Custom manufacturers are offering more services and more compounds irat lower prices to fulfill the demands of pharmaceutical and biopharmaceutical companies. In some cases the demands have increased as companies put more emphasis on research and less on cultivating product. That's where the custom manufacturers come in.
"Pharma and biopharma are pushing products through development at a faster pace trying to find the ones that can be commercialized," said Carl J. Schrott, manager, strategic marketing of St. Louis, MO-based Sigma-Aldrich Corporation. "Therefore there is more emphasis on discovery and less emphasis on adding resources to support product development."
While that is good news for U.S. and European custom manufacturers, the continuing surge of Indian and Chinese companies in the area of custom manufacturing-especially when it includes larger compounds and, in some cases, smaller molecules-has put a crimp in domestic contract manufacturing organizations (CMO).
However, the intellectual property (IP) concerns of pharma and biopharma companies and, in some cases, their desire to stay near their biggest markets, have kept contracts in the U.S. and western Europe.
In addition, the growth of virtual companies and start-ups has created more demand for custom manufacturers who can offer an entire range of services and products.
"Most of the biotech companies have 10-12 employees and so they need several services," explained David Robins vice president of Upper Saddle River, NJ-based Davos Chemical Company.
According to Ralf Pfirmann of Clariant, in some ways, the future expansion of the business will include the formation of consortia and alliances of companies sharing synergistic technologies to service customers with broader solutions.
"A single company cannot afford to have solutions for each problem. Cooperative networks can minimize the costs for the all industry," said Pfirmann. "It reduces the failure rate and enhances the speed of development. At Clariant, for example, we have both in-house development in our fields of expertise such as organometallics and we're working within a cooperation network to scout specialized solutions."
But ultimately the bottom line is what Sean F. Bradley, director of business development of Regis Technologies of Morton Grove, IL, said matter-of-factly: "In general, clients are demanding more work for less money. Pricing has continued to decline based on the number of foreign, low-cost overseas suppliers as well as domestic suppliers. Cost is also a function of capacity and there is still capacity remaining."
What's in Demand?
According to Robins, there has been increasing demand for cancer products and also products for Hepatitis C.
Large pharmaceutical companies are looking for advanced intermediates while emerging and mid-size companies are demanding APIs, said Joe Colleluori, vice president, marketing of Lonza Custom Manufacturing, a Swiss company with U.S. headquarters in Allendale, NJ.
Nick Green, president of Cranbury, NJ-based Rhodia Pharma Solutions, said chiral molecules are currently the most popular for the drug market.
"The skills developed by the fine chemical industry have made these molecules more accessible," said Green. He added that the company's industrialization of hydrolytic kinetic resolution and aromatic bond formation technology has played a role in this development.
Schrott noted that large molecules are most in demand at Sigma-Aldrich. He added that monoclonal antibodies dominate the biotech drug development pipeline.
Tom Gelineau, director of business development of SAFC, a division of Sigma-Aldrich, noted growing demand for unique molecules that address unmet medical needs. However, these molecules must be cost effective and have a reasonable amount of patent life, he said.
Anita Gershman, assistant marketing manager at Monmouth Junction, NJ-based AstaTech, said chiral compounds have been in strong demand.
"There is more selectivity for what their needs are," said Gershman who added that AstaTech has more than 300 chiral compounds in its catalog. "We pride ourselves in the fact that we offer a number of chiral compounds."
For Bradley at Regis Tech, there has been a hike in demand for peptides. "More and more new molecules are either peptides or have an amino acid chain component to them," said Bradley.
The Impact of China and India
One of the biggest issues facing custom manufacturers is the effect that India and China will have on U.S. and European companies, which have long dominated the industry. In an effort to exploit new opportunities while maintaining headquarters in the West, several companies have opened up facilities in India and China.
One of those is SynChem, which has offices in China and Des Plaines, IL. According to W. Paul Mar, CEO of SynChem, small molecule production is more likely to be outsourced to China.
"If you are outsourcing to China and India, nobody is talking about big molecules," said Mar. "They (China and India) are very strong and very capable (for small molecules)."
But often what has happened is that several custom manufacturers have some presence in China and/or India. Lonza, for example, has an R&D facility in China.
"I think certainly the cost structure in the Far East is of interest to many of our clients," said Colleluori of Lonza. "But through our strategic sourcing we can meet all of our customers' needs."
According to Colleluori, several of Lonza's biggest customers are still concerned about the intellectual property handling of companies in the Far East and whether their technology is well protected.
