the United States in mid-April 2009 among a cross-section of 2495 adults.

In 2008, the public gave FDA its lowest rating in five years for ensuring the safety and efficacy of new prescription drugs. Fifty-eight percent of respondents gave FDA a negative rating and 35% a positive rating. In the 2009 survey, the numbers improved slightly although a majority of respondents still provided FDA with a low grade. Fifty-two percent of respondents gave FDA negative ratings on ensuring the safety of drugs, and 54% gave FDA negative marks for getting new drugs to the market more quickly. On the plus side, positive ratings for managing prescription drug recalls or withdrawals increased from 39% in 2008 to 53% in 2009.

“Perceptions of drug safety have gone up and down,” says Humphrey Taylor, chairman of the Harris Poll, in a Harris Interactive Apr. 30, 2009, press release. “As stories break about drug problems, and Vioxx comes to mind, those numbers change. We seem to have recovered from the low figures of last year.



 

The survey asked respondents to evaluate FDA’s performance in specific functions relating to drug safety. These functions were: managing prescription drug recalls or withdrawals when safety concerns arise, ensuring the safety and efficacy of new prescription drugs, monitoring the safety of prescription drugs after they are approved and prescribed, ensuring that prescription drugs come to market more quickly, and ensuring the safety of prescription drugs that are manufactured outside the US. The survey showed the following:

• Managing prescription drug recalls or withdrawals: 11% said FDA’s performance was “excellent,” 43% said it was “good,” 28% said it was “fair,” and 12% said it was “poor”

• Ensuring the safety and efficacy of new prescription drugs: 8% said FDA did an “excellent” job, 39% said FDA did a “good” job, 33% said it was “fair,” and 16% said it was poor.

• Monitoring the safety of prescription drugs after approval and once they have been prescribed: 8% said FDA did an excellent job, 39% said the agency did a “good” job, but 46% said FDA did only a “fair” or “poor” job

•Ensuring that prescription drugs come to market more quickly: 48% said FDA did an “excellent” or “good” job, but 54% said the agency did a “fair” or “poor” job

•Ensuring the safety of prescription drugs that are manufactured outside the US: only 35% said that FDA did an “excellent” or “good” job, 30% said FDA did a “fair” job, and 22% said it did a “poor” job.

Although these results show a need for further improvement by FDA in the eyes of the public, the agency has improved its reputation in overseeing certain functions. For example, 52% of respondents gave FDA a negative rating for ensuring the safety of prescription drugs that are manufactured outside the US in 2009, but this response was better than the results from 2008, when 62% of respondents gave FDA low marks. FDA’s effectiveness in the view of the public also slightly improved from last year in other areas as outlined below:

• Ensuring the safety and efficacy of new prescription drugs: Positive ratings: 2009, 47% of respondents; 2008, 35%; negative ratings: 2009, 47% of respondents, 58% in 2008.

• Ensuring that prescription drugs come to the market more quickly: Positive ratings: 2009, 37% of respondents; 2008, 30%; negative ratings: 2009, 54% of respondents, 60% in 2008.

The survey asked respondents for additional input on the pace of drug approvals. The survey asked if FDA approves prescription drugs too quickly (i.e., before they are safe), too slowly (i.e., a drug could have been approved sooner for patients’ benefits), or at the right speed (i.e., optimal approval time for drug safety). 

Thirty-five percent of respondents said FDA acted “too slowly” in approving drugs, 19% said FDA moved  “too quickly,” and 18% said FDA acted at “the right speed.” More than a quarter, or 28%, said they were not sure.

 



 A concern for FDA and for the pharmaceutical industry as a whole is the level of public confidence in the safety of drugs. Only about one-quarter of respondents said that they were “very confident” in the safety of over-the-counter (OTC) drugs and prescription drugs, both brand name and generic. Sixty-one of respondents said that there only “somewhat confident” in the safety of OTC drugs, and 62% said that they were “somewhat” confident in the safety of prescription products.

In identifying priorities for FDA, 37% of respondents said that ensuring the safety and efficacy of new prescription drugs should be a top priority for the agency. Twenty-five percent said that monitoring the safety of prescription drugs after they are approved and prescribed should be a top priority. Interestingly, more respondents (59%) said that food safety should be a top priority at FDA.

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A recent poll shows the public's view of the US Food and Drug Administration has improved somewhat, but better oversight of drug safety is still needed.

