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ChemOutsourcing: Day Two

On the Waterfront

On the Waterfront

Dateline: Long Branch, New Jersey

The day kicked off with a panel discussion on Quality by Design (QBD), a somewhat self-explanatory method of efficient process design associated with the quality management movement of the previous century. It has been revived with the FDA’s recent establishment of an enhanced submissions regimen based on QBD for drug companies filing new drug applications.

QBD comes with other quality sub-practices, including Design of Experiment (DOE), which was featured in an article in C&EN earlier this year. It also comes with additional costs in process design and R&D. As so often happens when something like a quality standard is established as a way to achieve regulatory approval, the industry has tended to focus efforts more on gaining that approval  at the lowest cost rather than on designing the most efficient process.

Panelists agreed that cost concerns can lead to a lot of confusion on QBD, especially when dealing with a contract manufacturing organization. Emerging pharma companies that have little experience in advanced stages of process engineering are unlikely to employ QBD effectively.

According to panelist Kevin Siebert, senior research adviser at Eli Lilly & Company, Lilly has put together four enhanced submissions using QBD. “One was withdrawn, but FDA gave us feedback on it,” he says. “We’ve embraced the initiative. It’s an effort that we use in the early stages when we are looking at process robustness. But it is intended to deliver not only material but also information to support the advanced submissions.”

Panelists agreed that the opportunity to deliver on the information is often lost when dealing with a CMO.

From the perspective of an emerging pharmaceutical company, said panelist James Bruno, president of Pharmaceutical and Chemical Solutions, the focus is on minimizing the amount of work needed to reach clinical milestones. “There is a heavy reliance on CMOs, because few of these companies have strong tech groups. Many don’t understand scale up and process development. Their whole point is, ‘how much will it cost and when can you deliver.’”

The CMO, he said, is therefor under significant cost and time pressure, and will move a reasonable process along without the full QBD vetting. “There is a disconnect on expectations,” he said. “It’s a highly competitive market, and you want to make sure what you turn over to Merck and Lilly is a good package.” The CMO looks to the drug company, and vice versa, to get that together. “It is about money at end of day,” he says. “It’s about how can you minimize cost going forward.”

After the panel, Bruno told me that QBD will eventually be applied effectively, and that it will accelerate the use of efficient technology and process design that are beginning to transform drug chemical production—see his comment yesterday on the need for simple assets.

The panel was followed by a plenary presentation featuring Stefan Loren, managing director of Westwicke Partners. Loren reprised his plenary talk of 2010 on Wall Street’s view of emerging pharma, biotech, and pharma outsourcing.

That view has changed markedly since Loren’s last appearance, largely because money can be had at the moment.

Loren noted, however, that uncertainty is a dirty word on The Street. And there is a solid trace of it in the air right now. For example, there is concern that the upswing in productivity at Big Pharma results from in-licensed products, and that gains in drug approvals may not be sustainable.

Outsourcing, said Loren, has “matured” in Wall Street’s assessment in recent years. It is applauded now as a means of diversifying risk. This marks a welcome evolution from an earlier insistence on the one-stop-shop approach. He advised pristine due diligence in picking a contract manufacture, however, noting that a problem caused by a contractor can hit a drug firm’s stock hard and long.

One surprising bit of intelligence at ChemOutsourcing comes from Fabbrica Italiana Sintetici (FIS): Managing director Laura Coppi will be leaving for a position at CordenPharma in Milan after two years in the key business management role at the Vicenza-based pharma chemicals firm. Her replacement has not been named.

I haven’t spoken with Coppi since writing a C&EN Talks With feature about her earlier this year. But on hearing the news, I was reminded of the quote that ended that article: “I would have loved to have studied mathematics. But, I have to say, I am a chemist in the soul. Deep inside.”

Meanwhile FIS has been investing in Delmar, the Montreal, Quebec-area pharma chemical company it acquired shortly after Coppi came in, boosting capacity and adding significant new isolation and drying capabilities. Delmar will also be adding a kilo lab to its existing pilot plant and expanding its R&D lab to enhance small-scale cGMP synthesis. Delmar and FIS will continue to operate as separate companies, with Delmar making some material for FIS, says John Brady, business development manager. They will also coordinate on projects, leveraging their newly-established connection between Europe and North America, with Delmar passing some projects to FIS for larger-scale production.

