As the industry remodels its business structure, Jeremy Drummond, business unit director – formulated products, Aesica Pharmaceuticals, looks at how the changes are reshaping the contract manufacturing market
The contract manufacturing market continues to grow apace as pharma and biotech companies increasingly recognise the advantages of outsourcing their drug manufacturing requirements. The benefits of flexibility, swifter commercialisation, minimal capital expenditure and lower scale-up costs are the key factors behind the significant market growth.
Currently, the global contract manufacturing market is valued at US$78bn (€58bn) and is set to grow by a further 12% over the course of the next two years. While API contract manufacturing remains the largest contributor to the market, the formulated products contract manufacturing and packaging market alone accounts for $14bn (€10bn) worth of projects.
The face of contract manufacturing has altered significantly over the past decade and continues to change. Pharmaceutical companies are increasingly realising the benefits of outsourcing manufacturing and packaging, which were traditionally managed in-house. The trend was started by generic and specialist pharmaceutical companies that had limited human resources and assets that needed to be conserved to focus on the core competencies of developing new products and effective marketing.
While the industry has been affected by the recession, major changes have been taking place over a much longer period of time. The most significant of these is the realisation by Big Pharma that their massive infrastructures for development and manufacture are no longer sustainable in an environment where it is proving harder to bring new drugs to market.
This has led to the consolidation of many major pharmaceutical companies. The mergers have brought manufacturing overcapacity and large overheads into sharp focus. Most large pharma companies are now closely evaluating the long-term benefits of their on-site capabilities. The realisation is that sites have been running at a fraction of their capacity while trying to cover many different technologies with top-heavy overheads.
As pharmaceutical companies focus on maintaining profitability in the absence of new blockbuster products, they have also been forced to assess and evaluate their product portfolios. This has led to old generic products being sold off to generics companies, which then look for outsourcing solutions for their manufacture.
These generic companies have discovered that many old products are commercially sustainable even in their limited markets. Patients and doctors alike have learned to trust some long-term therapies in niche areas and seek the assurance of a brand name despite the onslaught of non-branded generic products.
Pharma companies are looking to contract manufacturers to provide them with specialist technologies and facilities. It is to their benefit that contractors can share the overhead of managing specific suites, whether that is for steriles, controlled drugs or high containment. With an increasing number of bio-pharmaceutical new chemical entities (nces) there is rapid demand for specialist aseptic filling and lyophilisation facilities. The biotech companies, the drivers of much of this innovation, look first to contract development and manufacturing organisations to provide this so they can avoid the risks of capital investment. They do not have to factor in time for capital investment, which could delay commercialisation and crucially extend the time to market.
The growth in demand for contract manufacturing has attracted many players to the market. Several companies have grown through acquisition of plants no longer strategic to big pharma companies and the marketplace remains very fragmented. There has been some consolidation and yet even the leading companies have only small market shares when compared with their key customers.
One aspect likely to differentiate companies in the future is financial stability. This had been highlighted by the recent global financial crisis and a number of contractors have failed to survive the burden of debt that they have accumulated in easier times. Those companies that plan to stay will have to be financially sound, sustainably profitable, and investing to stay ahead of technological and regulatory trends.
Contract manufacturers are also broadening their service offering. Initially, the trend was to cover development, manufacturing and packing, so that they could manage the whole product lifecycle; now companies are adding regulatory advice, supply chain management and artwork support to their host of services.
The benefits of developing products from the clinical stage through to final commercial supply with the same partner are likely to be ever more attractive to pharma companies. Such an approach avoids any duplication and allows the customer to remain with a partner they know and trust throughout the process. A rare differentiator is a contractor that can offer development and manufacture of APIs, alongside that of formulated products. The advantages of co-ordinated communication that runs in parallel with API development and the resulting formulated product should not be underestimated: poor communication, typically, accounts for a significant number of issues.
While a clearly defined proposition is essential, it is more important that the capability and expertise of the manufacturer affirms the proposition. As quality agreements can differ from company to company, it is crucial that the record held by the contract manufacturer is fully researched, quantified and qualified. Quality compliance records are vital, as is a history of positive FDA inspections. With the US accounting for at least 50% of the global contract manufacturing market, the need to demonstrate compliance with FDA standards is important.
The relationship between pharma customer and contract manufacturer is invariably a long-term partnership because of the very significant financial barriers to change. It is a big decision for a customer to move a product to a new contractor, whether that product is a generic or a blockbuster. The pharma company wants to be absolutely sure that the contractor will deliver to the company’s expectations and proposals and, as a result, terms of reference may be subject to several iterations before being agreed. At the heart of any partnership is honesty and integrity and this has to be clear and transparent to both parties from the outset to ensure success.
Once a partnership has been established, it is fundamental that contracts are put in place that, while documenting each party’s commitments, also allow each party the flexibility to react to the ever-changing marketplace and regulatory environment. The contract manufacturer must help the client to negotiate a simple and cost- effective path through new regulations and change management by the provision of value additional services.
It is clear that the contract manufacturing and packaging market for formulated products will continue to show growth for some time to come. The transformation of pharmaceutical companies from ‘discovery behemoths’ at the end of the twentieth century to nimble and agile sustainable profit generators for the new century is not yet complete and this will continue to be a key driver for demand. The successful contract manufacturers will be those who can remain financially strong while investing to adapt to their customers’ needs in the light of increased competition from generics and ever growing expectations from patients.