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Business Of Biotech
Proactive Procurement Strategies For Biotech With Tom Wells
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On this week's episode of the Business of Biotech, Tom Wells, Director of Life Sciences at 4C Associates, reveals why -- and how -- smart procurement practices can make or break emerging biotech companies during critical growth stages. Tom shares insights into procurement tools and strategies that can deliver breakthrough solutions, how poor procurement practices can damage investor confidence, and why thinking about procurement as the front end of demand flow, not the back end of supply chain, can help drug developers avoid costly mistakes.
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Ben Comer:Welcome back to the Business of Biotech. I'm your host, Ben Comer, chief editor at Life Science Leader, and today I'm thrilled to speak with Tom Wells, director of Life Sciences at 4C Associates, about procurement practices, an issue that can stymie promising biotech companies during critical growth and development stages if not done correctly. Tom has worked in a variety of procurement roles at companies including Novartis, Takeda and, most recently, BMS, before joining 4C Associates, a London-based commercial supply chain and operations consultancy. Tom is passionate about procurement and the ways it can impact a growing biotech business and I'm looking forward to learning more, along with our Business of Biotech listeners, about how procurement can make or break biotech. Tom, thank you so much for being here. Pleasure to be here.
Ben Comer:I mentioned in the introduction that you are passionate about procurement, an issue that can be overlooked or under-managed by growing companies, despite its importance. Why did you decide to spend the bulk of your career on procurement issues and how did you get started in it initially?
Tom Wells:Well, I actually started from university. I read bottom year at university or plant science and then went into marketing, first of all for a wine and spirit retail company in the UK, then moved back in-house with electrolux, the white goods company, first of all as head of corporate comms for western europe and then as head of brand pr worldwide, and it was in that job that I really came across procurement for the first time and up to that point my view probably would have been that procurement for those annoying people who upset agencies, get contracts wrong, bungle payments and generally get in the way and slow things down. But I was asked to help work on an internal campaign to reposition procurement in the eyes of the business and help people understand what procurement is and what it actually does.
Ben Comer:And which company was? I'm sorry, tell me which company was that.
Tom Wells:This was Electrolux, based in Sweden, and the program was all about repositioning procurement in the eyes of the business, in the eyes of suppliers, trying to help people understand that procurement is actually it's not the back end of supply chain, but it's really the front end of demand flow. It's the part of the business which can bring in new ideas, new suppliers, new ways of working and so on. But it did also made me think when I was working on that project why is it that marketing people such as me at the time, and procurement people just weren't speaking, weren't really working together? And why were there so many of the the cliches that marketing people thought of procurement as being a difficult process by getting in the way, slowing things down, whereas procurement people probably thought of marketing people as being spending three after three schools and people who couldn't be trusted with money, and this would go back a few years. Um, and the whole process is intriguing and eventually I decided it wouldn't it be great if procurement people and marketing people could work more effectively together? And I eventually left Electrolux to set up my own marketing procurement consultancy and it wasn't so much working on sort of contracting and negotiations and pricing and so on, but it was much more helping the client side of the relationship understand how agencies work and the best ways of working with the suppliers they're working with. My view was then, and always has been, that you make it a little bit of extra value in the short term if you try to negotiate with your agencies or suppliers financially in in on financially. But if you understand how they work, how they make profit, what engages and motivates their people on what it takes to help them develop their business as a result of the good work they've done for you, then you'll find that that that agency will give you infinitely greater value than we could possibly get by trying to to the price. So I spent a few years running that consultancy business.
Tom Wells:I worked with Coca-Cola and Pepsi in various different areas, with McDonald's Europe, with General Motors Europe, but bit by bit I found myself working more and more with pharma companies, and I guess that's because, after the financial crash in 2007, 2008, governments, particularly European governments, had obviously put a huge amount of money into supporting their currencies and their markets. They were looking to cut costs elsewhere and so started putting more pressure on pharmaceutical companies always an easy target for government which need money, especially the big nasty drugs companies. In the five years to 2008, the average price of pharmaceuticals in Europe went up every year. In the five years after 2008, it went down as a year. So pharma companies, particularly in the marketing area, needed to become much more disciplined, much more savvy about what they were spending and how they were spending it.
Tom Wells:And so I found myself working more and more for pharma companies. And then one day I had an approach from Novartis in Switzerland to go and work in this global category for market research and then for marketing. So I moved to family to Switzerland, spent about five years with Novartis working in marketing and marketing research, and then moved from Novartis to Takeda as the global procurement lead for travel, retail and events, and from there to Bristol Myers Squibb, where I moved from having sort of vertical global roles to horizontal regional roles covering pretty much everything that the company spent money on, and then up until the end of 2024, I was reaching the Canada, latin America, turkey, israel, india and most of APAC, and from there to 4C Associates and beginning of March of this year.
