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Schooled In The Pharma Arts

University-created pharma and biotech contract manufacturing operations strive to balance educational and commercial goals

by Ann M. Thayer
May 25, 2015 | A version of this story appeared in Volume 93, Issue 21

Credit: YouTube/Texas A&M Health Science Center
Texas A&M’s national Pandemic Influenza Vaccine Facility in Bryan-College Station, Texas, is expected to be completed by early 2017. In late 2014, Fujifilm Diosynth Biotechnologies acquired the business, formerly known as Kalon Biotherapeutics, that will operate the plant in partnership with GlaxoSmithKline. The plant is designed to supply enough bulk antigen for 50 million doses of vaccine within four months of receipt of a pandemic influenza strain.

Tucked away in the halls of academia and affiliated research parks are commercial businesses with unique university ties. They’re not the high-profile drug discovery firms based on professors’ intellectual property and set up through technology transfer offices, but rather businesses that emerged more organically out of academic departments to serve the pharma and biotech industries. Many have not, and may never, cut the apron strings by being spun off.

Starting and running any new enterprise is challenging, but several universities have decided to produce drugs and biologics for outside customers. In doing so, they are competing in pharma contract manufacturing, a multi-billion-dollar industry populated by dozens of long-standing commercial firms with close ties to their customers.

These university contract manufacturing organizations (CMOs) have worked to develop the skills needed to meet both business and educational expectations. Some have been at it for decades and others for just a few years, with varying degrees of success. All face the vagaries of drug development, struggles to make money, and tensions that emerge when academia and industry meet.

University backing, which might include the comfort of readily available equipment and facilities, needs to be combined with relentless business drive because CMOs have to fight for every project they bring in, warns J. Gregory Reid, who has 30 years of industry experience and now runs the Boston-area consulting firm ChemDev Solutions. “I can’t emphasize enough the importance of having a company founded and run by someone who is entrepreneurial, whose back is to the wall and has no option but to figure things out and succeed.”

Reid also considers it crucial that CMOs consider profits—not just breaking even—as their goal. “When you don’t make a profit, owners or other investors do not want to spend capital, they don’t want to expand,” he says. “If your goal is to break even, you will eventually lose money, and you will eventually fall behind.”

Whether they are nonprofit university entities or affiliated for-profit companies, these CMOs typically operate at small scale making specialized biologics or formulated drugs. Largely supplying materials for clinical trials, and maybe low-volume commercial products, they work in a highly regulated field following current Good Manufacturing Practices (cGMP).

Running a cGMP-compliant CMO takes serious technical skills. Academics might have an edge over commercial CMOs when technologies are cutting-edge, but this advantage is short-lived, Reid argues. “There isn’t technology at universities that is not available to, or soon widely known among, the contractors.”

Credit: Waisman Biomanufacturing
Since opening its cGMP facility in 2001, Waisman Biomanufacturing has made more than 300 clinical-grade biological products.
Photo of someone working in lab at a Waisman Biomanufacturing facility at the University of Wisconsin, Madison.
Credit: Waisman Biomanufacturing
Since opening its cGMP facility in 2001, Waisman Biomanufacturing has made more than 300 clinical-grade biological products.

Although contract manufacturing does adopt new technologies, the field usually relies on the tried and true. “Instead of breakthrough R&D, you are doing continuous improvement R&D,” Reid says. “It requires completely different skills and experience to be successful in business than it does to be successful in academics.”

Indeed, many CMOs that began with university-driven missions have seen their business plans evolve. Waisman Biomanufacturing at the University of Wisconsin, Madison, opened an $8 million facility in 2001 to advance the work of the school’s scientists. The goal was to move discoveries into clinical trials and make them attractive for licensing and commercialization.

“The mission is really to bridge that gap,” says Derek J. Hei, a bioengineer and biotech industry veteran who helped start and now directs the facility. Over time, the facility also began to provide stem cells, viral vectors, and gene and cell therapies to biotech companies, universities, and federal agencies. Housed in a university building, the nonprofit employs about 30 people and involves undergraduate students in projects and internships.

Credit: Texas A&M Health Science Center
The Texas A&M national pandemic influenza vaccine facility is under construction in Bryan-College Station, Texas.
Photo of the Texas A&M national pandemic influenza vaccine facility under construction in Bryan-College Station, Texas.
Credit: Texas A&M Health Science Center
The Texas A&M national pandemic influenza vaccine facility is under construction in Bryan-College Station, Texas.

Likewise, Coldstream Laboratories began life in 1986 as the Center for Pharmaceutical Science & Technology at the University of Kentucky, Lexington. Its College of Pharmacy opened a small cGMP facility on campus to make compounds for toxicology studies and human and animal use. Although designed to support college research that had commercial potential, CPST soon started working for companies and other universities.

