APIs and pharmaceutical intermediates are a unique market that is driven, not by technology, but by specific molecular structures. These molecules serve a uniquely defined need and are often discovered by binding to a biological target linked to a disease model. These molecules can come from natural products, be derived by chemical synthesis or a combination of chemical and biological syntheses.
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The medicinal chemists have an ever-growing arsenal of raw materials, chemistries and reaction technologies to build the required molecules. They can make them internally from basic raw materials or from intermediates supplied by others. They can have them custom made by others, or they can totally outsource manufacture to one or a series of companies. Chemically derived pharmaceuticals constitute some 75% of the total pharmaceutical actives. Given the multitude of supply options and the complex supply chain within the industry, how can a company in the fine chemical business of supplying intermediates and APIs determine its most effective strategies to compete?
Unlike analysis of other chemical businesses that focus on tracking competitors, being basic in a chemical raw material or understanding the top three suppliers that have a large percentage of the market, the fine chemicals industry can best be studied by looking at the molecules themselves. Market research in a traditional sense is difficult since much of the information is proprietary and the supply chains are often hidden. However, the major active compounds and intermediates rarely change. With some 20-35 new chemical entities (NCE) approved each year, the picture changes slowly. In addition, with regulatory approval processes of 6-10 years, the new molecules and important intermediates are apparent long before they come on the market.
BioChemInsights has undertaken a series of multi-client studies to help the industry understand the basic molecules and how they drive the market. These multi-client reports are just part of BCI’s Global Positioning Service (GPS). This series contains three reports:
- Volume I: The Top 200 Chemically-Based APIs and Their Intermediates—Sales in excess of $150 billion in 2003;
- Volume II: Future Chemically-Based Generics—Sales over $100 billion that are going generic in the next five to seven years; and
- Volume III: The Pipeline—Phase I and Beyond—Approximately 1000 chemically-based molecules with known synthesis - pathways that will shape the future.
Questions to Ask
What is important about the raw materials used in your facilities for the top 200 drugs, the current and future generics and future new drugs?
Identifying competitors that handle the same raw materials is only one factor in assessing your market position and is just the starting point for understanding your strategic position. The distribution of basic raw materials across many drugs, the growth rates of the therapeutic classes for the drugs linked to your raw material and competition from other drugs in the same therapeutic indication, among other factors, are important to determining the real value handling a particular raw material or more importantly a variety of raw materials that you are equipped to use. Table I illustrates the top 25 raw materials used in API manufacture based on the number of drugs utilizing them in their syntheses.
There are a wide variety of chemistries employed to manufacture these raw materials. The economics of the pharmaceutical fine chemicals business are quite different from the bulk chemical business so it is less important for a fine chemical company to be basic in the manufacture of these raw materials. However, from an operational point of view, it is important that a supplier of intermediates has knowledge and experience in handling these raw materials both from a safety and process development point of view. The number of commercial and developmental APIs range from approximately 75 to 250 for each of the top 25 raw materials (Graph I).
Graph I: Top 25 Raw Materials Used in Drug Synthesis Number in Rank Number of molecules launched and in the pipeline. |
Looking more closely at key raw materials, several questions arise. How do these raw materials rank according to value creation? Are there reasons related to safety, environmental factors, economies of scale or ease of handling that prevent companies from having a certain raw material or even considering having that raw material in their facilities? What is the growth potential for these key raw materials? Are they raw materials of the past or the future or both? The questions and analyses go on and on. The answers are different for existing APIs, future generics and potential NCEs.
As shown in Graph II, the raw materials have different profiles as to their growth potential. For example, with the high attrition rates in the pipeline, a raw material needs many molecules in the pipeline to continue to be important to the industry.
Making key intermediates is a strategy that many fine chemical companies use. What key intermediates are the ones that are important to your company?
Graph II: Top 25 Raw Materials Growth Potential % of Total Molecules in Pipeline Number in the Top 25 Graph III: Vulnerability of Vioxx Intermediates  Number of alternative pharmaceutical molecules. |
However, it is often not obvious what combinations of chemistry and raw materials can be used for the strategic advantage of the supplier across a wide variety of potential customers. Each of the three reports investigates the value of specific chemical reactions and the value of each in the overall specific market of the report. By examining the frequency of the chemistries in each section, companies gain insights into their importance to each of the segments. Since key intermediates depend on a certain combination of raw materials and reaction sequences, relative values of capabilities can be quantified.
What is the impact of product recalls or withdrawals on the intermediates supply chain?
Our GPS Service addresses issues of recent interest to the industry. How sensitive is a specific intermediate to any one API product? With the recent development in the COX-2 inhibitor products, how vulnerable are the individual intermediates to a given drug or series of drugs?
Graphs III and IV illustrate the vulnerability of both the Vioxx and the Celebrex intermediates. Looking at intermediates used in these two examples, it is readily seen that there are intermediates that are specific to each drug. Providing these intermediates has a much higher risk profile than many of the other intermediates. However, many companies rarely consider performing this kind of analysis to understand the risk of their current business portfolio. While any company would be hurt if the sale of a major drug is halted or comes under question, being in the supply chain of certain intermediates mitigates the risks because of the ability of that company to supply the intermediate to several other companies and for use in many other molecules. This same analysis is vital to perform on raw materials, intermediates and on reaction chemistries to build a business portfolio to protect against major dislocations in the API marketplace.
Graph IV: Vulnerability of Celebrex Intermediates Number of alternative pharmaceutical molecules. |
A fundamental intermediate is an intermediate that is important to a series of drugs that may cover all the segments of the industry. Often there are families of drugs that provide alternative therapies for a specific therapeutic class. Being able to make the fundamental intermediate can create powerful strategic and economic benefits. The value of the fundamental intermediate may vary with different members of the specific family of drugs that a fine chemical supplies. As drugs age, the value of these fundamental intermediates can change. As you can see from Table II, the business of supplying fundamental intermediates to the life science industry offers quite an opportunity. The fundamental intermediates used in each specific market segment are addressed in Volume I, II and III. Being well-positioned in fundamental intermediates increases your company’s value to the key players in the pharmaceutical industry.
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How can looking at these and other factors help management, corporate development, strategic planners, research and sales/marketing individuals be more effective?
Gain Greater Insight
Molecule-based analysis provides details that have not been fully understood by more traditional market research. The information generated can be abstracted to higher-level guidance that can give greater insights into the complex world of fine chemicals that serve the pharmaceutical API market.
These insights help to position and set the direction for:
| • | guiding the deployment of company resources toward growth; |
| • | understanding trends in technology; |
| • | targeting areas for acquisitions and divestiture; |
| • | predicting changes in demand and competitive positions for intermediates; |
| • | looking for opportunities to gain proprietary advantage; |
| • | building and improving technology strategy; |
| • | linking the impact of drug sales to intermediates markets and |
| • | gaining insights into intermediate supply chains. |
Thus, molecule-based analysis is a critical tool for companies to utilize in order to successfully compete and grow within the complex supply chain of the pharmaceutical APIs and intermediates business.