Ben Comer:I want to get your kind of broad definition of what procurement is and what it means to you and maybe, as a way to start that conversation, could you describe kind of that transition from marketing services into pharma and what you know. The procurement job entailed Were there and what you know the procurement job entailed Were there. You know complete, I guess, analogous types of jobs that you were doing with pharma versus with a consumer packaged goods company. Were the issues similar or was there a kind of stark difference in the kinds of procurement jobs that you were doing for pharma versus your, your prior work in consumer package goods?
Tom Wells:yeah, it's a good question. I mean, I think that when it's being done probably when it when it's being done well, um, I think that the the basics of procurement are the same across every industry. Um, so again, procurement it's not the back supply chain, but it's very much the front-end of demand flow, it's the door to the rest of the world, it's the function which can bring in new ideas, and so on. I think whichever industry you're in, it starts with having the knowledge and the insight to partner with the business. In the case of life sciences and this is different from consumer goods or anything else else I think the key in the pharma industry is to be able to understand the scientific and the business objectives and strategy and the priorities, and that, I think, is it is the core difference. Um, the life sciences, um, across the piece not just pharma, but the agri-pathic, like sciences does need a really good understanding of how the business works and how the science works, because otherwise it's difficult to know what actually constitutes value for your business.
Tom Wells:So in my case, I've been in procurement for quite some time. When I was working at BMS, I realized that maybe my commercial understanding and my cross-functional understanding wasn't everything that I would want it to be. First of all, squibb has a wonderful system called a tool of duty, which is spend three months or six months in a completely difficult business function, learning how things work and just building your real perspective. So I actually spent six months working at a commercial in BMS on a project to look at re-commercializing a drug which had a problem that had passed, and I was able to work across regulatory, vap, forecasting, finance, production and many, many different functions. That gave me a lot more understanding of the business and science, because I had to read myself into the Journal of Transplantology, the British Journal of Nephrology and many other publications in order to be able to understand everything else that's happening with this particular drug.
Tom Wells:So yeah, in any industry it's about having the knowledge and the insight to be a credible business partner and to understand what the scientist is trying to do, what the business is trying to do, what its strategy is and what its priorities are.
Tom Wells:And from that I think you can start to identify the resources and the services that the business needs in order to deliver that strategy and achieve those objectives. And from there you can go out to the Borg external market to look at all the best possible providers, humph for purposeful innovation, innovation which actually delivers for a business. Then obviously negotiate and contract and onboard new supplier, get together and maybe manage the risk and the client's issues, but to do all of that in a way which means you can build a mutually productive relationship and lower TURK value, and then obviously work with the stakeholders and the suppliers to maintain and to leverage those relationships for the long term. So most of those things are exactly the same for any industry. The part I think is key for life sciences is that is, the ability to understand the science and the business of the science, because that really does dictate everything else we should try and do.
Ben Comer:When you say the back end procurement should not be at the back end of the supply chain, Are you talking about the kind of tactical, transactional role of procurement in you know, negotiating contracts, managing, you know, technical issues and compliance versus the front end of demand flow, which I think I'm hearing you say is more relational, more holistic, gives you a sense of the top priorities of the business and how to kind of meet those requirements through procurement. Is that correct? What would you add to that?
Tom Wells:So I think you need to have all of the end-to-end steps and everything actually at the back end.
Tom Wells:Then the procurement processes of how do we write a contract, how do we negotiate, how do we pay people, how do we manage invoices, how do we manage cash flow.
Tom Wells:All those things are fundamental elements of procurements, but they're far from value-less. They are critical but they don't necessarily add value. I think for the procurement function to add value, you need to put the answers very much at the front end as well and to be able to take that proactive role in understanding not just what is it that someone wants me to buy, but what is it that the business or this person, this function, actually needs in order to be able to operate and operate better and add more value for the business and, ultimately, more value for the patient. So I think you need the backbone of procurement process and discipline and rigor and making sure that everything is done correctly, because there's a lot of compliance, a lot of compliance and recognition of redeeming other people's money. But you need to add to that the scientific and business partnering to be able to drive real value all the way through the chain.
Ben Comer:Right, right, and you know as you say. You know money is kind of at the root of procurement. You're spending money for services. What are some of the ways that early stage biotechs can use procurement as a strategic tool to create value? And then you know we'll talk about. On the flip side of that. You know where companies go wrong with procurement.
