Innovation Expected from API Manufacturers
Interviews with Markus Blocher (Dottikon), Dr. Andreas Dietrich (Boehringer Ingelheim) and Heinz Sieger (CU Chemie Uetikon)
Up To Task - Facing a huge patent cliff and a less-than-robust pipeline, pharma companies must look to customized and personalized medicines. This is where API manufacturers are expected to step up to the plate.
For our API business, Asia is ...
Dr. Markus Blocher (Dottikon): ... still a minor market today. Margins are rapidly decreasing with increasing number of players attracted by high growth rates of non-branded and branded generics in pharmerging markets such as Eastern Europe and Latin America besides Asia. In addition, intensified price pressure by regulation is taking place as governments seek to keep healthcare spending under control, similar to industrialized countries. China plans to motivate scientists from the U.S. with hundreds of billions to start up biotechs within China, and Indian generics manufacturers are increasing their efforts to develop their own branded drugs.
Despite these facts, the custom manufacturing for Asian biotechs and drug innovators is still in the introduction and years from entering the growth phase. Therefore, for the time being, Asia remains a source for low-cost starting material and generic APIs, and a direct and indirect market to sell high-valued intermediates finally ending up in generics.
Dr. Andreas Dietrich (Vice President Launch and Strategic Products at Boehringer Ingelheim):... remains important. Macroeconomic indicators point to continued growth of the pharmaceutical market. Of course, each region of the world influences growth in different ways.
Changes in demographics in Europe, rising disposable income in Asia, wider availability of health insurance schemes around the world are just a few changes to mention here. The Asia-Pacific pharmaceutical market has been emerging as a fast growing region over the past decade. The reason for these changes can in particular be attributed to a favorable manufacturing cost environment and the need to access better healthcare.
Consequently, Asia has seen important developments in contract manufacturing, especially for APIs and generics, and has to no surprise positioned itself as a frontrunner of global API production. We believe this positive development will continue to strengthen Asia as a global API production hub, a trend which is predominantly driven by continued pressure around the world on drug product cost, as well as by technology and partnership advancements.
Heinz Sieger (CEO, CU Chemie Uetikon): ... an interesting market, offering opportunities of economic growth. With the two largest populations residing in India and China the drug market in Asia and in the other E7 countries is expected still to grow much faster than in the developed markets and will reach a market share of about 20% in 2020 that means will at least double within the next nine years.
Especially because of our GMP compliance, our high and reliable quality in general and the trend setting GMP design of our production facility, we see good chances to grow our business in these countries.
The most promising trend in APIs is ...
Dr. Markus Blocher (Dottikon): ... that the number of new drug approvals by the FDA in the first half of 2011 has already exceeded the total of 2010 approvals, despite high attrition rates and therefore low number of NDAs for approval. The majority of approvals involves significant improvements over existing treatment options and may mark the beginning of a new era of customized and personalized medicines. Indications and treatments of the newly approved drugs typically address small and highly targeted patient groups.
The novel chemical core structures of these APIs often require state-of-the-art technology in the synthesis. However, their significantly lower annual volume needs economically disfavor commoditized monoplant manufacturing. The demand for rapid pro-cess development, reliable scale-up and safe manufacturing of commercial API quantities is increasing. This is a clear effect from the deferral of chemical process development to later clinical phases with the aim to avoid R&D spend on unsuccessful projects; and the need to substitute each lost blockbuster by a multiple of smaller new drugs.
In essence, the future successful contract manufacturing consists of exclusive synthesis by partnering with an experienced, reliable, highly flexible supplier having the right versatile technology portfolio to tackle today's chemical manufacturing control challenges.
Dr. Andreas Dietrich (Boehringer Ingelheim):... will be influenced by several factors. Finding new and innovative synthetic routes, and continued manufacturing efficiency gains to lower overall API cost will remain important. Emerging markets are benefiting from expansion of medical infrastructures and an increase in per-capita income. A successful growing penetration of health insurance, a growing aging population and information campaigns of pharmaceutical companies prepare the way for API market growth.
Also biopharmaceutical APIs, which currently make up the smaller part of the global API market compared with chemically produced counterparts, are of interest. The growth prospects for these kinds of actives represent attractive opportunities for growth for innovator companies, as well as for biosimilar API manufacturers.
Heinz Sieger (CU Chemie Uetikon): ... stricter regulatory legislation and better international coordination and cooperation. The New Falsified Medicines Directive, which we very hard worked for in the last 10 years with APIC and EFCG and which has been in place since July 1 will change the API supply chain and is a good step forward toward towards safe and trustworthy medication especially in Europe. The regulation will also help to level the playing field for fine chemical companies in Europe.
The most drastic change that has happened in the last 10 years is ...
Dr. Markus Blocher (Dottikon): ... the loss of the U.S.' hegemonial power, symbolically initiated by the collapse of the World Trade Center at the beginning of this century. Lacking of financial resources and political will, unilateral global stability will no longer be provided by the U.S. A reverse of globalization to regional fragmentation is the result and will affect global supply chains, also of pharmaceutical industries. The cascade of financial market and government debt crises drastically increased pressure to reduce healthcare spend in all industrialized countries. Generation promises inherent in the social security systems in combination with over-aging populations exacerbate this situation.
This is changing the pharmaceutical industry structure fundamentally. For instance, pharma manufacturing capacity is dispatched, consolidated and reduced employing the aid of short-term cash flow maximizing financial investors as undertakers. In the long run, this improves the bargaining power of financially sound, experienced, technology-leading and reliable manufacturers.
