CHEManager Europe asked experts from the pharmaceutical ingredients and custom synthesis industry to share their opinions on this topic prior to the industry global networking event, CPhI Worldwide in Madrid, Oct. 9-11, 2012. Read what they think about the prospects for their businesses given the challenges - and opportunities - ahead.

Jean-Luc Herbeaux (Evonik):


The pharmaceutical industry has undergone significant changes in the last years, which call for large-scale revisions in business models. Several overlapping factors have made this necessary, including increased cost pressure due to tightened health care policies and higher competition, more stringent regulatory requirements and lower blockbuster potential arising from weaker development pipelines. All this is compounded by the so-called patent cliff, which threatens originators with sudden and significant loss of revenues and prompts further acceleration of change.
Increased efficiency is the trend that has evolved out of this challenge among pharmaceutical companies as well as their suppliers and partners. To that end, businesses are looking toward outsourcing and leveraging a few select partners that are both flexible and provide enabling technologies'.
Evonik offers the strength and breadth that comes with working with one of the world's largest specialty chemical companies. We cover a large part of the value chain, from manufacturing of API's (including HPAPI) and functional excipients to development of drug formulations and specialty manufacturing of drug products.

Thanks to our strong global research laboratory network, we support pharmaceutical companies in developing better manufacturing routes for their high value APIs. We ensure their successful and economic scale-up and secure supply through clinical trials all the way to commercial launch and beyond. The same companies are then helped to develop better and more efficient formulations with advanced drug delivery technologies.
With the acquisition of Birmingham Laboratories (USA), we now have the competencies and facilities to offer full development and manufacturing services in the area of injectable controlled release formulations. The picture would not be complete without our Eudragit and Resomer functional polymer offerings, leading platforms to impart controlled release functionality to sophisticated oral and parenteral dosage forms.

Our broad competencies in APIs and drug delivery systems combine to support clients in new ways. For example, Evonik is now active in the design and production of antibody drug conjugates (ADCs). This is a new type of targeted therapy where the antibody binds directly to, for example, specific markers at the surface of cancer cells. The ADC is then internalized within the cancer cell and the active ingredient released exactly where it is needed, thus reducing side effects and widening the therapeutic window.

Evonik has widespread experience and knowledge covering a broad spectrum of solutions for the pharmaceutical industry. Companies today need an agile, reliable and empowering partner with global resources to increase efficiency and keep them on the cutting edge of technology. That's exactly what Evonik does.

Roger Laforce (Zach System):


No doubt, the pharma industry and its entire supply chain are undergoing a paradigm change considering the increasing importance of emerging countries now also seen as markets. Countries with large populations like the entire Asian-Pacific Rim are profiling themselves for regulatory, IP and access to their markets. Such markets show different characteristics. Rich and medium class people can afford more expensive drugs, but a large part of their population needs ultra-low cost drugs with totally different distribution systems (buy a pill a day). These patients have the same right for the same quality as better situated ones.

Does this mean that the European API industry is doomed with the ever increasing regulatory framework within the EU and in single countries such as Italy?

The triad markets USA, Europe and Japan show a trend towards personalized medicine and new treatment areas for its ageing populations. Cancer treatment, geriatric drugs treatments against metabolic diseases like antidiabetics, antiobesity or neurodegenerative drugs. Growth for many anticancer will be more linear and not exponential like blockbusters, quantities lower, the chemistry more sophisticated. The combination of synthetic APIs with biomolecules and protein based drugs will increase. These changes need to be captured by the pharmaceutical chemical companies and will lead to a change of their strategies.

The collaboration of US, European and Japanese companies with industries in emerging markets needs to further strengthen, since the major innovation drivers are still in the USA, Europe and Japan, where more solutions are needed in emerging countries. Interestingly, multinational pharma companies are still underrepresented in China. The production of low-cost APIs at large volumes and high quality is one of the major challenges of our part of the supply chain in the next decade. It will open new business opportunities if we take this challenge. Such innovations will feed back to our markets.

The bulk part of pharmaceutical-chemical production today is still batch operated. The API factory of the future will be more modular and more processes and entire production units tend to become continuous. Sophisticated manufacturing systems using continuous or semi-continuous techniques are only the beginning.

