Gilead's reliance on CMOs gives firm 'flexibility' says CFO
Gilead Sciences has snuck into the top ten of pharma firms based on 2014 financial figures, reporting sales of nearly $25bn (€22.4bn) and displacing the traditional stalwart of Eli Lilly. The top ten consists of the usual companies – Novartis, Pfizer and Roche topping the list – but what makes Gilead unique is its almost complete reliance on third-parties.
CFO Robin Washington described the firm’s strategy as an “operationally leveraged model” at the UBS 2015 Global Healthcare Conference in New York, Tuesday.
“While we only have 7500 employees, we leveraged CMOs [contract manufacturing organisations] for manufacturing and we leveraged CROs and outsourced a lot of our clinical development activity,” she told delegates.
“Our true population of employees that work on getting Gilead products to market is a lot larger. It’s just done in a very different way. And I think that’s given us a lot of flexibility over the years.”
Discussing opportunities to grow the firm, Washington said mergers and acquisitions were a possibility, but management would be looking for deals that would not interrupt the firm’s strategy, for example by acquiring a pharma firm with a large R&D and manufacturing network.
“We’re not necessarily interested in M&A focused on synergies [as] it causes us to spend a lot of time downsizing. So it’s not so much just a headcount,” she said.
“I think it’s just really where we think we can add the most value to M&A that we might consider,” she continued, adding and deals would most likely be focused in earlier stage areas which would allow the firm to “influence the development path.”
Virtual Reality
Pharma and biotech firms with relatively little manufacturing capacity – or virtual pharma - are a boon to CMOs.
Gilead, for example, has its own facilities in California, Canada and Ireland, but uses third-parties to manufacture the majority of its active pharmaceutical ingredients (APIs) and solid dose products including bestseller HCV drug Sovaldi.
“For products manufactured by our third-party contract manufacturers, we have disclosed all necessary aspects of this technology to enable them to manufacture the products for us,” the firm says in its annual report filing.
“We have agreements with these third-party manufacturers that are intended to restrict these manufacturers from using or revealing this technology, but we cannot be certain that these third-party manufacturers will comply with these restrictions.”
Fellow virtual pharma firm Valeant, has boasted of using over 800 suppliers including almost 485 manufacturers. However, Valeant follows a very different strategy to Gilead, focusing on “leveraging industry overcapacity and outsourcing commodity services,” according to its annual report.