Tom Wells:You know to bad ends of that where companies go wrong with procurement to bad ends. Yeah Well, I think if you look at what actually is value for early-stage biotech, it goes far beyond cost and obviously the money is important, but it's by balancing price and the cost of operation. If you look at the money, there are really four things which you can do. You can pay less, or you can pay smarter, or you can spend less or you can spend smarter. And in terms of procurement, managing how much do you spend and what's to be spent on, you need to balance each of those four things. If you focus solely on how much do we pay and how can we pay less, you might get to a situation where you've managed to persuade, bully, negotiate, whatever a supplier to doing something for less. But are they going to be a resilient supplier? Are they going to really want to do business with you? Do you run the risk of pushing the price you pay so low that you begin to damage or to erode the goodwill of that supplier workload for you? So, managing the money side, you've got to do it elastically and think pay less, pay smarter, spend less, spend smarter, balance those and you will get to a better financial outcome. But where I think a problem with functional dual team can help is they can help anticipate and mitigate the risk in the supply chain and they can bring more operational efficiency. They can help you get to the market more quickly. I think, in particular, they can help you find innovative solutions and the different ways of doing things Not just different supplies, but completely different ways of meeting opportunity and solving problems and I think you can also help the business become a customer who the most critical suppliers most want to do business with. And I think in our you know this increasing VUCA world that we're in, I do think that's becoming more and more important.
Tom Wells:The way I would look at it is that as the world gets more I'll take that for that the nature of new pharma products is changing and we see there's a big shift towards smaller systems, areas and more specialist therapies, and that means that the whole R&D process is getting much more complex and much more expensive and that in turn means that supply chains are getting much more complicated and much more expensive, including much more complicated both upstream and downstream. So if downstream, if a patient has a wearable, they can actually become part of our supply chain because they can be providing a Dixit which goes to their HCP. Their HCP might then pass it back to a Dixit, a Glomerator, or to a pharma company, whatever, so the patient can actually become part of the entire supply chain. But what we see as a result of all of that is that the industry is becoming ever more reliant on smaller and more specialist suppliers, and so the resilience of your supply chain, particularly as a merchant, biotech, becomes ever more critical.
Tom Wells:Because the question is can you rely on your supplier still being there in a year's time than ever? And as you're starting out down the road using someone else's money, you need to be able to pick suppliers you're going to last support and who are going to want to continue working with you. So the power then starts to shift towards the supplier, and you, as a customer, might begin to spend more on the supplier than they depend on you. That means that you need to be the customer who they most want to do business with. You need to position yourselves as the customer of choice. Right, yeah, because you could. I think you see some. The customer of choice Right, yeah, because you could. I think you see some great examples of this. I think the whole area of radiology is a great example where there are many, many therapies coming through which have gravity into all the actinium isotopes as being. It will be the ideal, I'd say, for many of these therapies.
Tom Wells:Right, but there is still no reliable supply chain for the key aesthetics of our tenure.
Tom Wells:It is available, but many, many companies are fighting to get their share of it.
Tom Wells:If you're a customer who has habitually tried to force your supplier to take a lower price, or we keep changing your mind, or messing up their workflow and their cash flow, or if you talk about orders but then don't place them, whatever field it is, if you're that kind of customer, when your supplier is under the same kind of economic, social, technological, whatever stress that you are, your supplier will become more wary.
Tom Wells:They want to concentrate on protecting their workflow, their cash flow, their profitability. They will favor the customers who they trust most and the question moves away from it. It it used to be who do I trust as a supplier. Now I think it's become who trusts me, and this is where procurement can play a key role, for emerging projects is because I think that companies that are better able to explore new suppliers but then engage more effectively with them and enable those suppliers to build their business. As a result, are going to get a competitive advantage because they're going to be the ones, the customer with whom those suppliers will be most willing and most able to help when we are in conditions of real operational stress.
Ben Comer:How do companies position themselves as that customer of choice, you know, on a kind of you know, a very specific level? I mean, is it the individuals that are, you know, negotiating the service orders and how you know raise their profile with their suppliers or endear themselves to suppliers so that you know that they are kind of, you know, reaping the benefits of that kind of relationship?
Tom Wells:There are a lot of things and they all come down to as good as human decency. They come down to behavior. It's all about treat people as you want to be treated, and it's remember that even every one of your suppliers, they're people too. They're trying to run their own businesses, and if you understand what pressures your supplier is under, whether it's the pressures that you're under, and try to think about what would I want to do, what's going to help us build a business relationship which actually goes beyond mere bonds or beyond money, but actually helps us focus on not just on cost but on service, on innovation to create and it comes not just on cost but on service, on innovation, on to create mature menus, and it comes down, ultimately, to looking at people as people, and I think really that's it.