Data streams on a global level demand more stable and higher performing lines to manage global level supply chains.
The European Fine Chemical is obviously not doomed but has still a lot to offer to the pharmaceutical world. It will contribute with a wealth of know-how grown for more than a century of chemical culture.

Marianne Späne (Siegfried):

Today, the pharmaceutical industry faces multiple challenges, such as a marked decline in bringing NCEs to market, coupled with generic competition, regulatory and health system payer pressures combined with continued weak economic growth, especially in the largest market the US. Pharmaceutical companies in future will have to be willing to change current business models which apply innovative marketing, R&D & supply chain practices to mitigate & replace revenue losses from patent expiration and lack of blockbuster medicines.

The model shift will rely more on outsourcing service partnerships to solve technical problems, improve efficiency and productivity, and ultimately to streamline the value chain. We foresee companies de-risking their R&D efforts through increased product in-licensing and partnerships together with outsourcing of activities previously largely kept in-house such as manufacturing of regulated intermediates, APIs and finished products. Streamlined operations via lean manufacturing practices are today's standard which is increasing the demand for contract manufactured drugs.
To bridge these gaps, CMO's will need to demonstrate long-standing track record(s) coupled with extensive technical know-how, to gain customer confidence. Siegfried has done so by strengthening its position as a well experienced drug substance and drug product development and manufacturing company with superb compliance record. We offer a fully integrated service, and we are continuing to invest in additional capabilities that our clients require including: high potency and bridging technologies such as spray-drying & micronization.

Under Siegfried's ‘transform' strategy, we fully forward integrated our drug product service offering through acquiring ‘AMP', who offers a full range of aseptic fill services which complements our solid oral dosage capabilities. Also, we have begun to backward integrate manufacturing with investment in Nantong, China to offer both non-GMP substances and GMP substances as a secondary cost structure strategy for our clients.
Pharma companies both innovative and generic, realize that outsourcing combined with creative partnership models will create greater value. Pharma preferred partner relationships will allow both organizations to fully contribute their core strengths such as R&D, manufacturing and marketing. Many clients we work with operate under the ‘preferred supplier program umbrella' which manages their outsourcing choices. Finding these ideal outsourcing relationships, are what will make the key difference for most pharmaceutical companies.

Recently, Siegfried re-established its corporate logo as ‘expect more'. We believe we are that innovative, flexible, integrated partner a pharmaceutical company seeks, to reduce costs and enhance technologies, to streamline their supply chain needs.

Alexander R. Wessels (DSM Pharmaceutical Products):

DSM's stake in the pharma outsourcing market is based on a global portfolio of resources to continuously serve changing customer needs and bring real value as the pharma industry shifts business models. There is a need for substantive, long-term partnerships between pharma and outsource partners.

As a contract manufacturer and technology provider, we make a commitment to employ expertise across our organization to achieve success for our customers. DSM offers an integrated approach to sustainable manufacturing using biotechnology, chemistry, and pro¬cess technology. With its biotechnology and (bio)chemistry capabilities DSM has an extensive toolbox for developing the most economic and sustainable solutions. And DSM has extensive expertise in technology, IP and operations developed over a period of many, many years.

While there is great discussion around the concept and practice of sustainability, the quest for sustainable development will certainly be a key theme in the coming years. The world will soon be faced with the challenge of accommodating nine billion people who all want to live healthy and prosperous lives. It is therefore essential to find solutions to scarcity, security and other constraints - it is the only way to maintain stability and prosperity.

For pharma there is the opportunity to achieve sustainability with an outsourcing partner and manufacturing expert like DSM, whether they are licensing technologies to optimize their own biomanufacturing or leveraging our green chemistry to extend the life cycle of proven drug compounds.
In the biopharma space growth is still high and opportunities are all around. However, consolidation in the small molecule API sector particularly in the western countries is something that we see happening. Consolidation is being forced not only from a capacity perspective, but also for reasons of quality and safety. As global supply chains expand, the safety and traceability of ingredients and finished drugs, as well as the sustainability of these supply chains, become critical. The almost doubling of the number of warning letters that the FDA has issued this year seems to indicate and address growing concerns from a regulatory perspective.