Colleluori said that customers could be assured that intellectual property rights will be "well protected" at Lonza compared with Far East suppliers.
He added that companies are using Far East sources for molecular libraries, CROs and clinical programs. "But I don't think there has been that significant sea change with regard to everybody setting up and rushing to the Far East-whether it is India or China-yet for their contract manufacturing," said Colleluori.
One of the biggest pluses for U.S. and European companies is the IP issue.
"We can expect Chinese suppliers to play a bigger role, but the growth may be limited by their approach to IP issues," said Green. "Indian competition is already a significant factor in the markets for generic products and those that are coming off patent. Again the approach to IP rights is a major concern. A careful eye will undoubtedly be maintained on how this develops going forward."
Still, large pharmaceutical companies continue to send their projects to India and China.
"Big Pharma is under huge pressure to lower costs," said Mar. "I think the huge pressure goes all the way down to the research department. That is why there is a huge incentive to go to the low-cost area."
Mar added that some of the low tech projects go directly to China while the intermediate and IP-sensitive projects will stay in the U.S. and Europe. According to Mar, despite significant cost-savings due to lower labor costs, most companies won't risk the chance of product delays or having their IP threatened.
"The small biotech and drug companies have a big incentive to stay in the U.S.," observed Mar.
Green agrees that the Chinese suppliers' role will grow, but like other executives who spoke with Pharma & Bio Ingredients, IP issues will limit the extent of the Asian influence.
"Custom manufacturers who have formed a bridge to Asia and can partner with pharmaceutical companies during the different phases of a product's lifecycle will be in a good position to benefit from this development," said Green.
Mar added that European companies are under more pressure from Asia since U.S. bio and pharmaceutical companies benefit from being close to research centers. At the same time, Mar maintained that European companies are in the middle of a price war between the U.S. and Asia, and it is harder to increase its profits.
Personnel Issues
One incentive helping both India and China is human resources. In contrast, some regions in the U.S. lack qualified individuals.
"China and India produce a huge amount of organic chemists. Why not use them at very low cost?" reasoned Mar.
To effectively confront this issue, many custom manufacturers in the U.S. and Europe have set up shop near colleges.
"It's a major challenge for the industry," said Ryan Scanlon, manager of market and business development of East Rutherford, NJ-based Cambrex. "As the industry grows with the sophistication and complexities of the manufacturing processes, the amount of skilled labor is very hard to come by."
Scanlon added that Cambrex's bioscience unit, located in Baltimore, MD, has a good crop of candidates because the site is located close to Johns Hopkins University.
AstaTech also has a 45,000-square-foot facility in China, where it takes advantage of the wealth of human resources in the Far East.
"I think that has helped us a lot, especially now," said Gershman about being able to benefit from the labor pool in a growing county. "It's much cheaper regardless of lead time."
While there is much concern over IP issues in Asia, Scanlon rejected the idea that the continent is still behind on regulatory issues.
"The perception was that Asia was not up to snuff on regulatory, but that has been changing more and more," he explained, adding that there will be more "quality" biopharmaceutical plants opening in India, Singapore and South Korea. "India has become a major supplier for flu vaccines. I wouldn't say that it is going to be a major impact in the next few years, but maybe over the course of the next five or six years."
Despite the growing interest in India and China, Scanlon said that Cambrex has not lost a project to an Asian competitor.
"Right now it is not a concern," he said.
One-Stop Shopping
As more small companies become virtual and some larger companies sell off plants, more custom manufacturers are ramping up to have all the necessary services and products for their clients.
Colleluori said Lonza is ideally suited for this task. "I like to say that we have a broad toolbox of technologies, capacities and capabilities to produce advanced to intermediate and active pharmaceutical ingredients," said Colleluori. "We continually invest in our operations and enter new areas such as vaccines, peptides and microbial-derived pharmaceuticals."
Clariant has been offering the "one stop shop" model to the pharmaceutical industry for many years, in its 'drug lifecycle' lineup of services and manufacturing capability. But this offering has been fine tuned to meet customer requirements.
"For pharmaceutical companies, it is not as important that you be able to do everything as it is that you can do the thing they need excellently and within the culture of their business," said Pfirmann. "Very often this will include bundling of several types of services and manufacturing in a single project, designed to deliver maximum value in the pharma company's supply chain," he added.
Bradley of Regis Tech said the way a custom manufacturer presents itself affects its appeal to customers.