FIS has invested about $19 million in developments at Delmar to date, with an additional $5 million per year slated for the next two years, according to Brady.

The day ended on the beach with the annual bonfire, which this year seemed to throw an inordinate quantity of sparks. Not enough to deter marshmallow roasting, however. The karaoke stage had a few takers. Fullish moon. All very nice.

ChemOutsourcing: Day One

Speed Dating

Speed Dating

The pharmaceutical chemicals sector returned to the miraculously unmolested Ocean Place Resort & Spa on the Jersey Shore this week. Unlike much of the coast to the north and south, Long Branch sustained only minor damage from Sandy, which hit shortly after last year’s meeting. The place has a fresh coat of paint, and the Tiki Bar looks pretty much like the one that was there last year.

There have been a few changes, however. Tighter security. Conference sessions held in the exhibit halls, and an increased emphasis on biopharma, reflecting the growing business in biotech drugs. There was also a kind of speed dating session—a stretch of the afternoon during which Merck, Pfizer, Novartis, Celegene, Gilead Sciences, Ironwood Pharma and other drug companies large and small had representatives at round tables around which contract chemical suppliers could sit and try to break the ice. This was a hit with attendees who are always looking for customers (ie drug company decision-makers) at pharma chemical trade shows,  usually finding very few.

“Large and small” was a big theme in discussions on the exhibit floor and in one of the panel sessions (which was technically also on the exhibit floor—taking the sessions out of the conference rooms was not such a big hit with attendees). Focusing on contract work, both manufacturing and research, with biotech and emerging drug companies, the panel came to the conclusion that extra up-front planning is in order when passing work from a small drug firm to a contractor, but that the time to do that work is generally extremely tight.

“As we learned in grad school, a day in the library is worth more than a week in a lab,” said Stuart Levy, principal at SBL Chemistry Consulting, who chaired the panel. It is especially important to get the technical package in order before transferring a project to a contract manufacturing organization (CMO), he said. “You need to write up a good request for proposal and set the tone. If you don’t, trying to back-fill that later is extremely difficult.”

But windows of opportunity don’t always allow for much time in the library, said panelist Richland Tester, principal scientist at Celgene Avilomics Research. “Sometimes we are asked to do crazy things.,” he said. There is generally a deadline to deliver the next data point in a clinical trial in order to receive the next tranche of venture funding. “If you have until a particular date to do it, you have to do it,” he said. “It’s not like having a six-month timeline from a big drug company. Sometimes you don’t have that luxury.”

Time, on the other hand, is money. “I have heard clients comment that money is no object,” said panelist Cheryl D Garr, director of business development at PharmaCore. Such comments are, she noted, more often than not disingenuous.

Jeff Saunders, vice president of small drug design at Ember Therapeutics, responded that the object is value, not money.

Overall, the companies in the sector continue to be optimistic about business. James Bruno, president of consulting firm Chemical and Pharmaceutical Solutions, told me, however, that a shift is underway in the work being done, one that puts the installed manufacturing base a bit out of kilter.

“I’ve said for a number of years that I’m concerned about is what I call simple assets,” he said. “Some companies just have the wrong assets. We have large reactors when we really need smaller ones. We have big vessels that can make 100 tons when the product is only going to be two tons.” Oncology drugs and other high potency, highly active drugs make up an increasing proportion of the work being outsourced. And drug company pipelines are filling with more.

“We are still not pushing drugs out at a rate that makes everyone happy,” he says. “And if your pipeline is weak, the generic pipeline is weak.”

The current business environment in China was a prominent subject of discussion today, with a panel on the subject (see previous post The China Conundrum

). More on this topic in the magazine (C&EN) soon. Another panel of interest covered “crowdsourcing,” an online, open innovation technique, as employed by Pfizer and Purdue Pharma—another topic ripe for coverage in C&EN, so I will keep my powder dry for the moment. But it’s an interesting topic at a conference like this.

And in the interest of full disclosure, this from David Zimmerman, CEO of Kalexsyn: “I am actually going to walk away from here tonight with three very good leads. Frankly, I came out of ACS  [the Society's annual meeting in Indianapolis last week] with one!”