Tom Wells:There's in what I could call less sophisticated procurement operations, you will very often find that there's an absolute focus on cost. Yeah, we've got to meet, we've got to get the price down, I want 10 off everything. Well, in a, in a vuca world and, as I say sometimes, in a world which has gone from vuca to wtf, because that's the the volatility of the times that we now live in, um, is it more important to have the lowest possible price or is it better to have a degree of sort of affordable confidence when, okay, I probably could push the supply to a lower price? But do I want to because if I do I may get some small short-term advantage? Am I really giving myself a longer-term value? So again, think of people as people and businesses are done by people, and start from that basis, I think the basis of everything successful, particularly in a world like the Cuban is honesty, it's integrity and it's a its great self-awareness.
Ben Comer:Your description of this relationship between the drug developer and suppliers it sounds like there really needs to be a kind of give and take there, a recognition of you know to your point what the supplier needs to succeed in addition to what you know your own company needs to succeed, and it's behavioral, it's people relationships, is what you're saying. Is there anything else I guess that you could say about, maybe, what companies specifically should think about when they're engaging a supplier? Clearly they want to help that supplier accomplish its goals, but how do you understand what those goals are? How do you become that trusted partner that is really aligned with a dual set of objectives?
Tom Wells:one of the great procurement acronyms is apusci, which has security, assurance, quality, service, cost and innovation. So when you're starting to work with a, when you're starting to look for suppliers, you ought to start with assurance, which is, you know, I didn't want to do digits can I be sure that this company exists? Can I be sure about its financial history? Do any of its directors and officers have criminal records or all of those things? So I say, right, first of all, I'm sure myself about the basic operating credentials of the potential supplier. Then I might look at the quality. Can they do what they say they would? How can I measure and manage the productivity? What about output I'm looking to buy, and so on. Then I would look at the service levels of what constitutes good service to me and to my business. What are the sensible minimum I should expect? How quickly do I expect people to pull back if I have a problem? Those are basic hygiene factors. Only then might I say, okay, if I've looked at various companies and I rigid them out so we can get assurance, ability and service levels. Then I might look at cost and so, okay, of the ones I wrote my basic standards, which ones can give me the best price or the best value and then, as a final leverage, it'll factor which ones can give me something extra which maybe some of the other ones can't. So those are the basic things which procurement should be setting out to look for.
Tom Wells:Procurement should be setting out to look for, but all of that needs to be driven by a very clear understanding of what is it that my business actually needs.
Tom Wells:And that's where the partnership starts. If you have a good, if the procurement team and each different business function, they have a good relationship, it's based on mutual respect and understanding and the fact that they might understand what it is as soon as in terms of science and we can have an intelligent conversation about the actual fund and maybe help give other suggestions, bring in some new ideas. If we can build that partnership, it's then much easier to build the third partnership, which is the supplier, and then ideally you would have your business stakeholder and your personal supplier working absolutely together as a threesome. It's not a different two-way relationship. You really want to have it there as a threesome because, again, that's what helps build the familiarity. It builds the build the familiarity, it builds the trust and it builds the willingness to go a little bit further or to offer a little bit more, either when there's an opportunity or, you know, when there's a particular issue or stress
Ben Comer:right, let's uh, let's talk about early stage biopharma companies.
Ben Comer:You know, as a company grows, naturally it needs to acquire different and new resources, different kinds of services. The platform technology is in the very earliest, you know, preclinical stages of development. But now is having to hire, you know, in preparation for clinical trials, is having to add, you know, perhaps office space is having to, you know, purchase a lot of things. That perhaps is a first time kind of purchase for that company, you know where. What are some of those issues you know that you've encountered, you know in your career or any kind of you know examples that you can give where companies you know should be careful about how they are managing that procurement process.
Tom Wells:Absolutely. I mean, I think there are two big inflection points in a biopharmacologist's growth. The first really is moving from pre-clinical to clinical and then the second, further on down the line, is moving from clinical into commercial stage. When you look at that jump from pre-clinical to clinical and that's a broad term, like you say you suddenly need to start acquiring a whole load of new resources and services which may be scientific so CROs, lab space, reagents, maybe data or whatever but also non-scientific. So suddenly you start needing employees. So you need office space, you might need cars, you need employee life assurance policies, you need primary market research, you need law firms, you need marketing agencies, you need a coffee machine, you need someone who's going to come and change for flowers on the chef's desk once every. You suddenly start needing all of these different things which, um, first of all, you know a lot of the complex um, most of them tend to be expensive and almost all of them because this is flaminant um are very much burdened by compliance and by regulation, right, but the leadership team, like, say, the sort of scientific drivers of the business, seldom have very much expertise in planning spending in those areas. But very few positions at that stage of growth, have a procurement team or a procurement person who's got the depth and breadth of skills and experience by them. So to negotiate for or to find someone who can change the plow on section, that's going to take a couple of weeks, not so difficult. But to negotiate with the CRO, there you need not just tactical expertise and negotiating with Crosic, but we need someone who can take a step back and take the strategic view of what we're trying to do and how will we work with this plan over the next two, three, four, whatever number it is.