By 2006, CPST had completed more than 200 formulation development projects for clinical trials. With $17 million in state and university money, it built a 20,000-sq-ft sterile injectables plant at the university’s Coldstream Research Campus. The business was privatized in 2007 under the Coldstream name but still owned by the school’s research foundation. Earlier this year, the foundation sold the business to the Indian CMO Piramal Enterprises for $31 million.

Meanwhile, University of Iowa Pharmaceuticals (UIP) goes back to 1905 when Iowa’s pharmacy college began dispensing medications for the school’s hospital. This service expanded its range of products and by 1974 became cGMP compliant to supply its first outside client, the National Cancer Institute, with parenteral formulations.

In 2008, the university created UIP by merging the pharma service with a then-16-year-old contract unit called the Center for Advanced Drug Development, according to UIP Director Mickey L. Wells. Prior to returning to his alma mater to run UIP, Wells spent 17 years developing products at GlaxoSmithKline (GSK).

UIP has a staff of 52 full-time university employees and a few part-time students who work in facilities at the college and the university research park. Even though UIP is 100% university owned, it runs like an independent small company. “We are responsible for generating all the revenue to pay for salaries, benefits, expenses, maintenance, equipment, and the like,” Wells says.

During the recession, some CMOs closed, but UIP kept going. The university “didn’t give us any money but was accommodating in not asking for a lot,” Wells says. “Since we’re responsible for our numbers, we have to take care of business and not rely on the university or on Iowa taxpayers to bail us out.”

The many reasons universities might start a CMO have changed over the years, Wells explains. “More important now than ever is that public universities are not funded by the states nearly as much as they used to be, so they are trying to find extra revenue streams,” he says.

UIP has interacted with more than 500 clients over the past 20 years, Wells says. Today it works mainly for external customers, of which about 28% are universities and nonprofit organizations. “We deal with clients all the way from virtual companies to large pharma, but the bulk are small pharma companies that don’t have the capital to invest in establishing a cGMP facility,” he says.

UIP focuses on sterile and nonsterile dosage forms, along with analytical method development and testing. It can handle controlled substances and potent and cytotoxic compounds. It now manufactures the anticancer topical gel Valchlor, approved in 2013, for Actelion Pharmaceuticals.

Rather than gradually turning to outside customers, some universities decided to become contractors from the start. A $5 million gift from Watson Pharmaceuticals (now Actavis) founder Allen Chao and his wife, Lee Hwa-Chao, helped establish the Chao Center for Industrial Pharmacy & Contract Manufacturing at Indiana’s Purdue University. Opened in 2005 at Purdue Research Park in West Lafayette, the center was designed for education and training around a small cGMP dosage-form plant.

That’s changed. “With the ebbing and flow of the utilization of the facility, we have moved away from the university being involved from an educational aspect,” says Brian E. Edelman, chief financial officer of the Purdue Research Foundation. A retired Eli Lilly & Co. executive, Edelman oversees the center, which employs just four people.

The center’s intended niche has always been small-volume legacy and orphan drugs that may not be profitable for a large CMO. In 2007, Lilly transferred the multi-drug-resistant tuberculosis treatment Seromycin (cycloserine) to the center. It now is the world’s only Food & Drug Administration-approved cycloserine maker.

As the Chao Center’s only product and one essential for humanitarian reasons, Seromycin has been a factor in keeping the center open. Although the center was threatened with closure in 2010 because it wasn’t self-sustaining, the Purdue Research Foundation decided to keep it running. Patience paid off, and the center now makes a modest profit.

“This center was created as a teaching, learning facility, and so we are hopeful that we can restore it to that, but we have to prove ourselves operationally,” Edelman says. The center is working to fill the facility with additional products from partners such as the Tennessee-based generic drug maker Focus Health.

Training postdoctoral students for work in industry was a mission of the Laboratory for Process Research (LPF) at the University of Zurich, in Switzerland. LPF provided them hands-on experience in process chemistry and cGMP manufacturing. About half of the lab’s 30 employees were postdocs.

For nearly 10 years, Jay S. Siegel, who is now dean of the School of Pharmaceutical Science & Technology at Tianjin University in China, ran LPF. Although interest was high and customers were happy, Siegel says, the university closed the lab around 2012. High operating costs, particularly salaries, were the main issue.

Although LPF tried to operate cost-effectively, its emphasis was on human resources rather than profits. “The university wasn’t willing to subsidize it,” Siegel says. And transitioning to an independent, commercial operation didn’t make sense, because “it was clear we were already too expensive.”