The DSM "Quality for Life" seal is at the heart of what we do in demonstrating our systematic quality program. Quality for Life assures customers that the ingredients they are buying from us are safe in terms of quality, reliability and traceability. Moreover, they are manufactured in a safe and sustainable way.

Hendrik Baumann (CU Chemie Uetikon):

The limited number of new chemical entities (NCE's) in the pipelines of the big pharma companies on the one hand and the decreasing investments/fundings of small and venture pharma companies on the other hand, will change the custom manufacturing and fine chemicals business significantly. As a result the outsourcing volumes of those pharma companies will decrease, while CRO's and CMO's fighting for the same limited numbers of products and projects. This will have an influence to the profitability of the contract manufacturers and last but not least to the supply chain. From our point of view, it is a global and not a "western" problem.

In addition some of the largest pharmaceutical markets - for example Germany or Japan - are under heavy price pressure from the public health insurance system. The goal is to have a fixed price system for any medicine which is controlled by the government or fixed annual price reductions are requested (irrespective whether it is a new drug or a generic). As a result, pharma companies may lose their interest to launch new API's in such markets as they cannot keep their profitability.

A look into the pipelines of the leading pharma companies shows another interesting trend: The major API development direction is cancer, diabetes and CNS. The landscape is scattered and only few NCE's are or will be successful, most of them in small dosages or as individualised medicine, which means small volumes for the API producers.

Last but not least many of the CMO's will face dramatic changes in the legal environment, which will finally increase their costs of goods, key words here are GDUFA (US FDA fees) and FMD (EU directive). As the custom synthesis market is extremely diversified, where no single company has more than 3% market share, we will probably see a market consolidation in the next years.

The above mentioned scenarios will influence the business model of each single CRO and CMO. We still believe that a diversified product and project portfolio including "bread and butter" products in combination with operational excellence will be key for future success. Also we are convinced that the right small-midsized capacity, excellent customer service and high flexibility are the success criteria for the future.

Elliott Berger (Catalent Pharma Solutions):

Partnering and open innovation models are clearly becoming more significant in the drug development and delivery space as well. Resource constraints, a need to focus scarce talent on core competencies and priority areas, as well as increasingly challenging molecules in pharma pipelines, are driving large and small companies to partner with specialized technology and expert services providers. Catalent has seen a significant increase in cooperation at earlier stages of drug development, particularly in complex oral dose forms with challenging bioavailability, release, or targeted delivery profiles as well as in method development, scale up and manufacture of complex products. We can also see this trend in biopharmaceuticals and biosimilars, as well as in clinical trial supply solutions.

Larger companies are looking to supplement their capabilities with specific niche expertise, while mid-size and smaller companies are looking to partner for integrated solutions. Catalent has focused on developing a broad range of expert solutions and new drug delivery technologies as well as global supply capabilities explicitly to meet these needs. Our recent investments in drug development expertise and talent, OptiForm API optimization technology, OptiMelt hot melt extrusion capabilities and OptiDose flexible oral delivery technology, combined with global capability improvements in oral and biomanufacturing, are expressly designed to meet this demand for tailored partnership solutions.

David DeCuir (Albemarle Fine Chemistry Services):

Increased efficacy in the design, manufacture and distribution of pharmaceutical products will likely mean that dosages of new products will decrease as the products become more effective, but also, older effective products will stay on the market longer. This means that new "designer drugs" will require increasingly smaller campaign sizes due to increased efficacy and that effective generic drugs will be longer lived, and will compete for time in manufacturers' facilities. Consequently, the suppliers to the pharmaceutical industry will be required to make smaller campaigns of multiple drugs in their facilities rather than large campaigns or even dedicated lines.

Increased complexity of drug products will mean more opportunity for CMOs since these products will be more difficult to make and require additional steps manufactured under cGMP; even as large pharmaceutical companies increasingly outsource production in order to concentrate on core activities. Companies who can do process development and manufacturing, instead of either of these steps, will receive a disproportionate share of the outsourcing revenue in the future. As always, reliability in supply will be a key differentiator.