Tom Wells:And so, because the early stage organizations seldom have that experience or expertise, it is very easy to start off by making mistakes, to build in indisciplined spending habits or to waste or maybe tie up funds that should actually be supporting the clinical agenda. And it's also easy to miss opportunities for innovative approaches or for suppliers who can bring that X factor because the overstressed e-shit team they reach for providers. They know Lots of people they've worked with in the past because they feel they can trust them. That's not necessarily a bad thing, but it can be limiting.
Tom Wells:I was talking to a sort of mid-trade, post-stage some weeks back at an edit at a conference with a Swissman and they said, oh no, we don't at a conference with Karlsruhe and Swissman, and they said, oh no, we don't have a problem with Sheldon because we've all done this before and we know who we want to work with. I say, yes, but what about all the ones which you don't know? What could you be missing? And again, in these increasingly lucid times and the LTs don't have the bandwidth either to be managing currency fluctuations or worrying about their fragile supply chain, or dealing with flaky suppliers or chasing unpaid invoices, those are all disciplines which they need to be concentrating on building the business and driving the science, not all those sort of factors. They need to be concentrating on building the business of driving the science, not all those sort of factors.
Tom Wells:And so they are really at their most exposed.
Ben Comer:You're absolutely right, people wear a lot of hats. You know, in early stage biotech. I could understand that. You know a procurement specialist may not be on staff, especially in the early days. Is it your recommendation, though, that a company that is, say you know, moving into clinical trials, scaling up manufacturing, making a lot of purchases even if they're not willing to pay, you know, a full-time salary to a procurement person? Should they consider, you know, a fractional kind of employee relationship, or even you know, a part-time consultant, or is it something you know that a company can work through or figure out itself? I mean, I guess my question is how do you go from this place of not knowing what you don't know to being successful, like you know, as a procurement manager at a small company that's rightly prioritizing their science? You know, in data?
Tom Wells:Well, I mean obviously as a procurement consultancy. I'm going to say they should definitely do a procurement consultancy. Yeah, that's not the only answer. I think there's a couple of things which every fund should do when starting out, and the first is put in place some just simple but effective procurement tools. There are many, many different procurement digital solutions out there. They do tend to come and go pretty quickly. It's not always easy to choose the most appropriate one, but it's not necessarily it.
Ben Comer:Yeah, what's your favorite tool?
Tom Wells:Oh, very good question. I'm pretty much agnostic overall because different tools are right for different businesses. I guess the one which I have most experience of is Zip, which is a great procuring orchestration tool with a very fast-growing company. There are many others, I would say, for full disclosure. But what you want is something which is no more complicated than you need it to be, and so something that just means that when you're onboarding a supplier, when you're processing invoices and payments, when you're looking at contracts and so on, you just want everything to be as simple as possible, to be in bond plates and to be organized, because you do not want that Friday meeting at five o'clock. Something has gone wrong and now we've got to source it. So just basic systems which don't have to be expensive, don't have to be complicated and which can be scales to match the size of your business, to grow. I'd say that's an absolute fundamental. So anyone like Zip or any of the other companies, they will help you with a detection package so you don't have to do that work yourself. That, I think, will save you in so many other ways. I mean. The other thing is just I mean there are many areas where you could simply do need a specialist person. Again, office space you could probably negotiate that, but it's easy to tie yourself in for very long leases without quite understanding the small break walk, and it's easy to leasing company vehicles for longer or for more money. So you just need to take careful steps and always try to get someone to you know. If it's no, you're well familiar with, find someone who's going to check it for you and, yes, that could be consulted. It could be a part-time or not, but that could be helping.
Tom Wells:At a more tactical level, where I think the biggest area of expense and complexity for early-stage biotechs is the CRO relationship, and we all know how complex, how sensitive, how happy those relationships can be, and that's where it is critical to understand what am I actually procuring within this? So, as the sponsor, someone in the LTM growing biotech I'd say, well, I've actually suffered several clinical trials. Yeah, I know what I'm doing, I know how the biotech protocol, I know how to, yeah, and we know what sort of sites we're looking for, what sort of patients we're looking for and all of those things. And they will then go and talk to a CRO. There are many different types of CRO relationships. They all have their different roles and talents and so on. So as a sponsor, you've got to find the right CRO and then come to the right sort of agreement with them.
Tom Wells:But I just think it's essential that you have someone with a strategic procurement background behind. That might drive cost and value for both partners in this, and it needs to be someone who is not afraid to probe and to chariot both their own colleagues and the supplier until everyone fully understands everybody else's priorities and needs and perspectives. And that means you need a lot of what-ifs in there as well. What if we don't manage to hit the recruitment targets? What if we have to maybe change the protocol for some reason to the thing? What additional cost is that going to add?
