A Changing World for CMOs
Consolidation in Pharma a Win for Custom Manufacturing
With more and more players in big pharma looking to outsource in order to focus on core competencies, custom manufacturers stand to benefit from this shift.
The most exciting trend in pharma custom manufacturing is ...
Mark Griffiths (Carbogen Amcis): ... changes in big pharma. Costs of bringing a new drug to the market rose above $1 billion according the PhRMA due to longer clinical trials and tougher regulations for drug approvals. The numbers of NCEs approved by the FDA declined and the patent cliff has increased competition from generics drugs. Job cuts, mega merges and co-development programs are some of the strategies implemented to reduce costs, improve profit margins and mitigate the risk of drug development.
Big pharma is gradually transitioning away from the historical heartland of primary care therapeutics and the blockbuster model towards hard to treat conditions with requiring high value drugs targeting complex niche diseases such as oncology. Access to leading edge technology and specialized skills is paramount for the development and manufacture of high value small molecules, biologics and conjugates. Consequently, the trend among many CMOs is to invest in highly specialized technologies necessary to handle complex drugs.
Wolfgang Schmitz (Saltigo): ... the full integration of the custom manufacturer in the business process of the customer. Whereas in the past only the product has been bought by the customer nowadays the custom manufacturer has to provide a wide variety of services.
These product related services, like quality risk assessments, definition of design of experiments and design spaces, etc., and the integration of chemistry and technology at the custom manufacturer site allow the customer to focus on its core competencies and hence reduces the time to market. The integration of the CMO in the business process leads to an alignment of the two parties and ideally to a long lasting partnership.
Nick Johnson (SAFC): ... pharma companies outsourcing, continuing the shift away from manufacturing in their own assets and opening up major opportunities for the contract manufacturing sector. While a large proportion of pharmaceutical manufacture remains within pharma companies' assets, eventually, an even greater proportion will reach the merchant market.
Pharma companies are also continuing to develop innovative, highly novel therapeutics, which again creates new demands and requirements for CMOs. To capitalize on these new opportunities, CMOs need to take a technology leadership position and also to invest in the necessary capabilities and infrastructure.
Jean Bléhaut (Novasep): ... the increasing complexity of the new APIs reaching the market. Over the years, the new synthetic molecules developed in the pharmaceutical industry have become larger and more challenging to synthesize. This trend is driven by two major factors: the development of more and more targeted therapies, leading to specifically designed, highly functionalized molecules; and the intellectual property mine field, forcing innovators to look for unpatented molecular structures to protect their future markets.
This has impacted on our customer's expectations, they need chiral separation, purification of molecules that are insoluble in organic solvents, thermally labile, contain sensitive functionalities, cannot crystallize, etc.
The biggest challenge we face in custom manufacturing today is ...
Mark Griffiths (Carbogen Amcis): ... the fact that world we inhabit as CMOs has changed markedly in the last four years. Continuing retrenchment and consolidation of our large pharma customers' activities and cash available for small biotechs to pursue innovative NCEs will be key in the next five years. With large pharma divesting much of their historical API manufacturing operations and with the biotech sector continuing to struggle for funding, a new model is starting to become reality.
Big pharma are increasingly filling their pipelines through in-licensing innovative therapeutics from biotechs, which in turn provides additional funding for the biotech sector to re-invest. For CMOs this means that strong relationships across both biotech and pharma sectors is increasingly a requirement. CMO organizations like the Dishman group having significant exposure in both areas clearly have an advantage here.
Business mix is likewise key for CMOs, those who are over exposed to and over reliant on early development revenues are disadvantaged as the pharma industry realigns itself to a greater emphasis on specialist drug platforms, biologics and generic products.
Wolfgang Schmitz (Saltigo): ... the huge overcapacity and the overdue market consolidation in combination with the trend towards shorter timelines, less new molecular entities, continuous price pressure due to health care reforms and blockbusters going off patent.
Nick Johnson (SAFC): ... the fact that market for general small molecule contract manufacturing remains highly competitive, with a significant supply/demand imbalance. Coupled with this is the general reduction in R&D funding, with 2009 being the first year that the total spend actually decreased. Collectively these points mean challenged profitability in certain segments and at some point there will need to be some significant asset closures to allow these over-capacity segments to return to profitability.
Jean Bléhaut (Novasep): ... the perception of our value by the customer. Lately, fine chemical outsourcing decisions have often been essentially driven by price considerations. However, fundamental factors have sometimes been overlooked by pharmaceutical companies.
For instance the lack of professional project management on the supplier's side may have dramatic impact on the timing of delivery of an intermediate for clinical trials, thereby delaying critical development milestones. This is particularly relevant as more and more lead compounds are developed by emerging pharmaceutical companies, dealing with limited resources and very tight timelines to carry on with the development process.
For these companies, the delay of a clinical milestone can threaten their existence. They really need partners they can trust.
For custom manufacturing, Asia is ...
