Filling the pipeline

The increasing cost of drug production is leading companies to use outsourcing as a cost-effective alternative. Graham Lampard spoke with Clive Bennett, Patheon's vp of international operations, about current and future trends

With more than 50 blockbuster drug patents expiring by 2005, pharmaceutical companies are under intense pressure to deliver new drugs. The cost of r&d, however, is soaring – almost doubling in the past five years. The estimated cost of bringing a new drug to market is more than US$600m (€680m), with companies often not seeing significant returns for many years. However, the market is expanding (see figure 1), and the question arises, how can pharmaceutical companies develop new drugs and bring products to market in a cost effective manner?

One obvious way is to join forces. Merger activity and restructuring have reached unprecedented levels recently, with most of the major players in the industry rationalising their manufacturing facilities and r&d infrastructure, and reducing overlap in their administration, sales and marketing functions.

A second way is by forming research alliances. Patheon estimates that research alliances tripled between 1994 and 1999.

A third way is to outsource. It can take 10 years to get a drug to launch and then, without technology-driven line extensions, revenues fall off quickly after patent expiry (figure 2). Add to this reduced patent protection times, and there is a need for increased investment in r&d to keep the new drug pipelines flowing.

It is estimated that the US market for outsourced pharmaceutical manufacturing is growing at the rate of at least 10-12% annually, and Patheon believes that pharmaceutical companies will continue to fuel much of this growth as they outsource an increasing number of products and services. "We believe that over the next ten to 15 years, as much as 50% of secondary manufacturing will be outsourced,' Bennett said. Currently, it stands at 15%.

'Changes in the industry and pressure on the pharmaceutical companies to deliver returns to shareholders mean they are looking at other ways of doing things. They are concentrating on the areas that generate the greatest value for their shareholders – drug discovery and clinical development as well as sales and marketing. They recognise that manufacturing is not necessarily a key strategic area, and consequently they are outsourcing more non-strategic products.

'The outsourcing industry is also becoming more mature and, in the case of companies like Patheon, developing a true global presence and reach. There are now a few partners out there who have the financial stability, scope and critical mass the pharmaceutical companies need, so they are feeling more comfortable about outsourcing and trusting companies with the intellectual property of their critical products,' Bennett said.

'Also, as a consequence of rationalising output [through mergers], pharmaceutical companies have to concentrate on their strategic sites. We believe that if they are increasing the manufacturing efficiencies in their internal site networks, they reduce the flexibility to respond to some of their own requirements.' However, companies like Patheon can bring that flexibility and deliver on time, Bennett said.

Outsourcing with a third-party partner offers companies:

Patheon manufactures in excess of 600 different products and 1,300 stock keeping units [different formats of the products], representing both otc (over the counter) and Rx (prescription) products in virtually all dosage forms. With more than 2,500 employees and nine sites in North America and Europe, it is well-placed to meet the growing needs of the international pharmaceutical industry.

'In terms of manufacturing capacity or number of employees, Patheon makes about as much product as the 30th biggest pharmaceutical company in the world,' Bennett commented. 'Currently, we serve more than 120 pharmaceutical and biotechnology clients, including 13 of the world's 20 largest pharmaceutical companies (table 1). Our clients consider that we are reaching critical mass that means we can supply them with the capacity, expertise and global reach they need.'

services provided

The company provides an integrated pharmaceutical service (figure 3), focused on accelerating the product development cycle. Expertise includes specialised sterile manufacturing capabilities such as aseptic processing, cephalosporin filling and lyophilisation, as well as solid dosage form general and high-potency and manufacturing. Bennett said: 'In the early stages of development, a company may not yet know product potency, so it must assume that the active is highly potent in order to protect the environment and the employees. As this can be expensive, companies will often outsource.

'This is a service Patheon offers that is, I believe, unusual in the industry. There are very few companies that can provide high potency manufacturing and development. It takes a lot of specialised equipment and environmental controls. Patheon has specialised facilities to handle highly potent compounds at its Toronto site, operates a fully segregated cephalosporin manufacturing facility in Swindon, UK, and has sterile lyophilisation capabilities at its site in Monza, Italy.

'Both lyophilisation and the use of cephalosporin require the use of highly specialised equipment, and again, we have to have special controls and handling procedures in place to ensure that we can offer such a service,' Bennett said.

Bought from Hoechst Marion Roussel in 1999, the Swindon site is typical of a Patheon acquisition.

'We want high quality manufacturing sites, and we have strict criteria when acquiring them,' Bennett said.

The site must have a high quality and entrepreneurial management team that can change the facility into a service culture; it must be flexible, we don't want a one-product building that cannot be used for any other production; it must have an excellent regulatory record, and must, basically, be accretive to earnings from day one', he noted.

'Quality is a fundamental and integral part of our business. Through our people and systems, we provide high quality products and professional services to the pharmaceutical industry.

Together, as partners with our clients, we are committed to developing new and innovative ways to reduce costs and lead times, while continually maintaining the highest quality standards.'