A Reliable Partner
Custom Manufacturing is Built on Trust
The name of the game is focusing on core competencies - and this is something custom manufacturers have been able to benefit from over the last several years. This trend has set the scene for the industry's CMOs to show off their services. CMOs offer such services as API contract manufacturing; custom purification and separation; exclusive synthesis; and much more. Brandi Schuster asked some of this year's CPhI exhibitors the following questions:
- What do you consider to be the biggest trends in custom manufacturing?
- Many pharma companies are looking to concentrate on their core competencies and are outsourcing manufacturing services. How has your company benefited from this trend? Do you see this trend shifting or changing in any way?
- What role does location play when it comes to custom manufacturing. How do you see competition from eastern companies who may have a better cost position?
A. Stolle (Saltigo): As far as I see it, there is a big trend to offer custom manufacturing out of Asia.
This is partly driven by increasing focus on delivering sustainable competitive prices and partly by investments into future markets. Established custom manufacturers are either buying or building assets, while some like Saltigo, are expanding their activities with well established Asian companies where a variety of successful projects have already been jointly performed.
After years with of high growth rates, CMOs now need to adapt their traditional way of doing business to the new directions dictated by the market. While maintaining the pressure on continuous cost of goods reductions, customers are, for example, looking for new ways of inventory management, smaller campaigns and shorter lead times. Having an Asian supply base with an advantage on low-cost production is a dominating trend to better manage this challenge.
Also, Asian suppliers are investing heavily to move away from pure raw material supply to offering compounds higher in the value chain. Customers are willing to work with and train this type of company in order to participate in the low-cost offering and to establish local suppliers for the future.
Another trend in the industry I have noticed is that customers are to looking at the overall project and not just at the next milestone or budget - and so do custom manufacturers. The key drivers of such a long-term vision could be risk sharing and cost of goods. Bearing that in mind, Saltigo has a long track record of delivering value to its customers by not just simply supplying the material but also sharing the risk and thus reducing development timelines, as well as providing innovative solutions for long-term cost reductions.
C. Dowdeswell (Dishman Group): There is increasing demand for high potency APIs (HPAPI) primarily as a consequence of the growth in oncology R&D. In addition, there is a growth in the number of HPAPIs being produced at large volume. This is mainly due to the improved tolerability of products and a trend towards oral formulations requiring higher doses. There are a number of significant volume APIs, which although not strictly be classed as highly potent, require high containment for production. The number of companies that have appropriate facilities for the production of HPAPI at large scale is relatively limited, although a number of companies, including Dishman, have been attracted to this area in recent years.
M. Cassidy (SAFC): In recent times, there has been an on on-going imbalance between supply and demand, resulting in a greater level of price pressure, as CMOs competed with each other for market share- this was particularly the case with regard to product manufacturing using general chemistry capabilities and generic products.
CMOs, such as SAFC, operating with an increasing proportion of their business concentrated on niche, specialized capabilities such as high potency, viral vaccines and anti-body drug conjugates, have performed well relative to the general market. Our strategy of investment in these areas is helping us to sustain performance in difficult market conditions.
The outlook, however, is brightening for CMOs, with the imbalance correcting itself, due both to the re-emergence of venture funding and as CMOs increasingly support big pharma's manufacturing requirements.
But major pharma is not just shedding manufacturing fixed costs - we also have seen the divestment of R&D assets. Pharma companies are increasingly looking to the biotech sector to in-license development candidates. For SAFC, these biotech firms have been an important part of our business for many years, and we are well positioned to supply continuity of support in the development of these products as they transition into big pharma.
R.-M. Nicoud (Novasep): For a number of years, the pharmaceutical market has been undergoing profound changes, and we are not at the end of it. Although significant consolidation has occurred, a lot is still to come. On the supply side, the offer is considerably scattered, and this is not going to last for ever.
The main trends in API custom manufacturing are driven by the general pharma market evolution. For mature APIs, it is linked to the growing generic segment, which is being boosted by the so-called "patent cliff". For new drugs, the trend is towards more potent and more targeted medicines. More active, lower volume APIs are also more and more complex, and therefore more expensive to make. The manufacturing of these increasingly complex molecules often requires very specific chemical reactions and a combination of advanced technologies to obtain the required purities with acceptable recovery yields. Also, the manufacture of the increasing number of highly potent APIs (HPAPIs) requires specifically designed manufacturing plants and operations.
A. Stolle (Saltigo): In big and medium pharma, we have seen the trend to go back to a "preferred supplier model," with mostly all of their products outsourced. A key reason is the complexity of the business, but it is also due to reduced resources and staff cuttings. These companies tend to work with only a few, well-established suppliers with a long track record. Saltigo has clearly benefited from that trend with our best customers. These companies are turning to us as a partner of choice if commercial products are being transferred from internal production to external suppliers.
C. Dowdeswell (Dishman Group): Dishman has shown continued growth, which has been clearly driven by the increase in outsourced manufacture and has shown 30% year-over-year growth over the last five years, with this trend set to continue.
