It can be lonely at the top, and for a CFO of a pharma company that is controlled by a private equity firm, venture capital, or an angel investor, the role can be isolating and the ultimate test of their skills and leadership.

Success can be achieved when the CFO effectively gains and sustains economic clarity, engages the right people, owns key performance data, and takes an active role in leading the transformation. The CDMO can be a valuable asset to the small- to mid-size pharma CFO and their biggest advocate while they navigate an ever-changing landscape of drug development and commercialization.

You’ve likely heard the saying, “it’s lonely at the top.” Chief executives from presidents of the United States to owners of small start-ups often feel isolated in their roles despite being surrounded by others. And while it may not be trending on the TED Talk circuit, it is real and can have a negative impact on people and businesses.

Workplace isolation is not limited only to chief executives, anyone in a position that bears a significant amount of responsibility in an organization is subject to feeling lonely. Consider the role of chief financial officer: balancing the sometimes competing demands of the Board of Directors, other executives, their own staff, and investors or shareholders.

Now let’s add additional challenges. What if you are the CFO of a small-to-mid-size pharma company with little to no internal resources for development and manufacturing and you are controlled by PE or VC investors. Yes, challenging! That is why a recent McKinsey & Company study referred to this role as the crucible for CFOs.¹

The McKinsey study identified four things that a CFO can do to successfully navigate the crucible: maintaining economic clarity, engaging the right people, owning the data, and leading the transformation. I’d like to explore ways in which the pharmaceutical company’s contract development and manufacturing organization (CDMO) partner can be the CFO’s best friend.

For pharma companies that are part of a PE or VC portfolio, the economics are complex and have three dimensions: its own pharma company, the PE or VC investment structure, and the CDMO. Having clarity and transparency across these dimensions can be a big plus for CFOs and helps everyone win.

The CFO is primarily responsible for its own company’s profits and losses (P&L), cash flow, and balance sheet. For small pharma that likely means debt and expenses, and there is a good chance there are no drug therapies generating revenue. Instead, the company’s valuation is projected and based on the market-defined quality of its drug development pipeline.

Because the pharma company is controlled by PE, the valuation established and measured against investor objectives matters. Investor capital can come from a PE firm, VC, or an angel investor. Each has its own distinct goals and strategies, and they all provide working capital to the pharma company in exchange for hitting the PE’s or VC’s investment return goals. While a PE firm may have majority ownership and exercise significant authority in decision-making, the angel investor might not. It is incumbent on the CFO to have absolute clarity of the investors’ objectives and ensure that the pharma company’s cash flows and balance sheet are aligned to support them. 

The CDMO also has a P&L, cash flows, and balance sheet to manage. It is important for pharma CFOs to understand that not all CDMOs are alike, and each has its own business model and distinguishing value. For example, some CDMOs have invested heavily in proprietary technologies to advance drug development. These CDMOs may require the drug sponsor to have plans to commercialize the product and the CDMO may expect royalties or profit share when that happens in exchange for reduced development costs. Other CDMOs may customize the scope of work and align it with the objectives of the drug sponsor and their investors.

Each of these economic dimensions have different outcomes, but all three organizations must develop integrated operations and the pharma CFO must manage their P&L, cash flows, and balance sheet nested within each of the others.

While the economics described above can be daunting, the good news is that the CFO, despite feeling lonely at times, doesn’t have to do this in isolation.

As stated earlier, investment capital can come from PE firms, VC organizations and angel investors. Each can be organized differently, there is no standard template for any of them, and they can be challenging to navigate for a portfolio company CFO. For PE-owned companies, it can be common for the leadership structure to be in a state of transition. Nevertheless, investors will still be expecting results. This can be challenging for the pharma CFO as they assess roles of key stakeholders and determine their personal motivations and goals. Delivering customized financial information to these key stakeholders can sustain the organizational stability even when leadership roles and structure might be changing.

Pharmaceutical CDMOs also have its own nuanced organizational structures. Some CDMO strengths lie in its research and development services and others in its manufacturing, others are balanced or may specialize in specific drug delivery—oral dose, injectables, or topicals. They too have their own key stakeholders who can be valuable in helping the drug sponsor CFO understand development timelines, when projects will begin, manufacturing scale-up costs, or how risks materialize leading to foreseen and unforeseen issues that may cause delays. And these are things that have direct ties to investor expectations and outcomes. For example, perhaps a new investigational drug (IND) filing, or formulation development can be completed quickly, but manufacturing capacity will not be available for a year. Investor expectation may drive identifying another CDMO that has the production capacity sooner or to secure a supply chain, e.g. business continuity plan, to ensure uninterrupted supply of finished product to patients and caregivers.