Aging populations with growing prosperity and access to information about pharmaceuticals will inevitably mean a larger pharmaceutical market in the future. This alone bodes well for pharma custom manufacturing companies. However, it will be increasingly difficult to bring new products to the market since those new products will increasingly have to prove that they are better and more cost effective compared to existing products. This means that while new products will be fewer, they will be longer lived. The most exciting aspect to this new supply chain is the customer's increasing ability to compare medications on efficacy, price and quality metrics that will necessitate positive changes for high quality producers of APIs. Lower cost but lower quality products will not be tolerated by the increased scrutiny of both regulatory agencies as well as a better informed patient population. This bodes well for reliable Western producers of high quality API with flexible assets.

Thomas D'Ambra (AMRI):

Recent issues within the global pharma market, including failure to fill pipelines to compensate for a number of key patent expiries, coinciding with prolonged economic recession in Western countries, are leading to changes in how pharma companies consider outsourcing. As a result, CROs and CMOs are under increasing pressure to reconsider their own business models, to ensure they provide the most appropriate service offerings for the changing industry.

Pharma companies have invested considerable effort into evaluating R&D strategies and programs over the past couple of years, which has led to massive layoffs of scientific R&D staff and many facility closures, particularly within Europe and the USA. On the one hand, this could mean fewer overall opportunities for CROs and CMOs, compounded by an increasing focus on biopharmaceuticals that means even less budget is available for traditional small-molecular discovery and development. However, I believe these changes could lead to greater demand for outsourcing: many pharma companies are now focusing on increased outsourcing to accomplish many of their R&D objectives, having eliminated key functions, staff and facilities.

Furthermore, these eliminated staff and resources are available to outsourcing companies. We are seeing experienced discovery and development scientists from large pharma taking positions in the CRO industry, providing a valuable pool of talent that outsourcing providers can use to meet the evolving needs of customers. Significantly, this means that the balance of expertise is beginning to shift from customers to suppliers.

In recent years, the lowest priced offering was often a key deciding factor when awarding contracts to outsourcing companies. However, pharma customers' changing needs are driving the development of new business models, including increasing focus on services being delivered on time and within budget; the need for collaborative advice and more strategic partnerships; the need to ease the burdens of project management; and the need for more flexibility, adaptability and quality. The ability of providers to adapt and respond to these industry changes will play a vital role in improving the success rate and outcomes at all stages of the drug discovery and development pipeline.

At AMRI, we have specifically developed our new service offering in response to the changing industry. AMRI Smartsourcing is designed to provide customers with the ability to customize our resources, technologies, geographic footprint and record of accountability and accomplishment. Our customers can create an ideal offering to meet the needs of their research programs, without the need to compromise on quality, productivity or timeliness.

Peter Pojarliev (Euticals):

For a second consecutive quarter, overall sales and earnings for many pharmaceutical companies have declined. The impact is a result of the healthcare reforms in most of the European countries in the last 4-5 years, the increasing generic competition and loss of revenues of expired top-selling products. Companies hit from the economic environment and its repercussions are using everything possible ankle from acquisition of businesses to geographic diversification to shore up their businesses. Cost reduction programs affecting their labor forces are spreading through the western world.

The industry is changing or is forced to change to maintain the pace of growth. Our customers are looking for establishing low risk supply chain with strategic partners in the sourcing area and manage a pool of few and reliable suppliers who can offer specialties and comprehensive services meeting their needs. Open communication and common understanding of the project goals and expectations are key success factors. Suppliers in their turn are in a need to diversify in terms of geography, products and services.

Euticals Group acts as a fully-fledged API, fine chemicals and contact manufacturing organization. We are a major player globally based with 11 facilities located in Italy, France, Germany, UK and the US. Our core business is and will remain the manufacturing and process development. We are also aiming at the forward vertical integration in dosage forms.

With our diversity in services, production facilities and our philosophy - customers come first; we are an ideal partner in a constantly changing market environment. Achieving what we promised and meeting customers' needs in timely manner help us build strong relationships and help our customers overcome an increasingly challenging market environment.