Public's View of FDA Shows Agency Needs to Improve

In the business and financial environment we are currently enduring, one wouldn't expect investors to be anxious to buy companies with somewhat uncertain prospects. Yet, that is what is happening in the pharmaceutical services industry. Private equity investors are lining up to own all or a piece of a contract research or contract manufacturing organization (CRO or CMO), and the depressed stock market is creating opportunities for them to get in at very attractive valuations. 

The hot interest in pharmaceutical services is slightly different from what we saw two years ago. For one, acquisition prices are a lot lower today. Consider 2007, when the Blackstone Group acquired what is now Catalent (Somerset, NJ) for $3 billion, financing the deal with $2 billion in debt. The price was 1.6 times Catalent's revenues for that year  and 10 times the company's pretax cash flow. Premier Research Group (Crowthorne, England) was taken private by ECI Partners (London) last year for a similar multiple. By contrast, today's prices are likely to be less than one times revenue with less than half of the purchase price borrowed. 

The lower valuations reflect the restricted availability of debt (when debt was cheap, companies could afford to bid up) and the less certain outlook for the biopharmaceutical and pharmaceutical industries overall. Still, private investors appear confident that the pharmaceutical services business is a long-term winner. 

At the same time, major biopharmaceutical and pharmaceutical companies seem to be committed to outsourcing an ever-larger share of their drug development and manufacturing activity. In addition, they are increasingly depending on early-stage companies to do their discovery and early development work, and then in-licensing or acquiring the most promising candidates. This means early-stage companies will continue to get funding to feed their dependence on contract services. 

One recent big deal is the ongoing acquisition of PharmaNet Development Group (Princeton, NJ) by JLL Partners, a private equity firm that is also a major investor in CMO Patheon (Research Triangle Park, NC). The total value of the deal will be nearly $250 million, comprised of $100 million for the outstanding PharmaNet stock (valued at $5.00 per share in the transaction) and $144 million to retire PharmaNet's outstanding convertible debt.  

PharmaNet provides Phase I–IV clinical research services as well bioanalytical laboratory services. The original PharmaNet Development Group was founded in 1996 by a team that included the founders of what is now Covance (Princeton, NJ), and was acquired by publicly-traded SFBC International in late 2004 for $245 million. SFBC International changed its name in 2005 to PharmaNet following a scandal surrounding operations at its Phase-I operations in Florida. It had revenues of nearly $360 million (net of passthroughs) in 2008, putting it among the top 10 clinical CROs by revenue. 

PharmaNet's stock price dropped from more than $40 per share in March 2008 to under $1.00 by December 2008. The cataclysmic price drop reflected the overall decline in CRO stock prices (Covance dropped from more than $90 a share to under $35 per share during the same period) and a sharp reduction in revenues and backlog during the second half of 2008. A complicating factor was the company's inability to get holders of the senior convertible debt to agree to redeem those notes for debt with new terms. 

In a sense, PharmaNet is a victim of the changed financial environment, which starved many of its customers of capital while cutting off its ability to refinance debt. At the same time, however, the company is a victim of its own problems. The convertible debt was originally issued in 2004 to allow SFBC to acquire PharmaNet, and the subsequent legal problems surrounding the Florida Phase-I sites probably distracted management's attention from creating a more sustainable business model the way competitors such as Covance and PPD have been able to. The sale to JLL will give PharmaNet's management team, which is well respected in the industry, the opportunity to improve the company's operations and possibly expand its capabilities through selected acquisitions.  

Private equity investors may get another bite of the top 10 CRO apple in coming months if the directors of MDS (Toronto), the parent company of MDS Pharmaceutical Services (MDSPS), decide to test the market. MDS has formed a committee of independent directors to review alternative ways to improve shareholder value. 

Like PharmaNet, MDSPS, which had revenues of $482 million in 2008, has faced some particular challenges. Its early development business has been hurt by the reputational and operational implications of quality problems at its Montreal bioanalytical laboratory, which was cited by the US Food and Drug Administration in 2004 for inadequate investigation of contaminated samples. MDSPS' management reports that the problems are largely resolved and that the company is attracting clients back to the bioanalytical business. In the Phase II–IV segment, however, MDSPS continues to lose market share to larger competitors, including Quintiles Transnational (Research Triangle Park, NC), PPD (Wilmington, NC), Icon (Dublin), and Parexel (Waltham, MA). The company also suffers from a smaller scale and a more limited global footprint, even though its revenues put it among the top 10 CROs. 