Tom Wells:I think without a seasoned and experienced procurement person to look at it through that dispassionate lens and more scientific and non-physicist, what do you need to really appreciate? Without that, it is very easy to focus too much on price, not off on value, and to get locked into long-term agreements that consume money without actually activating value. And ultimately I'd say I mean my parents were sheep farmers, sheep cattle farmers. One of my father's phrases was strong fences meet good neighbors. So you really need to make sure that everything is clarified, even if people go. It's all right, I know this, I've done it before. Okay, let's write it down anyway, because without that it's it's too easy to to not late in stakes but maybe not quite consider everything in the detail which it needs to be considered in. And you're talking about multi-year relationships, um, with with many, many millions of dollars behind them. You've got to get it right, and that does need a degree of expertise and experience.
Ben Comer:You mentioned earlier in our conversation the potential for locking in poor procurement practices at an early stage biotech company and I wonder you know clearly you is such a critical piece of operations. But what kind of impact can that have, I guess, from an investor's point of view, you know? Is that, do you risk, you know, compounding failure, you know on failure, by making some poor procurement decisions early on when it comes to future fundraising?
Tom Wells:Yeah, totally. That can definitely happen, assuming you've got some funding. It could be. I won't embrace it. Your current funders want to see evidence that their funds are being used professionally and efficiently to drive the science and build a sound business, and they don't want to see the funds being spent on which is unnecessary or a little bit for true. And in the same way, future investors want to see the company's been an effective steward of its previous funding and that it's likely to do so with future funding.
Tom Wells:Because I think, particularly in an environment where X has got more discourse and interest rates are well higher, lower, just more vonis high. And then operation efficiency. If you go back a few years to more stable times, then investors would say, well, if I invest now, I'll sell out in five years' time I will. It's the science right, everything with profit and value. That's no longer the case. So I think investors more and more are looking at the operational efficiency of their investees because that can have a big impact on future valuations, particularly in this very volatile world valuations, particularly in this very volatile world.
Tom Wells:Some of the bigger private equity funds have something quite large in value creation teams which is there to help their investors improve operation effectiveness. They build their supply chains, maybe down their work on procurement, but they have those teams to help their investors because they see it as being an important contributor to grow to higher future valuations. That sort of value creation team approach is unfortunately much less commonly available, actually at the early stages of drugs. But I think every company really needs to think how am I spending this much dollar? Because could this be, or should this be gained through my clinical trials? Or shouldn't this be gained by myself at BMW or Silver Fox? Right, right.
Ben Comer:I wanted to ask too about sourcing. If you're looking for Actinium for a radiopharmaceutical, you know you're fairly limited, as you said you know to a couple of providers. They're expanding right now but there are a number of different. You know sources that different kinds of biotech companies need and I wonder you know what you might say about the kind of cutting edge of procurement as it relates to sourcing. Are there different models, different innovative approaches to sourcing that you've experienced in your career or that you see emerging at this point?
Tom Wells:see emerging at this point. Yeah, I mean, I think there are two really interesting areas there. One is what I'd call innovative innovation and the other, actually, which is always worth thinking about, is supplier diversity. So if we look at the first point, how do you look for innovation? If you always choose suppliers by going through the traditional RFI, rfp approach to the traditional suppliers, don't be surprised if you only get the traditional answers. But there are a whole range of techniques which you can use to go far beyond the traditional supply base and solutions that can bring you. So, instead of an RFI request for information, rfp request for proposal, what are they getting? An RFO, which is a request for outcome.
Tom Wells:I guess a way that you can think of it is sometimes you know exactly what your solution is going to look like. You know really what it looks like. Sometimes you don't know what the solution is going to look like and you don't necessarily care what it looks like either. Equally, sometimes you know exactly where your solution is going to come from and sometimes you don't know or care where it's going to come from. So if you know exactly what you're looking for and you know pretty much what sort of company it's going to come from, then just go to RFP. I like to be able to say this is what I want. Please give me your best price and your leverage helps. If I know pretty much where it's going to, what I'm looking for, I don't know every motor to come from, okay, rfi. So I go out to a wider group of companies and I say this is what I'm looking for. How much can you out in this area? Send me your outline, your capabilities. Now we're going to decide which one to go for. If I know where, what sort of supplier I'm going to be looking at, which part of the supply base and idea might come from, what solution might come from, but if I'm open to what that solution actually looks like, then let's go for an RFO. Explain your circumstances to the future supplier to say, help me solve this problem, but I'm not giving you any specific direction on what that solution might look like. Right, so you'll start getting broader ideas, but from the same group of suppliers. But sometimes you say I'm trying to solve the problem, I don't know what my solution is, I don't know where it's going to come from, and so the sort of approach you can take is OECD limitations. I'll give you an example. I'll say this this is from a large US pharma company. I won't name the name, but I was talking to one of the brand teams and it's the classic conversation but what keeps you awake, what business problem do you really love to solve? And they said we have a mildness neurosis drug.