The China Conundrum

Photo by Jean-François Tremblay

Photo by Jean-François Tremblay

China has traditionally
presented a complex mix of threats and opportunities to the pharmaceutical fine chemical industry, as it has to most other industries. Cost of operations, quality of manufacturing, environment and safety standards, corrupt business practices, and corrupt local authorities are widely tolerated as threats by western firms interested in the overwhelming opportunity of doing business in and with the world’s second-largest and fastest-growing economy.

Lately, however, a new threat of doing business is in the news—the threat that strict environment, site licensing, and anti-corruption laws will actually be enforced. With the advent of President Xi Jinping and the start of the new five-year plan, crackdowns are on a real upswing. Worldwide coverage of the corruption trial of Bo Xilai, a former member of the Central Politburo, has only slightly distracted from coverage of GlaxoSmithKline’s travails. Chinese authorities have accused the British drug major of funneling as much as $500 million to travel agencies to facilitate bribes to doctors in order to boost the sale of drugs.

I sent several e-mails to executives at fine chemical firms operating in China this week, inquiring on the new enforcement regime. I received two replies and spoke with one of the respondents, an executive at a European firm who, like many others that have spoken on China in the press recently, asked not to be identified. The second respondent, Oliver Ju, CEO of Porton, a company based in Chongqing, China, sent a detailed e-mail. Both see the changes underway as extremely important to active pharmaceutical ingredient (API) manufacturers in China.

From a follow-up interview with my first source, I gleaned that the new environment of investigation and enforcement is the latest episode in a kind of cat and mouse game in which authorities, well aware of the complexity of regulations and the slow process of licensing and other approvals, generally turn a blind eye to businesses that can’t wait years for the system to work before getting to work themselves. With every new change in leadership and new five-year plan, there is a crackdown. It is a kind of cyclical cat and mouse game.

Under Xi, however, it seems there is a more thoroughgoing enthusiasm for rooting out corruption and enforcing laws that impact manufacturers in a variety of ways. Energy conservation is high on the docket, as the country reacts to the cost of its huge urban and industrial development programs. Somewhat bizarre enforcement practices have included edicts that if the air conditioning in a hotel brings the temperature in any room below a designated degree, all power to the building will be shut down until further notice. Industrial parks are told with no warning that necessary power shutdowns will be implemented. Management at companies in these parks is encouraged to give employees a little vacation time.

Bribery is prominent on the radar screen as well. Chinese New Year celebrations were curtailed this year in order to assure that government officials were not unduly entertained.

In essence, given business practices that have gone on in China for a long time, cracking down on corruption will be like shooting fish in a barrel. Companies will seem to be randomly targeted. But as my source, who has operated in China for many years, says, everything in China happens for a reason.

Ju contends that recent developments have to be viewed in the context of a wave of economic reforms proposed by China’s new leadership. “Otherwise,” he writes, “it’s difficult to understand what’s going on and how to do business in China in the next decade.”

He notes that a meeting of the Plenary Session of the 18th Central Committee of the Communist Party of China in November may yield more information. “But the direction and priority is already seen since early this year,” he writes. “In my view it’s quite clear that the new leadership strives to transform China into a more market-oriented economy.” The top priorities, he says are a leaner but more effective government, greater law enforcement, and a lowering of barriers to market entry. The latter will provide entry by private companies into banking, energy, and telecommunications.

“I believe API and drug companies will be impacted inevitably,” Ju writes. This will include greater enforcement of current good manufacturing practice standards in API manufacture.

For fine chemical companies, the major practical concern will be flexibility of manufacturing operations, according to my source in Europe. “For you to get approval to build a plant, you must describe the products, the processes, and the quantities,” he says. “It will take you three years for approval, but nobody waits. Think of the speed with which China is growing! How could you be in such a licensing environment? Obviously nobody is in compliance.”

Xi has been extremely vocal in his vow that corruption will not be tolerated. But so has every leader since Mao Zedong. The show of force in recent months may be a sign of a major shift, or it may be another antic swing in the game of cat and mouse. “It remains to be seen whether they just pick on one or two situations to showcase,” says my source, “or whether it percolates everywhere, and people have to come up with the goods.”

Either way, it highlights the conundrum of operating in a vital, but still-developing country where laws and law enforcement are in flux and industry advances at a rapid pace.

European Producers See a False Start on Falsified Drugs

API producers discuss the impact of the Ranbaxy case at ChemSpec in Munich this summer.