Undeterred, Siegel is looking to create a similar facility in Tianjin to serve small local companies and Western firms looking to set up in China. As in Zurich, he envisions that customers will not only get their process development work done but also be able to hire the postdocs who ran the process.

“In China, salaries are not the issue,” Siegel says about the new lab. What will be is whether Chinese companies, accustomed to doing their own training, will be willing to hire already-trained people.

Siegel hopes to open the new lab by next year. “Our scale will be relatively small,” he says. “Our niche will still be in creating a highly trained and innovative workforce.”

In general, Reid, the consultant, considers the idea appealing. “Very few people come out of academic training able to do synthesis on a scale where you can’t pick up the flask,” he says. Hiring from an academic CMO gives customers an option they don’t have with a commercial CMO, where most employees are required to sign contracts saying they won’t leave and go work for a client. He cautions, however, that customers of academic CMOs will want assurances that experienced staff are supervising any students training on their projects.

Workforce development was important to the Texas A&M University (TAMU) system when it set up the National Center for Therapeutics Manufacturing in 2009 in Bryan-College Station. Funded by a $50 million state grant, NCTM allots about one-third of its 150,000 sq ft to educational facilities.

Economic development was important too, with most of NCTM devoted to a flexible cGMP biomanufacturing facility that houses up to 20 mobile clean rooms. The state used the facility to start a business in 2011 that three years later would attract a large corporate buyer.

That start-up business was the contract manufacturer Kalon Biotherapeutics. After building NCTM, the university looked for a CMO to run it but couldn’t find a good fit, according to Andrew Strong, a Houston-based attorney who was the TAMU system’s general counsel at the time. “To do it in a way that we believed it needed to be done, we just needed to do it ourselves.”

Photo of two people in the Laboratory for Process Research at the University of Zurich, which had its own production plant until it closed in 2012-2013.
Credit: LPF/U of Zurich
The Laboratory for Process Research at the University of Zurich, which had its own production plant, has closed.

Establishing a private, for-profit company hinged in part on wanting it to be a good career option, rather than an academic detour, for the young, energetic people with industry experience that TAMU wanted to attract. It also would not be limited in the type of contracts it could enter.


“My reward for coming up with the idea was that I was told to ‘go do it,’ ” says Strong, who became Kalon’s president. “We started with seed money and a lease to a building that hadn’t been qualified, so we had a lot of work getting the building ready.”

Another big challenge was raising its own money. Kalon soon secured a long-term contract to manufacture cancer vaccines for the University of Texas MD Anderson Cancer Center. And with the TAMU system and GSK, Kalon became a partner in two vaccine facilities under construction.

At the same time, Kalon hoped for additional commercial clients. Although it had skilled staff and is, according to Strong, a center of excellence in vaccine production, it didn’t have a track record.

“To be a true operating company that could grind the wheel and process projects as a CMO, you have to be a finely tuned and well-run machine,” Strong says. About 18 months into building Kalon, “we recognized the need to seek a strategic partner.”

The firm was turning a profit, TAMU had achieved many of its goals, and the need for cash was going to increase when the vaccine plants were completed. After “significant discussions” with more than a dozen prospective buyers, the state struck a deal with Japan’s Fujifilm Diosynth Biotechnologies.

In late 2014, Fujifilm bought 49% of Kalon, now called Fujifilm Diosynth Biotechnologies Texas. Fujifilm can increase its stake up to 100% if the venture achieves performance milestones. “The state wants to assure that they continue to invest and commit to Texas,” Strong says. Fujifilm has a long-term lease on the NCTM facility and ultimately will own the vaccine plants.

Coldstream Labs underwent similar growing pains. Soon after being privatized, it decided to work only on injectable drugs, says Eric W. Smart, who joined the firm in 2008. Like Smart, most of Coldstream’s managers were recruited from industry. The firm leased the then-brand-new cGMP facility—capable of handling potent and cytotoxic compounds, including antibody-drug conjugates—from the university.

“We took the next couple of years to really begin to market the capabilities of the company, and it took a few years to get the market to notice us,” Smart says. He was named Coldstream’s president in 2012. The firm became profitable on $13 million in sales in 2013 and was sold this year.

“There are inherent challenges in a not-for-profit trying to run a for-profit, but I think the University of Kentucky negotiated those waters reasonably well,” Smart says. Universities underestimate the level of investment required in any start-up, he notes. And their boards of trustees tend to be large, diverse groups where consensus on spending can be difficult to reach.

It may also be hard for people in university settings to understand the long timelines associated with the drug industry, Smart says. “There is a tendency to expect that you are going to become profitable much sooner than you do and to underestimate some of the challenges in starting and operating a facility.”