Dr. Andreas Dietrich (Boehringer Ingelheim):... cost pressure on API synthesis in manufacturing pharma companies and their inability to maintain margins once products are off patent. In response to this problem, many companies turned to Asian manufacturers that were trying to gain market access by offering products at a lower-priced starting point. While corresponding quality and regulatory understanding was still in need of development, today's Asian manufacturers have become better at responding to needs which go beyond price.
In response to this development, many Western API manufacturing pharma companies have expanded their API outsourcing activities beyond the traditional high quality European or North American partners to also include upcoming Asian manufacturers. For the pharma companies, it is not only an opportunity to focus more on their core competencies developing innovative medicines, but it is also a way to offload their balance sheets with manufacturing assets.
The manufacturing and growing supply of APIs out of Asia has enjoyed the trend of diversification and globalization of the supplier base. In the long-run, these advances will increase the cost for CMO services out of Asia and will shift towards meeting a growing local demand. Consequently, one could expect that during this decade the manufacturing cost advantage between East and West will shrink and eventually vanish. In parallel, the need of Western pharmaceutical manufacturers to select strategic suppliers within reach will continue to be important.
Not only do they want to maintain a supplier base close to their wholesaler markets, but they also require expertise and understanding of the local regulatory environment and launch expertise. One can already see today operational excellence advances and cost focus, which have transformed some Western API manufacturers into global cost competitive players - without jeopardizing the expected high standards of launch services or product quality.
Heinz Sieger (CU Chemie Uetikon): ... the global, worldwide interconnection and expansion of information exchange and technology. This has improved the availability of health care data, our knowledge management and the speed and scale of economy, creating thereby major opportunities and challenges for an increasing global business.
Pharmaceutical Industry, being a highly research and knowledge driven global industry, is in the process of profiting from and adapting to these changes. This long lasting socio-medical-economic change will undoubtedly lead to a strong but different pharma industry in the future.
Generic APIs will ...
Dr. Markus Blocher (Dottikon): ... have a considerable share of the pharma market as the population gets older, as healthcare cost pressure continues and as emerging economies progress.
Dr. Andreas Dietrich (Boehringer Ingelheim):... will benefit from the fact that the global pharmaceutical market is expected to continue growing overall and from the fact that over $100 billion in revenues in 2013 will be at stake due to patent expiry of blockbuster products.
Here it is noteworthy, that the API world is divided into two types of producers. On the one side are the captive API producing pharma groups which exclusively manufacture APIs for their finished, branded products and on the other side are the so called third party manufacturers which serve the merchant market as supplier of APIs. The growth of the merchant API market for generic products has substantially outpaced the growth of the API for innovator products. As we know, many of these third-party manufacturing companies are located in Asia. China, in particular, is expected to increase its participation in this growth significantly.
Even though the amount spent by emerging generic markets for medication is still small compared with those of Europe, North America and Japan, it nevertheless announces that generic drugs will most likely be responsible for the future growth of the pharmaceutical industry. China, India, South America and Russia consequently represent attractive growth opportunities for generic APIs.
Heinz Sieger (CU Chemie Uetikon): ... be an important pillar of our future health care system and of Chemie Uetikon's pharmaceutical custom manufacturing activities. It is likely, that branded Generics will be a success by reducing health care costs while providing high quality medication. This will hold true as long as manufacturing sites and processes do comply with highest, European standards and are not sacrificed for economical reasons by manufacturing in uncontrolled and unregulated markets.
The future of APIs is ...
Dr. Markus Blocher (Dottikon): ... not overwhelming but sound. The pharmaceutical companies are concentrating on their core competencies of clinical research and development, patenting and distribution, and will increasingly seek out strategic cooperation with experienced, innovative and reliable partners in process development and manufacturing. Such chemical exclusive synthesis partners need to possess a versatile technology portfolio like a Swiss army knife and be as precise and reliable as a Swiss watch.
Dr. Andreas Dietrich (Boehringer Ingelheim):... is certainly driven by a number of exciting trends. We know that the global market for biopharmaceutical APIs is expected to grow continuously at approximately 4% per year. Average growth for large molecule-based APIs is outperforming the projected corresponding rate for chemically derived small molecule APIs. The majority of the worldwide market for biopharmaceutical APIs is located in Europe; North America and Japan show satisfactory growth rates.
Only Asia promises an even better outlook for growth since the biosimilars market will grow more than the innovator's biopharmaceutical APIs. When looking at the market for biosimilars, the potential is somewhat less defined when compared to chemically designed generic APIs, since it is still a more complex issue to establish a bioequivalence for a biopharmaceutical versus a chemically synthesized API. Consequently, this matter creates an uncertain regulatory framework for approving biosimilars in some parts of the world which needs to be addressed and solved. In addition, the costs of developing a biosimilar are more expensive due to the required time and resources needed for the protein analytics and clinical trials requirements. We believe that despite all these challenges there will be attractive market growth for these types of APIs down the road. Novel, chemically derived APIs will continue playing an important part in helping to bring new and innovative medicines to the market. Of course, managing cost early on will play an ever increasing role, independent of the life cycle stage the product is associated with.
Lowering cost for already well established products has to be examined carefully and weighed against benefits. Reducing cost will more and more be designed early on into the discovery routes. In order to support such efforts, the various internal stakeholders from R&D, procurement up to operations have to work hand in hand to manage the total cost design of the final drug. There are many opportunities and challenges for novel and generic APIs in the future. Pharma companies have to be smart about the ways they can increase the economic value product by product.
Heinz Sieger (CU Chemie Uetikon): ... most likely a future of more diversification. The age of block-busters is over. We will probably see an increasing number of highly specific drugs to treat rare diseases for rare or yet not treated diseases and for prevention rather than treatment. Preventative healthcare provides significant opportunities for Pharma industry and healthcare systems alike.