API producers discuss the impact of the Ranbaxy case at ChemSpec in Munich this summer. (Photo by Alex Scott)

The European Union’s
Falsified Medicines Directive (FMD), a law enacted in 2011 to prevent falsified active pharmaceutical ingredients (APIs) from entering Europe’s drug supply chain, went into effect on July 2. The FMD requires that any APIs coming into Europe be accompanied by a written confirmation from a competent authority that the chemicals were manufactured according to current good manufacturing practice (cGMP) standards, the U.S. Food and Drug Administration criterion that has been established as the gold standard for regulatory quality oversight worldwide. The response from Europe’s API suppliers to FMD is: good, but far from good enough.

Characterizing FMD as merely a step in the right direction, Tony Scott, adviser to the European Fine Chemicals Group (EFCG), says the level of trust involved in requiring only a written confirmation on material shipped from China, India and elsewhere is ill advised, given the known instances of falsified documentation and corrupt practices in those countries. He points to the recent, rather glaring example of Ranbaxy, a major Indian generic API supplier that has been embroiled in a data falsification scandal since a plant inspection brought problems to light in 2006.

According to Scott, who was instrumental in forming EFCG and has led the organization since its inception in 2004, the only way to assure the quality of materials entering Europe is to actually inspect the plants manufacturing those materials. In the protracted debate and discussion leading up to the FMD, however, European regulatory authorizes arrived at an estimate of 15,000 to 20,000 facilities supplying APIs to Europe’s drug makers.  Inspecting that many plants, it reasonably determined, would be impossible. Scott says EFCG has no idea how regulators arrived at that range. The association insisted during deliberations that fewer than 1,500 sites operated by the top 20 API suppliers from outside the EU are the source of most imported APIs—a number of facilities that could have manageably undergone inspection in time for the law to go into effect, says Scott.

“I think the European authorities have taken a big risk in beginning a process of trust, and I think that is an admirable thing to do,” says Scott. “But where is the enforcement?” The only way to enforce the directive is to physically inspect the plants importing APIs to Europe, he says.

Scott contends that far more powerful lobbyists than the EFCG —including those representing pharmaceutical companies—supported the notion that the number of plants involved would eliminate the possibility of comprehensive inspection, or lead to drug shortages and price increases if an inspection regime were launched.
Enforcement of laws protecting the supply chain has been a thorny issue in Europe for some time, says Scott. He points to a 2001 European Commission directive requiring APIs to meet the cGMP standard. “If that were to have been properly enforced, you wouldn’t need the FMD,” he says. “FMD is really an umbrella over things already in place for regulatory purposes with a view to putting sticking plaster over them and assure that they seem to be working better than they have in the past.”

Scott says the API producers have also expressed a willingness to pay for inspections through a program similar to the Generic Drug User Fee Amendments of 2012 (GDUFA) in the U.S., under which drug makers and API suppliers pay a fee to expedite plant inspections as part of the drug approval process for generic drugs. “We offered, but we were refused by the European Medicines Agency,” says Scott. The agency, Europe’s equivalence to the FDA in the U.S., saw a user free as, “a step too far,” he says. “And very often, dare I say, when the Americans do something and do it well, the European people will just for that reason not do it. And it is really very worrying if this attitude prevails.”

Scott notes that differences between the U.S and European fine chemicals sectors have become a bit problematic elsewhere, as negotiations on pending trade agreements currently find the Europeans, “more advanced in their preparations and thinking than the Americans, who are dragging their feet in all directions.” More on that at Fine Line soon.

FMD, of course, is but one front in the war against falsified, counterfeit, and criminally adulterated drugs which has ramped up considerably since the heparin case in 2008. FMD is also inextricably connected to the competitive landscape in pharmaceutical fine chemicals, where European and U.S. producers have over a long period of time seen much of the business go to lower-cost, and in many cases, lower-quality producers in China and India. While there are many world-class chemical suppliers in these countries, all of which are regularly inspected and glad of it, there are many stories about Chinese companies being inspected, but having the chemicals they supply manufactured by uninspected subcontractors. Scott claims EFCG has presented photographic evidence of this practice to regulators.

And then, there is Ranbaxy, which has truly shaken the Indian API supply sector.

What is lacking, still, is a great public outcry for safer drugs. This is partly a problem of communicating the arcane mechanisms of the drug supply chain. API falsification is a lot harder for the public at large to understand than lead paint on toys.  And Scott says regulators throughout the process of developing the FMD, have challenged industry repeatedly for greater evidence of a threat to the public due to falsified drugs.