"If one company can offer development, production, analytical method development, validation, regulatory support and other connected services, it is more attractive than say a stand-alone synthesis company," said Bradley.
In addition to one-stop shopping, companies are looking for custom manufacturers with a strong track record.
"I think pharma's strategy is changing a little bit in regard to how they outsource," said Colleluori. "They are turning more toward preferred suppliers such as Lonza, which can efficiently meet their goals."
Lonza has created a service business that offers a broad package to customers, including cell-line development and microbial strain development. In addition, the service also offers facility engineering and operation services as well as quality and regulatory consulting.
According to Colleluori, many customers want the same thing-a contract manufacturer that has handled technology transfers from them in the past and is familiar with their production methodologies and systems and operations.
Even virtual companies prefer to work with a single contract manufacturer.
"The ones who can actually afford it really do appreciate staying with one supplier, who can manage everything that they can possibly imagine as far as whatever they need for their CMC section of the IND (investigational new drug)," said Scanlon of Cambrex.
"The general trend in the industry is to go for a more full-service offering, especially among a lot of the major players," said Scanlon. "(They want) full and finishing services in addition to bulk drug substance supplies, combined with a willingness to cater to earlier phases for the client and do more process creation, process invention services, more expanding into cell line development and strain development."
One outcome from this one-stop-shopping trend is the growing importance of partnerships between the client and the custom manufacturer.
"Many customers are now looking at their active pharmaceutical ingredients suppliers as a key partner in their supply chain," said Green of Rhodia. "Issues such as security of supply, quality, safety, problem-solving skills and continuous improvement are therefore of great importance. In a partnership like this, the ability to perform difficult chemistry at scale and under full GMP is necessary."
Specialties
While many custom manufacturers attempt to supply a range of products and services, each has its own area of expertise
AstaTech, for example, offers a wide selection of compounds, especially chiral products.
"We're pretty unique. We have a lot of compounds that a lot of companies don't offer," said Gershman. "The chiral compounds are definitely a big plus for us."
Gelineau of Sigma-Aldrich, said his company is the only cGMP maker of polyaminoacids. In addition the company specializes in isolating proteins from plant and animal tissues.
According to Colleluori, Lonza is one of a few companies to have peptides and olgonucleotides using three technologies with the solution phase, solid phase and microbial-based system for peptides.
Rhodia Pharma Solutions' specialty is hydrolytic kinetic resolution to manufacture chiral substances and aromatic bond formation. Green added that Rhodia has a number of core capabilities including fluorination, phosphorylation and nitration. According to Green, Rhodia is one of a few that offers a range of custom manufacturing services from gram to multi-ton quantities, all under cGMP.
While possessing a full range of chemical technologies, Clariant's technologies such as organometallics, its chiral toolbox, broad spectrum halogenation and its strength in oxidations and reductions are differentiators in the marketplace, according to Pfirmann. In the area of peptides, Clariant has recently inaugurated a cooperation agreement with Jupiter Bioscience of India to respond to industry requests for these large molecules.
 Photo: Cambrex |
Future Developments
In terms of products, Scanlon of Cambrex said that the trend in the next few years will be cell lines and strain line technology. Smaller biopharma companies are expected to continue producing technologies in mammalian subculture, fungal technologies and single-cell plant transgenic technologies like algae and duckweed, Scanlon said. He added that one recent trend that will continue is the use of disposables.
"That's because of the enormous amount of capital it takes for companies and the time it takes to scale up," said Scanlon. "The time getting a manufacturing facility to be built and ready to go is about two years and $100 million at least."
For SAFC, Gelineau sees continued demand for final dosage form packaging and more characterization like post translational analysis of glycosylation and phosphorylation.
Schrott of Sigma-Aldrich predicted that there will be an expansion of process development services from expression system development to preclinical manufacturing.
Colleluori of Lonza expects more large molecule outsourcing from big pharmaceutical companies along with proteins and therapeutics.
Even as demand grows, the ever-increasing cost pressure on healthcare systems will impact custom manufacturers, said Green.
"Since the cost pressure on the public health care systems is not expected to lessen in the near future, we anticipate that this pressure will be felt throughout the pharmaceutical industry," said Green. "This means that services will have to be delivered at very competitive costs while still maintaining high levels of safety and environmental responsibility."
According to Pfirmann, outsourcing will continue to be selective and increasingly fine tuned toward maximizing value-including the integration of Asia in cooperative way.
"We can expect that best in class CMOs will continue to grow and benefit," he said.