Tom Wells:One of the things we would love to be able to do is to assess cognitive performance more effectively, because cognitive performance can actually be an earlier, better indicator of progression, or what would have been that of the disease, than the usual tests of physical performance. But the problem is there have been no advances in the way that we measure cognitive performance for 20, 30, maybe 40 years and the current tests that were passed so patients can actually learn how to do it, so we get artificially high score. They take 14 words to be done, you have to do a more clinical set of words, so on. So you know they're not great. And so the brand begins to say wouldn't it be great if there was a way of assessing cognitive performance which could be done by the patient themselves or maybe by their carer Every day at home? Take very little time to do it in a format which cannot be learned so they can't get better at the tests by repeating them, and which would produce data which is reasonably clinically robust and can be shared with their HOP or with their specialists. And of course, there is no such solution. So we said, okay, let's see what we can do.
Tom Wells:We put that, we wrote up that problem statement, put it on an open innovation platform or was it in the center of the world? And we put that challenge out there to five or 600,000 people around the world who had pre-registered as solvers on the open innovation platform and within three months we had about 135 responses, of which 120 plus were completely useless and within varying degrees. Many of them were quite bad, but there were a handful which you looked at. But actually that's a potentially useful idea and we eventually drilled it down to three. So it's three submissions, all of which were workable.
Tom Wells:One of the winning one and we're not buying that $10,000, buying teams the winning one, as I remember, came from a 25-year-old grad student working in a real estate firm in the US. Another came from a retired mural consultant in Canada and the third one was an 18-year-old Spanish student based in London. Each of these three solutions was completely workable. In fact, they've been developed further since, but they all came from people who were so far outside any traditional supply base that you couldn't imagine being further. Quite a structured but deliberately wide-ranging approach. We were able to put a problem or an issue that had not been solved or developed in decades and come up with radical, workable solutions within three months. That's just one example of how, if you plan it carefully, then you really can come up with genuinely distinctive and purposeful innovative solutions.
Ben Comer:That's a great example. I had one follow-up I wanted to ask you on requests for outcome. Is that a kind of tool that you're seeing more companies? I mean, is it a novelty at this point to send out a request for outcome, or are more companies actually doing that at this point?
Tom Wells:So I guess it's more common in some areas than other In, I guess, in areas like clinical trials, for example, it's not that common. I'm sure there are ways that it could be used, but if you look at something like marketing, then when you talk to your agency and say that I want to increase sales by 10% or I want to increase my market share by whatever and I'm not really sure what sort of program or campaign I'm looking at Go away and brainstorm something and come back to it. That effectively is an RFO. I could say I want a 30-second TV ad which is going to cover the following information and will be broadcast on these channels at this time. That's pretty specific If I say that my target audience are 35 to 45-year-old men who drive blue cars, wear yellow shirts and make historically smoke tons of red. Today, I want to get them to change their. I want to sell more of that product. These are my buyers and I want to. The message I want to sell more of that product. These are my buyers and I want to. The message I want to give them is so what is the message which I need to give them in order to make that change in behavior? How can I get that message to them? I don't know. You're the kind of marketing agency you tell me. Matter of fact, that isn't an RFO.
Tom Wells:The skill is, then is an RFO. The skill is then taking that RFO idea and then applying it in other areas of what you do. It's never going to work for everything and you need to know that you're working with suppliers who you to some extent already know trust. Another approach is more sort of co-development goal or collaboration. But again, if I've got a supplier who I know well and I trust them and have an existing relationship with them and I might work with them on a particular product or service, I say let's build this together and if it's successful, you will obviously get paid for for, for infinitely delivering it and obviously and I'll get the revenue whatever it is Then let's actually trust each other and work together to create something new. So it's an extension of the RFO In. It's not always going to be suitable, it won't be suitable for every supplier, but it can. When the partnership is there, when the trust is there, it can really pay dividends.
Ben Comer:How far can you go, I wonder, in that direction. And when you were just talking, it reminded me of value-based contracts, which some companies have started to work that essentially pay for outcomes. Companies have started to work that essentially pay for outcomes. Like you know, the health insurer will pay, you know, a certain amount if the drug takes the patient to the desired outcome and will get rebated if the drug does not take the patients out.
