The whole package

C&I Issue 11, 2016

When he was invited to consider Covance’s loss-making contract R&D company in Northumberland, Ian Shott wasn’t keen. However, visiting the site with business partner Paul Ryan changed his mind. Shott took the helm of the newly renamed Arcinova in February 2016 with big plans for sales of £20m/year by 2020.

The facility has had a chequered history; this is the eighth name change since it opened in 1982 as the Alnwick Research Centre run by Sterling Drugs. Eastman-Kodak acquired the site in 1988, followed by Sanofi in 1994. Major laboratory refurbishments attracted Covance, a global contract research organisation based in the US, to buy the site in 2010. In its deal with Sanofi, Covance agreed to maintain employment for five years, but put the site up for sale in 2015.

Historically, the focus was preclinical work and early Phase 1 trials. Presently, around 70% of Arcinova’s work derives from supporting clinical trials with bio-analytical, and chemistry, manufacturing and control, services as the main revenue drivers. Shott’s first moves were to close the animal testing division and cut the workforce by just under half. Now he’s installed facilities to manufacture increased volumes of active pharmaceutical ingredients (APIs); these run at 5L scale at present but will be extended to 20L, and then 80L.

What Shott wants to do is offer the whole service from drug discovery to full commercial scale, a service he thinks will be particularly attractive to small biotech companies.  Being able to do that from a single site is unique, he believes: ‘There are operations which manufacture API, or offer contract research and analysis, but not both together.’

The initial plan is to focus on small molecule drugs. Shott points out that around 82% of new drug applications in 2014 were for small molecules: ‘This is the way forward. The landscape is changing; a biotech revolution is happening. There are drugs that are so potent that each dose contains only a nanogram of API.’ For example, Arcinova has bid for a contract to manufacture a Californian biotech company’s drug from an API supplied by a Scottish company; the bulk shipment would be grams in a vial and Arcinova would make the 100 or so doses needed for Phase 1 trials.

This bid is one of 250 going after more than £20m-worth of business since Shott took over. The company has a win rate of 38%, which is higher than Covance, and could rise to 50%, once all the bid outcomes are known, Shott says. ‘While we have inherited quite a lot of business through Covance, we want a balance with our own contracts and that is picking up quite fast.’ About half of Arcinova’s customers are in the US, 40% in the UK and Western Europe, and 10% in Asia, particularly Japan, Korea and India. Clients include ten of the top 20 pharma companies, dozens of mid-range companies and tens of biotechs. Arcinova is also negotiating with Covance for access to its global sales force for the next five years, and is looking at selective recruitment of salespeople in specific markets.

The company remains loss-making after eight months, but Shott predicts that it will ‘flick into’ profit in the second half of 2017. His target is to generate sales of £5m in 2016, reaching £20m in 2020.

Turning around the business also means reducing costs. Since February, the workforce has shrunk to 50, but he expects recruitment to boost this to 67 by year-end and 130 by 2020. There’s certainly plenty of room on the 13ha site.

Arcinova’s potential transformation will play out against the backdrop of the UK’s changing position in Europe. For Shott, the key issue is to get a good deal on tariff barriers. But there are other concerns, such as the fact that the UK benefits hugely from being seen as a springboard into Europe. ‘For example, the EU has one regulatory body for pharmaceuticals headquartered in London, which is an advantage. If companies end up having to do separate registrations for each drug in every country in Europe [rather than one for the EU], then that would be a significant burden, and could also jeopardise the UK’s attractiveness as an international market.’ As far as Arcinova is concerned, he says he will do what’s right for the business. ‘At the end of the day, there’s lots of business in Asia and America, as well as Europe, and we will go out and continue to fight for that business. But if we end up with tariff barriers in Europe that will be difficult.’

Looking forward, Shott believes he has something unique in Arcinova. ‘I’ve been at this for three decades and lived all over the world, visited at least 1000 sites and never seen anything like this where preclinical to small-scale manufacturing is all together.’ The company’s other strength, he says, is the breadth of experience of its people. ‘They are used to working for both big pharma and a small CRO. This means we have the agility of a small company, but we can act as a thought leader like a big company.’

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