“They keep saying, ‘show us the body bags,’” says Scott. “We can’t!” And he admits that the issue not resonating with the public is a problem, given the political dimension to making changes in a law that will be perceived as liable to increase the price or interrupt the availability of drugs, and/or raise taxes. It is an uphill climb for EFCG. “Trade associations like ours have a lot of high quality thinkers,” he says. “But only modest resources.”

All Wait, No See

Gone Fishing

Gone Fishing

A Midwest congressional wannabe who somehow has me on his list sent an outraged e-mail today regarding the 5-week vacation that Congress has embarked on having done pretty much nothing this session. This politician is right—I would get fired if I did nothing all year and took five weeks off. I shared his outrage. And I called Lawrence D. Sloan, president of the Society of Chemical Manufacturers and Affiliates, the trade association representing fine and specialty chemical firms in the U.S., to see how this morass in Congress is impacting the fine chemical sector.

You might recall that Sloan told C&EN in our forecast issue published in January that there is a distinct air of wait-and-see hovering over  an otherwise optimistic sector. The sequester had just been postponed, heading off an immediate tax increase for S-corporations, privately-held companies where income taxes are paid by individual shareholders. The sequester kicked in a couple of months later, of course, causing taxes for many of these companies to shoot up to 39%. Meanwhile, there is no resolution on lowering the corporate tax rate from 35% to the proposed 25%. And Congress is gone until the end of September.

“At this point,” says Sloan, “we are not sure this will be a front burner issue when Congress comes back.” Immigration reform and gun control, if re-introduced, could dominate the rest of the session, he says. “Then there is the overall 2014 fiscal budget and the debt ceiling. There are so many issues now in the coming months, I just wonder if this whole tax reform is going to get lost.”

SOCMA members are also in limbo, says Sloan, over the renewal of the Miscellaneous Tariff Bill (MBT), which allows a reduction or elimination of tariffs on raw materials that cannot be supplied from within the U.S. This is of major importance to fine and specialty chemical firms. SOCMA has for some time offered a service to help members navigate the rather arcane system of filing separate bills for each chemical and having these amalgamated into a single tariff bill that comes before the House of Representatives and the Senate. The MTB is up for renewal every three years, and this is a renewal year, and it hasn’t been renewed. One of the problems, Sloan points out, is that Republicans in Congress have begun classifying the MTB as earmarks.

Sloan says there may be a ray of light in a new bill in the House, the U.S. Job Creation and Manufacturing Competitive Act of 2013 (HR 2708), sponsored by Dave Camp (R-Mich) who chairs the House Ways and Means Committee, and Sander Levin (D-Mich). The bill includes provisions from more than 2,000 separate bills introduced in Congress over the last year, and would, in effect, renew the MBT.

Sloan characterizes the process as “a bit convoluted,” noting that a bill had been introduced in Congress that would have transferred MTB to Department of Commerce oversight. But that bill has been killed.

While federal departments and agencies have been a bit more responsive than Congress lately, an inexplicably languishing Definition of Solid Waste (DSW) rule at the Environmental Protection Agency has become another wait-and-see nightmare for U.S. fine chemical producers, says Sloan.  EPA said last December that it would finalize a rule by the end of April—the month that EPA, instead, moved DSW into its “Long-Term Action” category, where things have no deadline. Sloan notes that the uncertainty is likely keeping some states from adopting the 2008 version of the rule, which, among other things, impacts the recycling of waste from toll manufacturing. Sloan hopes for some action within six months on DSW.

Can the overall picture in Washington be characterized as the worst it’s been? “It’s very bleak,” says Sloan. “I’m still optimistic that things will brighten by the end of the year, but it’s very frustrating to see the lack of real dialogue in Congress.”

Recent Quarter Results: U.S.