MDS has ample cash and little longterm debt, so it is not compelled to sell. However, its board and management have been under investor pressure to consider strategic alternatives. With three distinct businesses in its portfolio (MDS also has business units that make analytical instruments and radiopharmaceuticals), the company does have some interesting options, including selling one or more of its business units to strategic or private equity buyers.  

Although publicly held CROs represent the highest profile targets for current investment, we are aware of several well-known privately-held CMOs whose owners have put them on the block and which are attracting considerable interest from investors. Private investors aren't the only buyers, either. Publicly-held CROs such as PPD, which recently acquired the Eastern European CRO AbCRO, are also taking the opportunity to pursue deals that flesh out their capabilities. 

This doesn't mean investors aren't being picky, however. Many investors are focused on CROs with strong market positions and viable business models, mindful that the services industry will experience a shakeout in the coming months.  

The lesson here is that despite the doom and gloom in the financial media, there are still good businesses to invest in and institutions with money to invest in them. The smart money seems to be saying that pharmaceutical services will be a great business well into the future.  

 is president of PharmSource Information Services, Inc., and publisher of 

Outsourcing

Despite the market downturn, private equity investors are lining up for pharmaceutical services.

Contract Organizations are the Sell of the Season


Outsourcing is an increasingly important tool for pharmaceutical companies as they seek to reduce internal capital costs and optimize resources for drug development and manufacturing. Although the elements of quality, speed, and reliability are common to any outsourced relationship, the expectations of the vendor by the sponsor company, project management, and project administration will vary depending on the partners involved. This situation is particularly true when a contract manufacturing organization (CMO) is working with a virtual pharmaceutical company. Although the degree of virtuality can vary, a virtual pharmaceutical company is typically a company developing drug candidates that does not have manufacturing capacity to produce clinical-trial materials or commercial quantities. Instead, these functions are outsourced to a third-party vendor.

Mark Mugerditchian, senior vice-president of manufacturing and product development with Sequel Pharmaceuticals (San Diego), and Stephen Boppart, senior account manager with DSM Pharma Chemicals, a unit of DSM Pharmaceutical Products (Parsippany, NJ), outline the skill sets, including project-management capabilities, required for a successful partnership between a virtual company and CMO. Mugerditchian was formerly senior vice-president of manufacturing and product development at NovaCardia, a pharmaceutical company specializing in developing cardiovascular treatments. Merck & Co. (Whitehouse Station, NJ) acquired NovaCardia in 2007. While at NovaCardia, Mugerditchian and his team partnered with DSM on an outsourcing project. The project involved the technical transfer of an existing drug-substance synthesis scheme, the development of the scheme to a very efficient and reproducible process, the production of that material for use in 

 studies, and the eventual production of a chemical entity for a commercial product.



Criteria in the supplier-selection process

 In its supplier-selection process, Mugerditchian points out that it is important to choose a vendor that can supply both clinical-trial materials and commercial quantities. “I have chosen to only work with companies that can take the drug candidate from the benchtop (i.e., lab-scale capacity) to the commercial marketplace because it does two very big things. It keeps the focus on whom is accountable for the delivery of results, and it avoids what I consider are unnecessary costs for the transfer of production from one site and company to another, which can usually be more than $1 million per project.”



 Regulatory competency is also a key element in the supplier-selection process. “With our company being a virtual company, each facet of the development was critical to the success of the overall project,” says Mugerditchian. “The supplier needs to understand the regulatory requirements of the work in the areas of the world that we intend to market our products, which typically includes the US, Europe, and Japan.” He emphasizes that in the outsourced relationship, the sponsor company, particularly a virtual pharmaceutical company, is seeking a vendor that has a deep understanding of chemical development and regulatory compliance, along with the capacity to resolve problems and concerns as they arise before they may even become obvious to the virtual company.  “My objective is to use the systems in place at the vendor—the quality systems, regulatory systems, production systems, and management systems—and work within those systems unless there is something that absolutely needs to be changed to meet an extraordinary specific need.”