Other than its ownership, Coldstream wasn’t too different from other CMOs, he says. However, while Coldstream didn’t have an educational mandate per se, it kept a connection to the school. And most of the firm’s staff are, and likely will continue to be, Kentucky-educated natives, Smart says.

Credit: Chao Center/Purdue Research Foundation
The Chao Center manufactures cycloserine capsules, a treatment for multi-drug-resistant tuberculosis.
Photo of someone working in the Chao Center, owned by the Purdue Research Foundation. The center manufactures cycloserine capsules, a treatment for multidrug resistant tuberculosis.
Credit: Chao Center/Purdue Research Foundation
The Chao Center manufactures cycloserine capsules, a treatment for multi-drug-resistant tuberculosis.

“There remains a strong desire on the part of the state to grow this type of high-tech business,” Smart says. The state has “some very generous incentive programs for job creation that we are in the process of applying for in conjunction with a really big expansion that Piramal has planned.”

An investment by the Indian firm of up to $75 million will add a second production suite this year. Later, an addition will nearly treble the facility’s size and boost its throughput. Employee numbers should more than double from 115 now.

With demand outpacing capacity, Coldstream should have expanded a few years ago, Smart acknowledges. But overall, he credits the university for supporting the firm in lean times and generally playing its cards well. “The university had accomplished what it wanted,” he says. “It started the business, got it to the point that it was profitable, and then it sold it and made, I think, a reasonable return.”

The university’s aim in such endeavors is not profit, but benefiting communities, the school tells C&EN. It became clear that selling Coldstream to “a larger concern with the ability to expand production capacity and strategically invest would be necessary to maximize its potential.”

Similarly, TAMU had achieved what it wanted when it came time to sell Kalon, Strong says. New companies in the state and new biomanufacturing capabilities will provide jobs and a commercial outlet for technology from state institutions. And TAMU and the state expect to realize a decent return from the full sale.

It takes risk to get such rewards, especially in the CMO world. “It’s a topsy-tuvy business” that can dry up quickly if a drug fails, Strong points out. That dynamic can make any owner nervous—and a state owner even more so. “State powers don’t make for good business owners because they tend to be risk-averse,” he says.

Yet Kalon would not have succeeded without TAMU, Strong contends. “The opportunity to collaborate with faculty members on technology development was right at our fingertips. Some of our best hires were students that graduated from the university and had interned with us. We attached ourselves as closely as we could to the university.”

At the same time, “you have to walk a fine line,” Strong says. The TAMU connection was key to getting the large government deals, but industry customers “don’t want you to be too close to the university because they want to know that you can independently manage a program.”

Certain aspects of being connected to a university can be complicated, Waisman’s Hei points out. Depending on how things are structured, CMO staff may be employed by the university. And university human resources “is really geared toward academic labs, even from the standpoint of titles, salary, and promotion criteria, and so it doesn’t really lend itself well to what we do,” Hei says. “We have managed to work through it and do pretty well at keeping people here.”

Another challenge can arise around business and confidentiality agreements. “The university was really good in working with us,” Hei says. “It took us a while, but we eventually worked through contract language that allows us to operate within the university but have acceptable terms for companies.”

Waisman’s business is split almost evenly between academic investigators and companies. Academics tend to be concerned with costs, Hei says, while companies push for high levels of quality with less concern about spending money. “We are constantly trying to bridge those two ends of the customer spectrum,” he says.

Competing with outside CMOs is another factor. “We try to fit in a niche where we don’t,” Hei says of Waisman’s approach. Rather than working on traditional biologics, it opts for technologies, such as stem cells, that are not yet mainstream. “These processes are just coming out of academic labs, and the key is developing them toward what FDA wants,” he says.

Because of its size, Waisman does only limited commercial manufacturing. Its goal generally is to develop a process that will support early-stage clinical studies and can be transferred to a larger firm. “Eventually, we end up having partners that are CMOs,” Hei says.

UIP’s Wells also sees size as a factor in the niche that his organization fills in the marketplace. “Larger CMOs are going after larger clients with larger projects, whereas we are able to give the small companies that we primarily work with more attention, much sooner.”

UIP finds its customers largely by word of mouth and through university alumni in the business world. “We have been around for so long that people know us and know our reputation,” Wells says.

To learn more about the pandemic flu vaccine facility in Texas, watch a TAMU video at

Businesses tied to universities—as well as those that have gone on to become part of bigger companies—don’t appear to have trouble proving themselves. Since the recession, they have been expanding and hiring. Waisman, for example, has more work than it can handle these days and is getting near the point of running out of space.

“We’re not quite sure what we are going to do next, but we have been thinking about different options,” Hei says.


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