Albany Molecular dicusses its new SmartSourcing service at ChemSpec USA in Philadelphia last year (Photo AMRI)

Albany Molecular dicusses its new SmartSourcing service at ChemSpec USA in Philadelphia last year. (C&EN Photo)

Albany Molecular Research Inc. (AMRI) and Ampac Fine Chemicals, two publicly-traded U.S. fine chemical firms, came out with quarterly earnings this week. Both companies have good news to report.
                Ampac, the fine chemical division of American Pacific Corporation, reported revenues of $44.2 million for its third quarter in fiscal 2013, ended June 30. This is an increase of 22% over the third quarter for 2012. Nine month revenues of $102.8 million for 2013 represent a 31% increase over the same period for 2012.
                Meanwhile, AMRI saw a 19% increase in total revenue to $59.3 million, including a 20% increase in total contract revenue to $50.8 million for its second quarter ended June 30. Discovery services, development services, and large-scale manufacturing are all up for the quarter.
                The results at both firms are in keeping with a continued improvement in business across the sector, which is energized to some extent by a shift in outsourcing contracts from China and India to the U.S. and Europe. Company results in the fine and pharmaceutical chemical sector are highly idiosyncratic, however. One big contract can make or break more than a quarter.  We see projects in the works for a long time at both companies paying off, but both companies have also made some structural changes that may be showing up in revenues.
                AMRI, for example, has launched a comprehensive services initiative called SmartSourcing that integrates chemistry, biology, discovery and development work. Ampac, meanwhile, has been working on manufacturing efficiency improvements. Both companies cite these measures in analyzing results.
                Ampac also emphasizes product revenue, including development revenue associated with the completion of a validation campaign for an antiviral product in late stages of clinical trials, as well as an increase in revenue for products associated with commercialized oncology drugs.
                Last week Cambrex, the other publicly traded U.S. firm in the sector, reported second quarter results—a 20.1% drop in sales to $61.6 for the quarter ended June 30 compared to the second quarter of 2012. The explanation comes down to product mix—Cambrex cites lower sales of controlled substances and generic APIs. The company also had an exceptionally strong first half in 2012, it explains, and it expects a stronger second half of 2013, with revenue from a major contract signed last August boosting results through 2014.
                Always hard to draw conclusions from results in this sector, which is what makes it such a wonderful economic indicator of the pharmaceutical industry. But the rough narrative is that things continue to look up in the post-recession recovery in fine chemicals.

The New Season

C&EN's Northeast News Bureau returns to Lower Manhattan

C&EN’s Northeast News Bureau returns to Lower Manhattan

     The business of manufacturing and supplying active pharmaceutical ingredients (APIs) is very much a world onto itself. Batch processing, hazardous chemistry, dealing with big pharma—these things and more set API suppliers off from the rest of the chemical enterprise. If the risk of doing business in the sector isn’t any higher than it is in specialty and commodity chemicals, the risk profile is certainly unique. There are few other market where vendors vie for contracts to supply minuscule amounts of material for a product candidate that, if eventually approved by regulators, will not go commercial for nearly a decade.

Customer relations also set the API maker apart, largely because of the maverick ways of the customer base in pharmaceuticals. And that customer base has been going through big changes lately.  With the downsizing of both manufacturing and R&D in the drug industry over the last four years, contract API producers are increasingly filling the gap in both areas. Thus they are beefing up R&D and formulation services.

Going into this year’s conference and exhibition season (which kicks off in September with ChemOutsourcing in Long Branch, NJ, and swings through Frankfurt for CPhI in October, making stops in December for the SOCMA Dinner in New York and Informex in Miami in January before grinding to a halt at the DCAT dinner at New York’s Waldor Astoria in March, with myriad smaller events along the way) players are wondering if things are about to settle down. Perhaps the post-recession, post-pharma-efficiency-drive market will be cemented in place, clarifying the way forward for API and fine chemical suppliers.

The consensus is probably not. But the picture is beginning to clear somewhat. “I don’t think we’re there yet,” says James Bruno, president of Princeton, NJ-based consulting firm Chemical & Pharmaceutical Solutions. “It’s one of those proverbial moving targets. But people are starting to recognize that a lot of the new projects and products are coming from emerging pharma, not necessarily big pharma.”

He and others note that while drug companies are acting to limit their API supplier lists, looking for long-term partnerships that will likely be with U.S. and European chemical firms, there is growing opportunity in chemical intermediates. Bruno suggests that the non-active drug ingredients are increasingly being treated like APIs by drug firms looking for special technological expertise and key suppliers.

Guy Villax, CEO of Hovione in Lisbon, agrees. “The most significant change in activity is that pharma companies that used to move opportunistically now have strategic outsourcing programs. I don’t think one should generalize about outsourcing, but there are probably only a handful of companies that are really candidates [for key API supply contracts].” And there are only a handful of major APIs coming though big pharma pipelines, he adds.