The interrelationship between the CMO and the sponsor company when the sponsor company is a virtual company is particularly important given the virtual company’s reliance on the CMO in providing manufacturing expertise. “Our company wants and needs to be expert on how to identify the main components of the drug-development program, namely what drug we need to study, what indication we need to research, the basic direction of the CMC [chemistry, manufacturing, and controls] plan, and how to move the project through the regulatory agencies,” says Mugerditchian. “We have decided to lead the product-development activities and to use our vendor as the expert in those areas.”  Speaking of Sequel’s management team, Mugerditchian says, “We recognize that each of our senior management staff needs to be able to lead that function in our counterpart vendor. They need to have the experience and management temperament to do that, but each of the senior management staff also needs to be experts at leadership and knowing when to allow our vendors to ‘just do the work’ and when to step in to provide guidance. In this manner, we believe that a specific drug-development project has the greatest chance of success and will be completed in the minimum possible time in the most affordable manner. Most importantly, it focuses accountability of results on the CMO.”



 Successful project management with a given CMO and other vendors that may be participating in the project is critical. “The main challenge is getting each vendor to do their portion of the work in a sequence that will allow for the delivery of the product to the clinical site on time,” says Mugerditchian. “If the upstream vendors are late in delivering their product, it will almost always create a delay in the downstream delivery, which creates a delay in the delivery or the material to clinical sites.”

He explains that the issues behind these delays are typically not technical in nature, but more related to company systems and the sharing of information needed for each company to operate its respective systems. “For example, the drug-substance supplier may not have a policy of establishing an expiration date to early-phase clinical material, but the drug-product site may require an expiration date to receive the material into its system. If not caught early enough in the process, these system issues can cause delays in product release, which will create delays in product supply.”

The key way to mitigate these types of delays, says Mugerditchian, is to be able to identify potential problems in advance and to work collaboratively to resolve any issues quickly. “Sometimes, it involves working with a vendor to slightly alter their own internal policies to allow for whatever is needed to receive and release incoming materials,” he says. “It is often the case that vendors change their internal systems to take advantage of new knowledge gained by the interactions with their drug-development partners, and everyone benefits on the next project.”





In the case of the outsourcing project between DSM and NovaCardia, all the project’s objectives were met. “For the chemistry portion, we transferred the synthesis and produced our initial clinical trial materials on budget and according to schedule,” says Mugerditchian. The process was successfully scaled to initial commercial quantities on budget and according to schedule.



 Mugerditchian points out that effective project management by its CMO, DSM, was a key factor behind the success of the project. “I attribute about 50% of our project success for the manner in which the project-management system was implemented.” DSM assigned a lead chemist at the early-stage of the project. That lead chemist was accountable for all the results to the customer but also internally to DSM. “This is the best way to set up a project-management process,” says Mugerditchian. “It allows the person to make the most positive difference to the customer. Because I don’t have a project-management person on my staff and because DSM’s main project person is also accountable for the technical outcomes of the project, we can work together directly because the lead chemist and I are the decision makers. This ensures that problems get resolved quickly and the project keeps moving forward with minimal to no delay. When the project moves to the commercial scale, the same relationship holds true for the project-management group at the new location.” He emphasizes that this approach is effective because it places all accountability for outcomes, both technical and business, with one point of contact in the CMO.

Effective communication is also critical for the CMO. “DSM was thrilled to work with Mr. Mugerditchian and his team on this project,” says Boppart. “The effective communication between our two organizations was fundamental to its success. DSM’s extensive knowledge of the regulatory and quality requirements gained over years of working with virtual pharma companies enabled us to suggest the next steps to NovaCardia as we moved through each clinical phase.” 

The business value of a successful outsourcing relationship is underscored by the eventual sale of NovaCardia to Merck. “Our project with NovaCardia was purchased by Merck after Merck had done a thorough evaluation of the entire development program, including the CMC portion of the development plan,” says Mugerditchian.


 



The success of the companies’ project is leading to other work between the partners. The former management team at NovaCardia is now at Sequel Pharmaceuticals and is working with DSM on an outsourcing project for a drug candidate that is in clinical testing for an intravenous and oral form of the drug. Sequel, which specializes in developing cardiovascular treatments, is also evaluating other compounds to begin development work to in-license from other companies to supplement its product pipeline.

Global Feature

Best practices show the value of effective project management when outsourcing between a virtual pharmaceutical company and a contract manufacturing organization.

PTSM: Pharmaceutical Technology Sourcing and Management-05-06-2009

Public's View of FDA Shows Agency Needs to Improve

Contract Organizations are the Sell of the Season

Project Management When Outsourcing with a Virtual Company