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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.”

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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.”

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At least we kept it relevant.

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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.

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Behind the Story: History of the National Organic Symposium #NOS2013

We’re fans of podcasts here at GlobCasino, whether by Chemjobber and SeeArrOh, or by the good folks at Nature

and Science .

Last week, Lauren Wolf and I had a conversation about how a shorter, video version of podcast banter might make a fun addition to the mix. Submitted for your approval: our discussion about my story covering the National Organic Chemistry Symposium and its history. We’re curious what you think- and what else you’d like to watch.