Mark Griffiths (Carbogen Amcis): ... a factor. In 2010, Western companies were still the preferred outsourcing partners for premium services and products e.g. complex new chemical entities, technical flexibility, speed and commercialization expertise. The Dishman group has a significant presence in Asia which allows the group as a whole, including Carbogen Amcis traditional costumer base the advantage of leveraging the right skills and assets at the right time throughout the drug development process and during product lifecycle management.
Wolfgang Schmitz (Saltigo): ...a challenge and, at the same time, a chance.
Saltigo benefits indirectly through its customers from the trend to expand business in Asian regions. The Asian competition has been rapidly growing in recent years and our customers from different industries have been exploring this supply base using multiple strategies.
Saltigo benefits in Asia directly from the network that its mother company Lanxess has built in Asia by building various production sites. Saltigo can offer unique services especially with regard to procurement by utilizing this network and the direct access it provides.
Nick Johnson (SAFC): ... an established base for generic APIs and early-stage intermediates. However, in custom manufacturing, customers need open communication, reliability, excellence in quality and compliance and manufacturing efficiencies. Taken collectively, these are characteristics not found to be localized regionally, but are rather characteristics of individual companies and their capabilities and culture.
Jean Bléhaut (Novasep): ... an opportunity, but also a market where savings might come at a cost.
For us, the Eastern market place represents an opportunity to source early intermediates in a cost effective manner, and we ensure that we make the best of it. However, we remain extremely cautious in the establishment and control of our supply chain to avoid any delays which would impact the time to market for our customers.
Now, from a competition point of view, Asian companies undoubtedly present financial advantages but many other elements are to be accounted for. The custom manufacturing market is a complex equation in which the human factor has become the precious resource nowadays. Geographical and cultural proximities are advantages Western Europe companies will always retain for their European and U.S. customers. Simple aspects like shorter travel times and less jet lag for example - which both impact on productivity - can make the difference. Combined with strong relationships and mutual trust we develop with our clients, this makes European CMO companies attractive for the western industries.
In 10 years, custom manufacturing will be ...
Mark Griffiths (Carbogen Amcis): In the future, CMOs will increasingly be required to offer a more integrated approach for development and manufacture of drug products, where complimentary services will be offered under one umbrella (such as MedChem, early phase development, formulation services, commercialization and integrated commercial supply of drug substance and drug product). The ultimate goal is to reduce time to market through streamlined project management, or at least to "fail fast." We expect to see a more intimately integrated approach among drug substance and drug product manufacture at least in the development stages of NCEs.
Wolfgang Schmitz (Saltigo): ...influenced by growing population, resource scarcity, increasing urbanization and mobility. In the long run, we see a positive market environment for agrochemicals and pharmaceuticals. This comes from the increasing demand and interest in biofuels and changing eating habits, particularly in Asia. And we see also growth potential in the pharmaceutical sector, because big pharma companies are outsourcing more and more to concentrate on their core strengths and emerging pharma companies continue to drive new drug developments through innovation.
Nick Johnson (SAFC): As pharma companies continue to simplify their supply base, we are likely to see further consolidation amongst custom manufacturers and fine chemical companies, with the possible exit of some lower performing players. We expect that strategic relationships will transition to symbiotic inter-dependency, with more integrated and productive working practices. Additionally the trend towards more niche therapies and personalization of medicines will require custom manufacturers to reconsider their asset base and manufacturing technologies according to the product needs of these developing areas.
Jean Bléhaut (Novasep): ... certainly more concentrated. At the moment this market is constituted by a multitude of relatively small companies. In the coming years a more limited number of larger companies will emerge from these. In addition, specialist CMOs like us, able to solve certain types of manufacturing challenges (coupling multi-step synthesis with advanced purification technologies to make complex APIs or global manufacturing of antibody-drug conjugates are good examples) are aiming at becoming real references on the market place.
Our most crucial differentiating competence is ...
Mark Griffiths (Carbogen Amcis): ... the quality of our people throughout the entire group, who offer both broad and deep expertise in many areas, from chiral organic chemistry, peptide chemistry to complex separation sciences and their absolute passion for problem solving and customer service. The majority of the projects we handle are highly technically demanding and require an open approach and effective communication to quickly define the project's specifications and deliverables, the must-have versus nice-to-have, and the project's timeline.
Wolfgang Schmitz (Saltigo): ...our expertise in the chemical development in combination with technology, up-scaling and refinement of chemical processes for efficient, cost-effective and safe production of complex molecules, state of the art waste disposal and HSE compliance. Using this core competence to meet customer demands is the cornerstone to generate profitability.
Our strategy as a service-provider combines professional outsourcing, first-rate method development and ongoing improvement with the aim of achieving a high degree of flexibility and reliability, while keeping the overall cost of the products that we supply to customers, as low as possible.
Jean Bléhaut (Novasep): ... our ability to offer choice to our customers. We have a unique position on the market place as a technology expert and a process developer. We can supply our client with purification equipment that we develop within our company and/or provide them with the custom synthesis and purification of their products. This places us as the ideal partner for development through large scale manufacturing.
In addition, our presence in many markets (including pharmaceutical, biopharmaceutical, food and functional ingredients, bio industries, agrochemicals...) enables cross-fertilization of our know-how, resulting in the design of smarter and more cost effective processes.