And the realization of asset strategies is ongoing. While some companies have been very public and aggressive in moving out of the production of API to focus on R&D, formulation and marketing, a number of other major players continue to review their own strategies. There is undoubtedly more rationalization to come.
The companies that have benefited most from this rationalization in the CMO sector have been those who focus on developing and maintaining strong relationships with their customers. The CMO sector suffers from a lack of differentiation among suppliers, with a common standard for production facilities and the use of similar technologies and chemical processes. Investing in customer service to ensure that relationships continue to develop is key here. Asian companies do not have a reputation for strong customer service in general; however Dishman has been very active in this area and has used the experience of its Western assets, such as Carbogen Amcis, to build strong project management and customer service teams.
M. Cassidy (SAFC): Many of our customers have exited from non-core activities and as part of this process, and they have carefully identified the best strategic partners to fulfill their manufacturing needs. SAFC has been able to support its pharma partners throughout these structural changes in order to serve their needs effectively, particularly where we have differentiating capabilities such as high potency, viral vaccines and bioconjugation.
We do not envisage that this process will revert, since these were tough strategic choices made in light of strong market forces. Also, there is now sufficient expertise, competency and competition in the custom manufacturing sector to ensure that customer needs are well served.
R.-M. Nicoud (Novasep): It is true that a number of big pharmas are increasing the outsourcing of their existing APIs and advanced intermediates. A significant portion of this demand is or will however be outsourced to Asia. Conversely, it is also true that several big pharmas are trying to cut their costs through the rationalization of their assets, and are re-insourcing some API or intermediate productions to fill their idle manufacturing capacity.
Therefore it would be far too optimistic to claim that the general outsourcing trend benefits the western contract manufacturing industry in general. As a matter of fact, the industry is facing major challenges and only the most innovative and efficient players will survive the years to come. Since its inception, Novasep has developed an original business model based on a combination of advanced technologies such as chiral expertise, hazardous chemistry, HPAPI handling and chromatography, and we generate a considerable and increasing portion of our business with a combination of these technologies, which enable us to capture manufacturing opportunities of complex new chemical entities. As far as existing / mature products are concerned, we are successful in capturing the outsourcing decisions of our customers when we are able to move the value chain up, for instance insourcing an advanced intermediate that we were previously making in China, and proposing to our customer an innovative manufacturing solution for the last step(s) of the synthesis, enabling substantial cost reduction with additional process intellectual property protection for our customer.
A. Stolle (Saltigo): Ideally, CMO companies have a global asset base. At the moment, decisions for Eastern suppliers are clearly based on costs and the strategy to invest into emerging markets. However, the need for simplified supply chains, coupled with predicted prices increases in Asia, will lead to shift the decisions in some instances back towards local suppliers.
C. Dowdeswell (Dishman Group): While competition from Asian suppliers has long been a consideration for European CMO, the pharmaceutical industry has been slow to capitalize on the potential, and currently less than 10% of the value of outsourcing spend is directed towards Asia. Typically, pharmaceutical companies will view an Asian supplier as a post launch second source of supply and source only intermediates in the run up to launch.
Dishman was the first Asian CMO to produce an API for launch, some nine years ago, but there remain few examples of this. However, pharmaceutical companies have worked hard with a number of Asian suppliers over recent years and look set to start to increase pre-launch outsourcing of regulatory starting materials (RSM) and APIs.
In addition, the fastest growing markets for pharmaceuticals are in Asia, and there is a trend to produce drugs that target diseases found in the region, which will also lead to an increase in the production of API (and drug formulation) locally.
M. Cassidy (SAFC): First of all, it is important to carefully distinguish between the various Eastern countries and the individual companies, since there is a wide spectrum of performance. If we speak generally, then the intensity of competition between Eastern and Western CMOs varies according to a number of factors.
Firstly, the size of the customer - the Western emerging pharma or biotech customer base is often less comfortable with, or do not have the resources to source from the East compared to a larger pharmaceutical company.
Secondly, the West is generally considered more attractive for certain types of product, for example, more complex new chemical entities versus more general chemistries and generic products in the East. Also, products that require high technology, manufacturing expertise, such as high potency or antibody drug conjugates tend to stay with the proven, specialist players in the West.
Finally, the choice of outsourcing manufacture to the East often varies according to the stage of synthesis. Earlier, non GMP products are more commonly outsourced to the East rather than late stage intermediates and APIs.
Interestingly, at SAFC, we have witnessed an increasing number of late phase projects returning to the West, where the previous supplier had been located the East. The reasons behind this have been cited as quality, reliability and communication. While cost remains important to our customers, they are increasingly looking at total cost, which factors in the cost of potential failure.
R.-M. Nicoud (Novasep): You know, the cost advantage provided by eastern companies, which is real in the short term, will be substantially reduced in the long term. Also, at the end of the day, people do business with other people. Therefore the performance of our service to our customers (which includes cost of course, but also many other parameters), reciprocal trust and the quality of the relationships that we entertain with them are key in maintaining and growing our business.
Closer locations, shorter travel time and less jet lag as well as common or close cultures are part of this complex equation. Western Europe offers some advantages for European and US customers in these respects.