While this suggests a very tight market, Villax sees a lot of opportunity evolving through specialization. Different suppliers will be involved at different stages of product development, he says. “Every step of the way is really a specialist’s job.” Early stage supply, finished dosage formulation—there are many areas on which to focus.

But when industry watchers bring up the perennial topic of process design, developing continuous flow processing, for example, Villax shrugs. “Like other things, it’s horses for courses. Continuous flow will more likely have application in the generics area than in the innovator area, because innovators want things to go very fast, and they don’t care how good the process is.” Designing continuous flow processes, for these customers, “goes against the grain.”

The conference agenda for ChemOutsourcing is a useful window on the discussions ahead. Sessions will cover supply chain security and dealing with the competitive threat of China. They will also touch on newer topics, such as data management and risk sharing between drug makers and suppliers. There will be a session on “crowdsourcing,” for anyone who still doesn’t know what that is.

Villax suggests another topic for discussion—mathematics. Seeing how pharma R&D departments have become so thoroughly inundated with data over the last few years, such that drug firms are starting to hire statisticians and teach them science on the job, Villax anticipates a higher level of statistical analysis will need to be done by contract research organizations. Other sources agree that the math- and statistics-focused discipline of chemical engineering will need to assert itself in fine chemicals as suppliers strive to provide the perfect product and service mix for the few big projects available in APIs.

C&EN’s business department, which this week moved back to New York City after a long stretch in the Garden State, will be a little closer to some of the action. We will have full coverage of the big events and maybe some of the smaller ones as we advance into fine chemical conference and exhibition season. See you on the road, and feel free to stop by and visit the newly-situated Northeast News Bureau on your next trip to lower Manhattan.

Waldorf Time Again

waldorf clock

One week before the custom pharmaceutical chemicals industry heads to DCAT Week, its annual conclave at the Waldorf Astoria in New York, the Chemical Pharmaceutical Generic Association (CPA), an Italian trade group, has issued a global market overview that may be of interest.

 CPA puts the overall global market for active pharmaceutical ingredients at $113 billion in 2012, up from $91 billion in 2008, the year the global economy began to slide into recession. That comes to an annual average growth rate of 5.6%, compared to 7.2% growth between 2004 and 2008. The economic downturn is an obvious cause for the slowdown. But CPA cites some shifts in services to the pharmaceutical industry as contributing to the slowdown.

The group notes that the captive market (APIs manufactured by pharmaceutical companies for their own use) has risen faster than the merchant market (APIs sold to third parties). The captive market has grown 5.8 % to $69 billion; the merchant market has grown 5.1% to $44 billion. CPA also notes an increased demand for value-added services, specifically finished dosage formulation, on the part of drug companies. The trend toward adding finished dosage services is particularly brisk in India and Israel, according to CPA. Consolidation and contraction in the pharmaceutical industry has spurred the demand for finished dosage services.  

There are some interesting geographic market variances as well. The highest growth had been Asia over the last four years—an average annual rate of 13.9%. The lowest growth rates are in the U.S., Japan, and Europe—3.8%, 3.4%, and 2.5%. It is also noted that within the global merchant market, generic APIs are growing much faster than the APIs produced for branded pharmaceuticals. The merchant market for generic APIs has grown 7.3% annually on average since 2008 to $22.5 billion, whereas the merchant market for branded APIs has grown 3.1% to $21.5 billion.

None of these figures is particularly surprising, though it seems strange that captive API production is growing faster than the merchant market, given the closure of plants and claims of increased outsoucing at major drug companies. One senses, however, that there will be a rebound in revenue, if not in sales volume, for API suppliers over the next four years. Some sources of potential growth can be gleaned from the trends analyzed by CPA. We are well out of the recession. And the move toward value-added services—including the broadening of research services at firms such as Albany Molecular Research in the U.S. and formulation services at firms such as Siegfried in Europe—is really only getting started. And drug approvals are picking up as the pharmaceutical industry inches toward personalized medicine. The volume of APIs sold will likely not change as significantly as the value of the API-plus (chemicals and services) offered to the downsized drug companies and advancing biotechs and virtual pharmas.

The general “up” vibe at Informex in Anaheim last month will carry forward to New York this week—how much can change in so short a time? It will be interesting to get some four-years-out projections from folks at the Waldorf.