Ben Comer:And I wonder to what extent that is happening, if at all, in kind of other aspects of pharma operations. For example, you know going to a CRO and saying you know our outcome, our expected outcome is, you know, full recruitment by this date, this number of patients, and we're going to pay you this amount of money. But if you don't reach that, you know, if we have to delay the trial start or you have problems with recruitment, you know then we get down to this next payment. Similarly, with marketing services. I don't know what the metrics would be, but it could be. You know a certain number of doctors are prescribing within a certain amount, whatever it is. Have you seen any of that? Has it gone to kind of that extent in procurement in terms of the supplier having some skin in the game?
Tom Wells:Yeah, sure, and it's more common in some areas than others and it's known as Payment Share, game Share or Bonus as Malice. Okay, the problems are. This is where I think it's a ticker problem in life sciences, biotech. That's because there are so many potential variables. So if you can link the outcome directly to the supplier's performance, then great, they performed super well, they get bonus. They fail to perform, then they get some kind of clawback. But there are so many potential factors that could have an impact. So the supplier could perform wonderfully, but the drug sales aren't what you want.
Tom Wells:Because a competitor came out, because there was a new piece of data from another company. It could mean that there was a supply chain problem which meant that there wasn't enough product available. It could be that the sales force didn't get adequate reach, and there are any. One of many, many different factors could either genuinely or just by claim, enable the supplier to say well, I took my part, and the reason that the performance wasn't what was expected, it wasn't my fault, it was due to whatever other factors. So where you can genuinely cut out all these other factors and say there is a causative relationship between input and the faults yeah sure, that's a piece of cake. It's perfectly workable and you can see it. If there are other factors which are just uncontrollable or unpredictable variables, it's going to be. It will be more difficult and I think that you see, above that, drug pricing, we can now look at some examples of drug pricing.
Tom Wells:We get that take your drug, we get better. We're more prices, we get better, all away. Or even say prescribe the drug. If you reimburse the drug and the patient gets better, pay me at the end. Or pay me not six months if the patient is still alive or whatever it might be. It was the patient's kidney function continues to do this. You pay me the interest changes. You stop paying it, whatever the rate might be. If you can really pin down absolutely clear links, of course, in fact great, but it is just so difficult to do that.
Ben Comer:Yeah, yeah, and I think that's why there was initially a lot of excitement about these value-based contracts, risk-based contracts, and they didn't become as popular as, I think, you know, people initially expected because of that complexity. You know, comorbidities, lifestyle, all sorts of inputs into the outcome that a drug can deliver that may not be able to be easily accounted for, you know, in a contract.
Tom Wells:Yeah.
Tom Wells:I do believe that, as I mean data is always going to get bigger, but as our ability to process and, first of all, to accumulate and analyze data and then disaggregate it, that is growing and growing every day, and I do think that we will get to the point when it does become increasingly possible to link cause and effects, despite the many variables in the background.
Ben Comer:Great. Well, we are running short on time here, tom, but I want to give you just a chance before we wrap up if there's any last kind of final thoughts that you have on this topic that maybe you think are important that we haven't discussed. You know, perhaps any advice you might have to biotech builders you know, working in a WTF world at the moment where there's a lot of uncertainty, just you know, in terms of global economic policy, in terms of global economic policy, various conflicts around the world what are your final thoughts in terms of what early-stage and mid-stage biotech companies can do to kind of stay on the right foot with procurement or even use it to their advantage?
Tom Wells:There are some letters I would highlight and they're not VUCA and they're not WTF. What I would always try and highlight is that in the middle of the word procurement are the four letters C-U-R-E, and I always do highlight them. I have them on my email signature, picked out in a different font color. So, because I think the message, both for procurement people but also for early stage biotechs is remember that if you enable and encourage your procurement team or procurement partner to be the best they can and to do the job that they can do when the source and procurement functions is operating at its best, we really can have as direct an impact on the patient as any other part of the function.
Tom Wells:And so I believe that the cure or cure is, or should all this be, a part of what procurement does. So engage us, ernie, engage us deeply, trust us, let us be part of your business, trust that we do have. Hopefully, we have the scientific understanding and the business savvy to be able to contribute as your strategic partner as well as your commercial backbones. Involve us in that way and we will genuinely help you deliver a level of lasting value. Commercial backbodies. Involve us in that way and we will genuinely help you deliver a level of lasting value which you won't be able to find from any other way.
Ben Comer:Excellent, Tom. Thank you so much for being here today. It was an education for me and I expect it will be for many of our listeners. I really appreciate it. Yes, peter, thanks Pete. We've been speaking with Tom Wells, director of Life Sciences at 4C Associates. I'm Ben Comer and you've just listened to the Business of Biotech. Find us and subscribe anywhere you listen to podcasts, and be sure to check out new weekly videocasts of these conversations every Monday under the Business of Biotech tab at Life Science Leader. We'll see you next week and thanks for listening.
